Welcome to the Restaurant Boiler Room, season 8, episode 3.
I'm your host, Rick Ormsby, managing director at Unbridled Capital.
Today in the Boiler Room, I'll be going through a sample discussion from a theoretical client who would call to ask about selling their company. We will go through the main questions, a sample first call valuation range, and then some of the timing and process to sell their business. This is a very common phone call I get many times a year, so I hope you will find it insightful and enjoyable.
The restaurant boiler room is a one-stop shop for multi-million dollar merger and acquisition activity and financial complexities affecting the franchise industry. We talk money, deals, valuations, and risk delivered to the front door of franchisees, private equity firms, family offices, large investors and franchisors on monthly basis. Feel free to find our content at Unbridled Capital's website at www.unbridledcapital.com. Now, let's enter the boiler room.
So thank you for listening today as we kind of go through a topic that's certainly near and dear to my heart, which is a basic first phone call that I might get from somebody calling out of the blue just to inquire about what their business might be worth and the process of selling a company and how we think about valuations. So I'll kind of take you through that. I think I'll hit most of the key topics, but my goal for this podcast is a lot of listeners, and I'm very thankful for you, some of them, everyone who owns a business at some point has the desire to know what their business is worth and how and when to sell it. I mean, it's just part of life in the big city, right? So, but most of the time you don't want to ask somebody and give the wrong signals unless it's someone you really trust. A lot of people who call us really trust us, but this may be just kind of like a. Plain Jane way to kind of access some thinking about the value of your franchise business. It applies pretty equally across all franchise companies and whether it's a restaurant, whether it's a fitness facility, whether it's any kind of service business in the franchise sector, most of the kind of thinking and discussion points are similar. And then of course, when you dig into the details, it becomes wildly different, brand to brand and deal to deal. But on the high level, with the first initial call, a lot of the discussion points are similar. So I'll go through that. Before I start, it is season 8, episode 3. What would I tell you? It's been, at the point that I'm making this podcast, we're talking around the 1st of May timeframe, 7th of May today actually is of 2026. It has been a pretty slow year. Our industry still continues to languish and struggle a little bit. I think I just saw a couple of companies with their quarterly results, a lot of negative sixes and negative sevens and negative eights. And and negative nines kind of same store sales over last year for the first quarter of 2026. We think that's probably happening in 2026 Q2 as well. There's been a definite, I use this word a lot, bifurcation of the haves and have-nots in our industry. Several brands are doing really, really well and sales are up big. But a lot of legacy brands, both inside and outside restaurants, but certainly in restaurants, are struggling right now. And the high gas prices that we've seen over the last, I don't know, call it 30 to 45 days certainly are not helping. As a young analyst, years and years ago, I was tasked with plotting a graph of gas prices versus restaurant sales, same store sales. And it was the clearest predictor that I could find really at the time, all those years ago, was when gas prices go up, restaurant sales go down. So your average American who's living day-to-day, paycheck to paycheck, has to allocate more money to gas, allocate less money to eating out. And even when it's small check size QSR establishments, it seems that they trade down to peanut butter and jelly sandwiches if they have to make the gas bill work. So these are things that I expect are going to continue to exacerbate. I don't know about exacerbate, but probably continue with the trend of difficult sales this year. I did see the CEO of McDonald's evidently came out today or yesterday saying something about how we expect the consumer sentiment and environment to get a little worse for the McDonald's stock. Well, I mean, just restaurant sales and their establishments. So that was news. I saw that on the front page of my feed today. So I mean, of course I knew that to be true already, but it's just interesting to hear that meeting being made publicly stated by the McDonald's CEO. And then we've had a couple of disappointing sales forecasts forward-looking for the rest of the year and some of the brands, the publicly traded brands like Yum and QSR and Wingstop and some of the others. So Wendy's certainly too. So we hope it'll turn around. I don't think there's going to be a slow or a quick fix to it. And then, you know, within this industry, there are real winners that are just really killing it and happy for some of those brands. I'm happy for the others. We are busy in the Taco Bell space right now. And it's one of the brands that's doing really well. I think their same store sales are either plus 7 or plus 8% in the US. last quarter. And they continue to just kind of zoom upwards. And that's a blessing. We're also doing a bid deal in the Chicken Salad Chick brand. And goodness, they're up 20% in sales, you know, like some of these businesses this year. So they're doing really well. Small sample size, of course, but another brand that's doing great. And then I saw Dutch Bros came out with their quarterly