0:3:47.126 --> 0:4:6.726
Rick Ormsby
Very interesting stuff. Well, it's almost 2:00, so we'll we'll kind of start getting the ball rolling a little bit slowly here. But I just wanted to thank you for those of you who will hear, you know, hear this on podcast progressively becoming a bigger, a bigger force here. We we want to thank you for listening and tuning in this we're in our 7th season of.

0:4:6.766 --> 0:4:25.846
Rick Ormsby
Of our podcast platform. We were cool to be doing podcasts before. It was cool to be doing podcasts and very thankful for those who listen. And then you know, just a quick update here, you know, here we sit at the beginning of the fall, end of the summer when naturally it's a time when conventions start happening and.

0:4:25.926 --> 0:4:45.646
Rick Ormsby
You know and people typically start dusting off their summer plans and you know and kind of kind of you know focus on M and A and some of the things and lending. And so it's a natural time when business starts to pick up a little bit for us usually around this time and then in the the the late winter, early spring are kind of the two heaviest times of the year. So we are indeed.

0:4:45.686 --> 0:5:1.286
Rick Ormsby
Seeing that kind of a pickup in our business, probably 7 or 8, you know new reach outs and phone calls over the next over the last week or two. I don't know how those will turn into assignments or not, but it's a notable increase of where over where we've been over the last three months. So it makes us a little bit optimistic and.

0:5:1.566 --> 0:5:16.806
Rick Ormsby
And so I'll pass that along. We we still expect it'll be a bit of a an up and down kind of time as we get to the end of the year, but but but the hope is that 2026 will be a better M and A year, especially as we move towards the end of this year and get some momentum into early 2026.

0:5:17.366 --> 0:5:34.966
Rick Ormsby
And the lending market is of course a huge part of getting the M and A market you know back to full strength and and that's why we do this lender survey and we discuss the results and and and no better than to have an expert like Mike Egan at Synovus here to kind of go through these survey results with us.

0:5:35.526 --> 0:5:38.526
Rick Ormsby
And so, hello, Mike, how are you today?

0:5:37.726 --> 0:5:51.886
Eagen,Michael E
Hello, doing well, doing well. I'm honored to be here again guys. It's it took a little time off and you know we a couple of seasons of The Bear have rolled out there if you were looking for a restaurant drama.

0:5:40.126 --> 0:5:41.86
Rick Ormsby
Excited.

0:5:52.486 --> 0:6:9.326
Eagen,Michael E
If not, you could just focus on the the bank lending and restaurant M and A marketplace, franchise marketplace over the past couple of years, plenty of volatility. I'd say that I I'm feeling a little bit more bullish about the future.

0:6:9.966 --> 0:6:26.406
Eagen,Michael E
Some of the uncertainties still sit out there. There there's all sorts of new uncertainties, right? So we're not out of the woods yet into a much more normal a rhythm of M and A activity and and buyers and sellers finding their their.

0:6:26.646 --> 0:6:41.686
Eagen,Michael E
Equilibrium when it comes to price. But as I've often said, you guys are one of the leaders in our space. You are my best leading economic indicator as to what's coming up in terms of M and A and what you're seeing out there and.

0:6:43.166 --> 0:6:58.886
Eagen,Michael E
And we've had a, you know, a bunch of paradigm shift, you know, where legacy brands were somewhat golden and unstoppable in the past, have now found spots of weakness. Newer brands are replacing them in some cases, but.

0:6:58.966 --> 0:7:13.886
Eagen,Michael E
For the lenders out there who've been through multiple cycles, it's just a matter of picking your spots and finding the right relationships, the right place to take credit risk and in order to be successful. And so we've been, we've been successful in Synovus in doing that.

0:7:14.166 --> 0:7:15.486
Eagen,Michael E
Thank you for having me.

0:7:14.566 --> 0:7:34.86
Rick Ormsby
Fantastic. No, you're welcome. Glad, glad to have you. And so let's jump right into it. Format here is we've got 16, I believe, questions. We're going to try to do rapid fire. You know, we're going to do the survey result. We're going to spend a couple of minutes talking about it and then move on to the next one. It should, you know, go pretty quickly and I'll refocus this if we get too.