results, their public company. And I want to say I saw like plus eights with plus 5% traffic. They're doing big stuff right now too. So don't always want to focus on the doom and gloom of some of the legacy QSR brands, but some other brands are just doing great within our sector. And so I applaud them and the franchisees who listen to this podcast. I mean, congrats and keep it up. And if you're doing well in this environment, man, oh man, sky's the limit when things turn around a little bit from a consumer standpoint. So, okay, so I get the phone call, ding-a-ling-a-ling, and someone calls in, their franchisee, they haven't talked with them much in the past. or at all maybe and they just want to ask some basic questions about the value of their company and then usually I'll start high level with kind of a general discussion on valuation and then I'll talk about the specific valuation of their company by asking a couple of questions. And then that valuation gets typically within 10 to 15% of what a really deeper dive analysis would be where we gather all the information and give it to my team and then they go through it all, right? So, but that's what happens when you've done something for 25 years. You just, you typically know it's a long time to do something. So that can get within 10 to 15% typically just in a quick phone call. And then we talk about timing and process, which can always surprise people. So as we start off, I talk with valuation first off generally. Valuation of someone's company, regardless of what it is, you think of things like the brand is probably the first thing I think about. There's a lot of nuances in a brand and the brands brand to brand are very different from one another. For people who don't know much about franchising, I mean the difference between like a Chick-fil-A brand, which has heavy, where the owners are more like operating partners and where there's not much financial risk, for the franchisee and corporate is involved and owns the real estate and also a majority of the business, like that's a way different franchise model than let's say, just throw a brand out there, but let's just say like Hardee's, okay, where you have the franchisees kind of have more independent ability to make decisions under the guidance of the franchisor, but the franchisor doesn't participate in the actual business itself unless of course they have to, but other than like in the marketing and royalty phase of the business. So Across these concepts, you have wildly different types of brands. Some of those differences make doing a free market M&A process very, very difficult. It's hard to do that in Chick-fil-A. McDonald's is a similar one too because they own and control the real estate. And so they have a typically a very heavy hand in the actual decision making of who can buy and sell. That's the first thing I think about when I hear someone calling is like, what is the brand and what's the brand's general structure and makeup in terms of allowing new franchisees and existing franchisees to come into the system? And then what is the free market or non-free market kind of situation with that brand, if that makes sense? Assuming it's, and call it, this is a guess, but let's say 70 to 75% of the brands out there operate more of the free market approach where you sign a franchise agreement, the franchisor takes the royalties and the advertising and marketing money. You're pretty much an independent business owner. Otherwise, under some guidance, you have to like fly their mark. You have to follow their processes, order food from them in many cases. and adhere to their standards and such, but you operate a little bit as an independent business owner, right? And then when you make a decision to sell a company, you have quite a bit of latitude subject to their approval of the transaction and also their right of first refusal. and many franchisors will decline a transfer if a buyer does not meet their criteria. If the deal is out of whack from a financial leverage situation, most franchisors will step in and say, we do not approve because you don't want a buyer to be, you know, straddled with too much debt and not be able to meet their obligations for the future. But otherwise, you know, assuming the buying franchisee is in good standing, if they're an existing operator, there's more of a free market approach. That's probably, you call it 70, 75% of the brands operate So that's the first question I ask. If the brand is indeed that type of a brand, then that's check. We can do business with you. have a free market. We can find buyers for your business. Next thing I kind of assess internally about the brand is, does this brand, from what I know, want new franchisees versus existing franchisees? That would be a key question. If they do not approve new franchisees generally, we're forced to go to existing franchisees only, that may narrow the scope of the buying universe, probably will. And depending on how well the brand has performed, it may or may not affect the valuation of the business. I can think of two different examples in my head where the franchisor in a couple of brands, I won't name them, do not want any outside franchisees in the system. Matter of fact, they fight really hard to have no new franchisees. In that particular situation, if we're going to take a really attractive assignment, there may only be a universe of 5 to 10 people who want to buy it within the system versus another 5 to 10 outside of a system that want to get into the new brand, right? So that's something that I need to know pretty quickly when I talk about the brand and ask about that. And it affects the brands differently. If A franchisor