0:7:24.246 --> 0:7:25.166
Eagen,Michael E
Mm-hmm.

0:7:34.166 --> 0:7:53.846
Rick Ormsby
Long on one point or another. And then if you have any questions, feel free to raise your hand and we'll try to address them. We'll also send out, you know, kind of this survey to anybody who signed up. So and it'll also be on our website at unbridledcapital.com if you want to get it there. It usually takes 48 hours or so to get on the website. So with that being said.

0:7:54.86 --> 0:8:7.686
Rick Ormsby
Derek, why don't we fire away? Let's let's go to question number one and see. OK, so this question was, what is your opinion of the operating environment right now? OK, so.

0:8:6.566 --> 0:8:19.246
James Derek Ball
Just as a quick, just real quick before we jump into the questions, we had about 30 total respondents here and this went out, Rick, what, 2 weeks ago, just for some quick background.

0:8:17.686 --> 0:8:18.126
Rick Ormsby
Yeah, uh.

0:8:20.166 --> 0:8:40.46
Rick Ormsby
Yeah, that's good. About 30 respondents, you're absolutely right. And it went out probably let's call it three or four weeks ago. So it's so, so it's fairly so, so, so to your point it's it's you know we've got to what we feel to be a decent amount of of responses to kind of make a sample of this whole thing and it's fairly recent right now the one thing that we that.

0:8:40.166 --> 0:8:59.606
Rick Ormsby
That that we put this thing out just at the end of of Q2, didn't we from a lender's perspective. So their opinions may be a little bit in arrears than we all know that the lenders are usually three months at minimum behind where we sit when we look at current financials and current conditions and that's what Mike kind of referred to a little bit earlier, so it.

0:9:0.166 --> 0:9:9.886
Rick Ormsby
We'll kind of juxtapose all of that as we talk through some of these items. But Derek, why don't you go ahead and read these things and you know and and and you can see it better than me. Go ahead.

0:9:11.526 --> 0:9:28.126
James Derek Ball
All right. The question, question one was what's your opinion of the operating environment right now? It looks like, you know, most or almost half are saying it's kind of difficult, but improving, you know, about a third say it's pretty normal.

0:9:28.566 --> 0:9:46.326
James Derek Ball
10% say it's above average, which is essentially 3 respondents and then and then about 17% say they they think it's difficult and might get worse or likely to get worse. Generally we we sent these very similar almost the same questions out in 2023 essentially 2 years ago.

0:9:46.406 --> 0:9:55.566
James Derek Ball
And generally speaking, and I think we we see this in our our day-to-day business, the lenders are more positive today than they were two years ago. Mike, any thoughts?

0:9:56.966 --> 0:10:16.366
Eagen,Michael E
I'd agree with that. Yeah, I'd say that, you know, coming out of the Restaurant Finance Development Conference last November, there's a lot of momentum and positive vibes and very much a vibe economy. Heading into the first quarter, it it seemed like things went quiet after January, a lot of uncertainty, a lot of.

0:10:16.406 --> 0:10:33.966
Eagen,Michael E
Changes, current administration taking over, implementing all sorts of new changes. Uncertainty seem to prevail and so buyers and sellers kind of pulling back. Then the tariff question starts getting raised as as we head into the year ahead here, but.

0:10:34.166 --> 0:10:49.126
Eagen,Michael E
It's it's better now than I think you know prior to the election and and certainly better than the last six months. And your point about timing, your survey went out about a week before lenders will will have received.

0:10:50.166 --> 0:11:9.366
Eagen,Michael E
Their second quarter compliance certificates from their borrowers, right. And so some of the weakness that was cropping up in certain brands during the second quarter is now getting mailed in and lenders are starting to wrap their heads around that and what where some of the changes are, but generally speaking, it feels better.

0:10:50.406 --> 0:10:50.886
Rick Ormsby
Mhm.

0:11:9.926 --> 0:11:14.166
Eagen,Michael E
But it's not without uncertainty, just a maybe a new set of uncertainties.