is that way and a brand that's performing really, really well, there's no major impact at all in the valuation of the business because a lot of the internal franchisees will want it. But if it's a brand that historically has struggled and the existing franchisees are not well capitalized or they're overleveraged because of poor performance or whatever it would be, but we're stuck with dealing with those types of buyers. They typically are the ones who are jaded and maybe they're grouchy. Maybe the system is comprised of older franchisees and they don't wanna pay a big price or even what I would consider a reasonable price, then it could absolutely affect the value of your business in a negative way, right? So that's something to keep in mind as well. So I asked that, so we try to size that up. If it's a brand that is really catering only to new franchisees, And then I ask myself, okay, is this a brand that right now is healthy enough to go hit the debt markets if a buyer buys the business and makes an offer on a business and then goes calling around looking for 70% loan to value loan? I mean, is this the type of brand whose performance warrants that type of a loan from someone who's outside of the system and trying to get into the brand for the first time. So I think about that a little bit. And so some of the brands also want new franchisees because they want to goose them with real big development obligations. Like they've got this corporate edict where they want to bring someone in and they don't care how many stores they have. They may just not even care whether they have one, buy one or five stores, but they want to saddle them with 20 new development obligations, right? Because of their, maybe some sort of a corporate mantra to build new units. So that becomes something important to know about the brand specifically, like what's their development slant? Some brands are like, hey, we don't expect much development. We work with the franchisee and we want to partner with them. And when there's a site that makes sense and this person buys this business, we're going to approve it deal by deal. And so that's great. And then there are some other brands that are like, hey, if you come to us and you're a buyer and you're going to buy 15 locations, we're going to try to hang you with 15 more locations over five years in a development obligation that may or may not be realistic. And so those kind of over the years, you kind of know the general tact on the different brands and how they operate. If it's a brand I'm not familiar with, we ask around because it's a small industry. And that has a material impact on the valuation, as you might guess. And then you also have the guarantees with the brand. Some brands may require personal guarantees no matter what. Well, that would kick most professional investors, private equity firms, and most family offices out of being able to buy in that brand. Like if you're a brand that says, I require a personal guarantee for anybody who owns over 10% or more in this franchise business, then there's no exception to that rule. I can pretty much assure private equity firm is going to offer that guarantee. So other brands are not that way. And most brands, especially ones that have invited institutional ownership into their systems, have a criteria by which they work, where in many cases, the private equity firm in lieu of a personal guarantee, if their operator who owns 10%, let's say, there usually has to be someone who personally guarantees 10% ownership. And then you might have somebody, let's say, the franchisor might say, okay, give us a year or two of a line of a credit, like a line of credit or something that's unencumbered that you guarantee or promise to us in lieu of a personal guarantee for the majority share of your business. And private equity and family office groups typically work around that pretty easily. And so that's typically a workable strategy and one that you're starting to see more and more, but it doesn't really exist in some of the newer brands as much, right, who have focused instead on more mom and pop or mid-level first generation owner franchisees. So that's another item that goes into the brand. And that's a lot. Like I'm sitting here listening to myself talk and it's been like 15 minutes and that's all that goes into my head when I ask one question, which is like, what brand are you calling about? So that's how it goes though. And then from there you think about, okay, what's the performance of the business been? I'll talk to clients and I'll say, okay, so you own Bill's Chicken. Okay, you know, just to make something up. So Bill's Chicken, so how have you done in Bill's Chicken in the last couple of years? How are, generally speaking, your sales and your trends versus, and how's the franchisor been doing? In many cases, I know what the franchisor has been doing, but of course you have these little micro pockets of areas in our beautiful country where like things don't operate the same in Southern California as they do in Oklahoma or South Carolina, right? So you might have in those three different geographies, like totally different results business to business, even though nationally, we all know what the performance, same store sales wise, is of the brand. So you need to know what the performance of the business is. If it's a business you don't know, I don't know very well, I'll ask, like, how are you doing over the last three years? Paint me a picture of how the business has been performing. This is really important, especially in what I'd consider to be a down and difficult market that we're in, generally speaking. outside of the really great brands that are performing awesome. If you're in a legacy brand that just hasn't been achieving much recently, your recent performance is a huge indicator of whether or not we can sell the business successfully or not. So I'll sit here and camp out here for a couple of minutes and talk about the performance of their business, ask about their same store sales, ask about the three-year trends, listen to how the business is doing generally versus what I know it's doing globally as a company. and then kind of talk about the risks and opportunities there. We talk about geography. I mentioned that just a minute ago, but it's very difficult, if not impossible, to sell businesses in 10 to 15 of the states around this country now. And I mean, call it what you want. I'm not trying to be overly political, but if you've got a business in Minnesota, I mean, good luck trying to sell it. Business in Oregon, the business, you know, these, a lot of these states are very difficult places and money speaks, right? So when you have a business, you might be surprised to hear that a business in one of the difficult states might have struggled for one offer when the exact same business and the exact same unit economics may have 10 offers in another state that's adjoining it. So I have to ask about geography pretty quickly in the discussion. And with larger franchisees, I need to hear who are stretching multiple states. I need to know if some of their stores stretch into some of the difficult states to do business in, because it absolutely affects the valuation and may affect the valuation in the geography by as much as a couple of turns of EBITDA. Can you imagine? A business that would be worth 6 times EBITDA in one state could be worth four times EBITDA in another. It has become that pronounced. It was never that way five years ago, but the policies and just some of the political situations going in some of these states, people are running away from them. And then consequently on the other side, some of the other states like, and the ones, Florida, Texas, Tennessee, the Southeastern states, and a lot of the Midwestern states, especially in Florida, Texas, and Tennessee, if you have something for sale, like someone will jump in front of the train tracks for it typically, right? They want to be in those states. So it increases the value if you're in one of those places. You want to look at the size of the transaction. So you typically will ask that quickly and get a perspective. Now, when I say size, we could talk about size in terms of unit count. We could talk total sales. We could also be talking about EBITDA. I kind of think of those things equally. So I'll ask that question to get to, in my mind, the answer to all three of those questions when I'm thinking about size. From a high level, anything you want to sell, you probably want to be able to have We used to say 7 locations because that was enough to put an area code into the business as an owner and not have to operate it yourself. That number is probably now more like 10 locations, right? But once you get to 10 locations, roughly speaking. And I mean, 10 locations if you're a Subway franchisee, that's like 5 million in sales. 10 locations if you're a Taco Bell franchisee, that can be 25 million in sales, right? 10 locations if you're a Chick-fil-A franchisee, which I don't think anyone has 10 stores in that system, but if they did, it'd be like 60 million in sales, right? Just examples. So that's not, you know, unit count doesn't always tell a story, but it typically gives you some directional idea of somebody who would have the ability to sit in their office in Utah and buy a business in Mississippi. If it's three locations, it's probably not going to be as attractive to somebody like that. But if it's 10 or more and they can operate it remotely, and now that's if the franchisor allows that to happen, then it opens it up for kind of a nationwide search. And that makes a difference. So you think about that, like in terms of sales, I mean, people, if you have at least what, $15 million in revenue, you certainly cross the threshold. And then when you get to $50 million in revenue, you cross another threshold. But most of the buyers will think about applying a GNA, like as a certain percentage of sales against the business. And that'll be how they operate it and pay their management teams and handle the accounting and legal and all the things that have to happen above the restaurants or the businesses themselves. And so you typically have a break. if it's at 15 million, maybe a little bit lower than that, 10 to 15 million in revenue, it's the same kind of thing. I could have enough GNA to this business to not have to be in the restaurants or in the. fitness locations myself operating these businesses. And then when you get to around the 40 to $50 million range, you can typically start to build like a really good team. You can have a CFO, you can have multiple operators, a brand president, these kind of things that forge you the ability to build and scale a bigger business. So that's important to me. EBITDA is another one. There's a lot of 50 unit businesses out there right now, 100 unit businesses that have almost no EBITDA, right? So even if you have a big business in terms of sales, you may not be profitable. If it's a big business of unit count where you don't have sales or do have sales, but it's not profitable, that doesn't do you any good. And that may be, you know, and there's a big movement afoot in our industry, and I think I've talked about this before, probably at the forefront of doing this, to say that like large businesses are now getting broken up again in this M&A cycle. It used to be that people are consolidating, consolidating, consolidating. And some of that's still happening from smaller franchisees and newer brands especially that are looking to grow and are acquisitive. But on the legacy side, whether the businesses are really, really strong and trade for huge prices or they're really, really struggling, both of those are oftentimes getting broken up if they're bigger than 30 or 40 locations now. And in this case, if it's a bad performing business, think about if someone's really going to take on 100 units with $150 million in sales that has 3 million in EBITDA. I mean, no one's willing to do something like that, really. I mean, maybe some would be, but not many. Because for that 3 million, or let's say it's even $5 million of EBITDA, think of the obligations that you have against that business with the leases and with the franchisor's personal guarantee against the royalties and With all the costs and administrative fees of running a business like that, the risk reward of operating a business like that is way upside down. So we particularly at Unbridled are going to say like, you're going to have to break that business up, that 100 unit business into three or four chunks of 30 to. 25 to 35 stores and find somebody who's willing to buy a $2 million EBITDA business, but is not afraid of being saddled with 30 leases or the guarantees that are appropriate for a business like that instead of 100 of them. It just is a practical matter, it becomes very difficult to find someone who's interested in that. And even on the side where like things are really killing it and you've got this big business that's doing really well, 100 locations in many situations, that business in today's world make that $500 million. Whatever the number is, if it's going to be that expensive, your only buyer anymore is now a private equity group. And the private equity groups have gotten way more conservative in our industry over the last couple years. Their offers are way on average, way fewer. I mean, we used to probably 90% drop in private equity offers on our really large attractive businesses that we sell. That's just temporary, probably not forever. And then whereas five years ago, they were the ones that were more sure things to get the financing and get the deal closed. It feels in many cases that when they do make offers, they're highly contingent, a lot of due diligence and retrading is these are the things that are all part of what they do. So it's a little less certain. So all of that comes into play. Now with the size, management team. Management team is important. So I want to listen to who's the operator of the business. If it's a small business and it's a first generation franchisee, that's great. How active is that first generation franchisee in the business? Is that person acting like a glorified area coach? That may have an impact on who can buy the business, right? And probably limits the business to be sold to a strategic nearby franchisee who can just take the stores and already has the management If it's a large business that has a great management team, 200 locations and somebody who's at the helm who's been in the brand for 30 years and has great results, that business can sell to anybody, but obviously it wouldn't be as appealing in its entirety to a strategic buyer who already has their operations team in place and probably doesn't want to have two key operators for the various businesses. So these are things to think about and then there's every iteration in between, but I listen for that. I listen for the quality of the financials. This is really important, especially in a market that's been very difficult to borrow money and sales have been challenged, profits have been challenged over the last couple of years. It's not one like the good old days where you just produce some internal P&Ls, copies of your leases, and then the franchisor can verify the royalty sales and then you can compute what the sales are. and then you just walk off into the sunset with a check from a buyer and then everyone's done. I mean, there was a lot of that with smaller transactions only when I first got in this business all these millions of years ago. Now, just doesn't really happen. So if you don't have current CPA reviewed financials or current audited financials, it's going to be difficult to sell your company. And if you're a smaller company and you have neither of those and don't have tax returns that you can provide, like what are you expecting a buyer to buy? Like your buyer universe shrinks in a whole lot of hurry to existing franchisees nearby who are willing to take the risk because they've been in the business so long and they can look at the sales and profits and they've got enough borrowing capacity with their existing lenders to just take on the deal with less quality information. I'm talking now to the newer franchisees as you think about building your business and selling it. Like that's a potential risk and it affects the buyer pool. And where it really affects the buyer pool is if you have like a franchisee who's got like 15 or 20 locations, they may have like a $30 million company and they're a tweener, right? They like don't do the franchisor may not require CPA reviewed financials. So there's no current review. There's no audited financials. And then the franchisee like has tax returns, but they're in a partnership and they're unwilling to show the tax returns. You know, like there's a lot of people in that zone in the middle. And that becomes a really difficult place to sell a company for a really high price. You know, now a buyer who's a institutional buyer may bring in a quality of earnings, but think about how a quality of earnings looks when you have a seller who doesn't have all of their financial controls in place. So that's something I just listen for and pay more attention to now than in the past, since the lenders have gotten noticeably more difficult in their underwriting. We want to make sure that the quality of the financial information is good. I think to myself, the reason for selling what is your reason for selling? I listen for this more than I used to. But there's a lot of reasons someone would want to sell a company, right? Maybe one is they're trying to monetize a big gain and they're trying to sail off into the sunset. You know, they've been designing their business over the last 30 years to sell it. But now just happens to be the time because their business is doing really well. Now this happens to be a lot of the clients that we represent. We're heavy into that type of a client. And I love those types of clients and we love to make their dreams come true. I told our team the other day, I said, we're like Disney, right? Like, you know, you think about your little daughter or son running to the Magic Kingdom and seeing the princesses or, you know, going to see Mickey Mouse or whatever you're going to do. Like that's the stuff that like Disney makes your dream come true, I guess, right? I'm not a Disney fan by any means, but it makes kids' dreams come true. that's kind of what we're doing too. A lot of these operators who have thought about their businesses in the right way and have built their businesses systematically and have put their heart and soul and sweat and tears into their business for all these years, they are, when they're ready to retire from this business after 30 years, they're looking for their dreams to come true and all their hard work to come to fruition. And that's a beautiful component of our American dream. And so that's a great reason to sell a company. I understand that reason very much. Sometimes you have a death or a divorce or just unfortunate situation, a health diagnosis and that just rolls through, 15 to 20% of the deals that we're talking about. It just happens. Life happens, right? We're never guaranteed tomorrow. Then you have people who are selling to get away from a partnership or to get away from a bank guarantee or the business isn't going well and the franchisor is putting pressure on them or their lender is giving them trouble. You know, these reasons to sell typically to me put up a yellow flag. It tells me this is not a clean transaction. that there's going to be a certain amount of pain and other constituents possibly involved than what the client is initially telling me. And so then when I hear that, I'm thinking to myself, okay, I just kind of put a little yellow flag in the back of my head. And then I look back to these questions like brand, performance, geography, size, management team, quality, financials. And I kind of, if those aren't all green, then the reason for selling, if it's yellow, now becomes a red flag, if that makes sense. And unfortunately, we've had more yellow turning red flags in the last couple of years in this marketplace. Couple other things I think about, like this is a big one and it's a subjective one. And this is also like green, yellow and red flag, but how reasonable are you as a client on the initial phone call with me? I don't want to sound like I'm like screening hard or snobby or snooty or anything, but the reality is like these deals take hundreds and hundreds of hours to do. And someone in our situation can only take a limited number of assignments and we have to, and our company generates historically a 90% success rate and I want to keep that success rate. So probably as much as all these other things I've talked about over the last 30 minutes, they are probably collectively equal to that one question, which is how reasonable are you as a client? And typically we'll maybe take a bit of a pass on, we'll take a yellow flag on the reasonable client if everything else lines up green. If we have a mixture of green and yellow flags and the client's yellow, probably not an assignment for us. If the client's a red flag, I don't care if they're selling gold at Fort Knox, we're not going to take the assignment. And if there's yellow and red flags throughout the way, a flying green reasonable client, best for client ever, maybe can turn our thoughts around about taking the assignment. But these are just things I kind of talk about with you. So if you're someone who's thinking about being a client, let me just kind of give you some coaching. Because plenty of people are dropping out of our M&A industry over the last couple of years as transactions have dropped. And so there are, I would say, fewer M&A advisory firms who are really good at what they do than there have ever been. Now, there are probably double the advisory firms as there used to be, but almost all of the ones that have come into the system don't have experience and shoddy track record, can't believe what they say, part-time people who are playing golf all the time, whatever in the heck it might be. But there are fewer and fewer really reputable M&A advisory firms, in my opinion. So we are at a premium when the deal does come. And you'd need to show yourself to be a reasonable client if you want to attract a good advisor. I just think that's good common sense. You want to listen to what they have to say. I typically will, if I hear someone that just has unrealistic expectations of timing, but typically not timing, but valuation, won't listen to the value that we say that the business is worth. Well, gosh, we don't really want to work with them. If our team asks for some due diligence information to underwrite the business and either they're unwilling to provide it or it comes slow or it's really jammed up in terms of like the formatting and stuff with it, I mean, you kind of start to wonder if this is a yellow flag type of client. What you're trying to also get at is in the middle of the deal, I mean, it's like being in the trenches in World War I, you're gonna be taking shots and you're gonna be ducking bullets. I mean, not just once, but lots of times during a six to nine month transaction. Like what kind of a like wingman do I have in the bunker with me? Like, is this somebody who when the first issue goes awry, they put their head in the sand like an ostrich or they want to walk away from the deal or they're going to be unreasonable and take a stance that's untenable when you have to negotiate and you have to kind of meet in the middle on some things to keep a buyer and a deal going? Or is this somebody who's just going to be principal? than not listen to good sound advice, right? So you can get in an hour long phone call, you can really kind of get a decent idea of what that looks like. And so those are some of the initial things. And as I think about this and as I look at the timing on this podcast, I think I'll probably just go another 5 minutes or so talking about this. And then we'll just cut another podcast. that goes through the specific valuation and the timing and process, because we could probably go through that over the course of 30 to 45 minutes too, and it'll make easier listening for you on the other end. But like thinking about that is important. Now, some of the things that I would tell you that I look out for in addition to a client's reasonableness, like as I had this initial call, like specifically, how are your sales trending right now versus last year in the last six periods. So this is something that, and then give me a good idea of what's gonna happen to your business in your opinion, no one knows the future, in your opinion, what's gonna happen for the next six months over last year with your business in sales while we go through due diligence. Because you put the business on the market and find a buyer, and then all of a sudden, period that comes out, successive period, let's say you make the deal with the buyer in April, okay, or this month is May. So let's just say May, and the business doesn't close until October. Every month you're having to update your P&Ls with the buyer if you're a seller. And if it's down like 5 or 6 or 7% or more, it just becomes very, very difficult to close the business, especially in an overall down market where lending has gotten tighter. It's hard to do. It's just very difficult to do. And matter of fact, I've said it kind of famously that I'm not sure that I've seen a whole lot of businesses over my career that have closed successfully when they were down outrageous amounts of sales on a period by period basis while we're going through due diligence. So I wanna know that a little bit. Like what do you expect will happen to the business as we're going through due diligence? And because the buyer's gonna get updates and then the buyer's gonna have to make a decision on what they do if sales are down and some of them will retrade the business. Others, their lenders are gonna change the terms on them and you get into a difficult situation that persists throughout the deal and oftentimes leads to an unsuccessful outcome. So that's something that I look for. Just brands too, like I talked about earlier, where corporate heavily influences the outcomes. might be interested to hear that several of these franchisors have fairly active eminent in-house advisory teams. And there's been some limited success from those advisory teams in the past representing franchisees. There's one thing if you have a corporate M&A team at the franchisor and you're selling corporate assets to franchisees. I mean, that's obviously something that's a tried and true method over the years that's worked for multiple corporations. I mean, some franchisors, especially smaller ones, may hire a third-party advisory firm like us to sell restaurants or non-restaurant franchises from the corporation to the prospective franchisee. That happens at times. Many of the big ones have their own internal M&A departments to do that work themselves. And those deals happen successfully all the time. But like for corporate offices who have a staff that is trying to actively help a franchisee sell their business, I would just say that there are all kinds of conflicts of interest and lots of examples of failure. And few examples that are successful and the ones that seem successful and get closed, go visit the deals several years later to see how the franchisees are doing. So it's not a 0% of the brands that we know that don't have that structure, right? There's a couple that absolutely do. They have an internal team that will help the franchisees sell their company and they're of course incentivized to find the buyer that they want the most. And that buyer typically is one who in many cases is willing to sign up for the most ridiculous development obligations and may be the most, not the one that can easily close the deal at the best interest of the seller, but instead one that the franchisor gets a buyer who's willing to, you sign up for a lot of development obligations. And that may be a bit of a conflict of interest, which is why historically I've kind of said that, it feels to me that it can be a conflict of interest when the franchisor wants to play matchmaker between franchisee transactions. That's just one man's opinion. But that's something that we want to be mindful of when I talk to somebody and I assess. The brand that they're in. And then just to kind of dovetail back to a couple more topics, really interested in new franchise, the brand's attitude towards new franchisees coming into the system. We love working with new franchisees and existing franchisees. But not being able to work with one of those two parties makes it pretty difficult. I mean, some brands don't really want to work with existing franchisees because of the, they won't sign big development obligations and then maybe, a lot of them aren't growth approved and they're trying to bring in new blood. That makes a deal difficult. Or if on the other end, it's a brand that's been struggling, not the one's doing great, but a brand that's been struggling in sales and profits and they've got, but they're bringing in like, and they're not allowing new franchisees in the system and you're dealing with existing franchisees who are kind of older and grout and more conservative about the brand that they've operated and they know where all the bodies are buried. They may be the ones who are like, I think it's only worth four times EBITDA or 3 1/2 times EBITDA instead of somebody who might be younger and fresher and outside and wants the opportunity to buy a business and build it. And they may see it being worth five times EBITDA or whatever, you know, if it's a better brand, it might be 8 times EBITDA, whatever, but those things matter. And then One thing I've noticed along the way is, as I kind of assess these things too, it's not always true that this is the case, but first generation or second generation family-owned franchises are typically those, more often than not, are great clients to work with. They typically, not all of them, they'll listen to sound advice. They don't have the experience of, and then don't want to have the experience of being an M&A advisor. I mean, why would you? So they'll listen to good professional guidance. Oftentimes, the larger franchisees and certainly the private equity sellers don't fully listen all the time because they are professional sellers, operators of businesses and sellers. And they've got a lot of experience across a lot of industries. And some of their perspectives are great, but a lot of their perspectives are narrow and don't apply really well to a narrow industry of franchising. And they bring those perspectives to the table and sometimes they can be detrimental to getting a deal accomplished and cause a lot of stress for no reason. So I listen for that a little bit too. The type of seller is important. If nothing else, like What type of seller are you? a financial seller? Are you a private equity seller? Are you a large seller? Are you a small seller? Are you a family owned business? Are you a one unit operator? I mean, those kind of questions come with all kinds of sidebar discussions. yellow flags, green flags, and red flags as you assess the right client. But overarching everything is someone just being reasonable and listening to good advice, someone operating a brand that doesn't have really, really poor long-term trends in it with a bunch of store closures, poor, you know, kind of news in the news. They got poor stuff going on. Sales are in a bad shape, you know, stock prices in the tank, like those kind of things. So you look at is the person reasonable? Is the client reasonable? Is the brand one you can do business in? Where is it located? The good news is there's typically a buyer for whatever type of business it is in terms of size, whether it's big or small. But like I said earlier, some of the large businesses with very little EBITDA and even the large businesses with lots of EBITDA now benefit on the one end just getting the deals closed, but on the other end getting the highest price by being split up so that they can be digested better, either from a risk standpoint with lots of leases and low EBITDA or from a huge price standpoint, fewer buyers that can afford it, by big getting these businesses split up. I hope this has been helpful for you today, and we'll call this valuation number one, or discussion with seller number one, and I'll come back next month with the other pieces of it, which we'll talk about. We'll take two particular examples of two different businesses, and I'll take you through what the value way, how to value them. We'll talk about like, what in the particular P&Ls, the lease the EBITDA, the remodeling, the sales trends, like what particular things to look for as we talk about a quick business discussion with somebody to kind of assess what the value of their business is. And then I'll talk with you about timing and process and some of the hiccups that happen along the way in order to make a decision of when the timing would be right to sell a business and what kind of staffing resources and money you need to put against it. I hope you found it helpful and God bless. Talk to you soon. Thanks so much for entering the boiler room today. You can find our podcasts on iTunes, Google Play, Stitcher, TuneIn, and Spotify. If you like these podcasts, please listen, rate, and review. I also encourage you to visit our website at www..unbridledcapital.com for the best franchise M&A and financial resources in the industry. Our website includes webinars, podcasts, videos, white papers, and a list of our past M&A transactions. Please note that neither Rick Ormsby nor Unbridled Capital Advisors LLC give legal, financial, or tax advice. These podcasts represent opinions that have been prepared for informational purposes only. We expressly disclaim any and all liabilities that may be based on such information, errors therein, or omissions therefrom.