0:11:14.6 --> 0:11:30.406
Rick Ormsby
I'd make the same comment, you know, slightly definitely more optimistic than 2023, not out of the woods yet, but but but I would say similar to what you guys have said. Yeah, so that good, good answer keeping in mind as we, I mean I just keep reminding us that these are the opinions.

0:11:30.606 --> 0:11:39.806
Rick Ormsby
And survey responses of lenders only. This isn't Rick Ormsby or franchisees saying what's your opinion of the operating environment, right. So, OK, next one, Derek.

0:11:36.806 --> 0:11:37.326
Eagen,Michael E
Mhm.

0:11:42.86 --> 0:12:1.486
James Derek Ball
Question two, what's your opinion on the likelihood and severity of a recession over the next 12 months? Over half say unlikely, but expecting little slower growth, but a little over a third say recession still possible and then pretty minor responses, you know, very unlikely.

0:12:1.766 --> 0:12:21.366
James Derek Ball
Recession likely to be long and painful or 0 Nobody said that. We had one respondent say recession likely, but a quick bounce back. Generally speaking, once again, lenders are more positive than two years ago in the likelihood of a recession. Mike, I know we we talked a lot about this. You you were, you were one of the ones I think.

0:12:21.446 --> 0:12:25.286
James Derek Ball
A couple years ago saying very likely. Um, any any comments?

0:12:24.326 --> 0:12:40.486
Eagen,Michael E
I was wrong. This is like, this is like the Domino's CEO. I think Patrick Doyle back in the day capitulated, which is one of my favorite words. I was wrong. I think a lot of economists misjudged the likelihood of recession and.

0:12:24.726 --> 0:12:29.406
Rick Ormsby
Yeah, you were wrong, and you were wrong, by the way.

0:12:40.486 --> 0:12:55.766
Eagen,Michael E
You're looking at the same leading economic indicators from the National Bureau of Economic Research, and almost 90% of the time you end up with a recession with the things that were happening at, you know, over the prior 14 months and so.

0:12:56.86 --> 0:13:15.846
Eagen,Michael E
It's different. This time is different, right? Every recession is a little different. Every boom cycle is a little bit different. I will say that words like stagflation are getting used more often where the economy may get a bit more stagnant. Things are certainly going to be inflationary maybe for the next year as tariffs and, you know, cost of goods.

0:13:15.846 --> 0:13:34.286
Eagen,Michael E
Sold with respect to vegetables and food and beef and things that have been rising recently, you're going to continue to have a bubble which is going to put some pressure on consumers, but a full on recession, negative GDP, I'm not seeing it there. You're getting productivity gains.

0:13:35.566 --> 0:13:51.326
Eagen,Michael E
From A I In certain cases, that's having impacts on employment, especially at younger people, especially recent computer science graduates. So new things are happening that haven't occurred before, which is again why I've probably been laying low.

0:13:51.686 --> 0:14:7.846
Eagen,Michael E
And and not trying to be the broken clock who's right twice a day but and guessing but there's there's more changes. But I honestly I think people are adjusting over time and adjusting to the new price levels and adjusting to the environment.

0:14:8.406 --> 0:14:26.926
Eagen,Michael E
It also helps that gasoline here in Texas is about 255 a gallon. So anytime you have gasoline below $3 in my opinion, that's a very positive thing, almost like a tax refund for the consumer and and helps with consumer sentiment and and so forth, but.

0:14:27.46 --> 0:14:31.526
Eagen,Michael E
Full on recession. I'm not going to go there and say that word.

0:14:32.726 --> 0:14:51.246
Rick Ormsby
I'm Mike, I make the comment, you know one of the first things I learned when I was working at Yum was the correlation between gas prices and a QSR sales. It's it's very if you if you just plot it out, you'll see it's like the only like predictive thing. So and it's very predictive like with a pretty certain.

0:14:52.246 --> 0:15:12.6
Rick Ormsby
Kind of prediction. So that is a good, very good point. Gas prices are down. More money in the pocket probably means we're going to get a little bit more positivity on traffic and sales at the QSR level. I just note that all these smart people, you know, and all these smart economists and all the trillions of dollars we spend for people's advice and most of it was wrong.

0:14:55.846 --> 0:14:56.126
Eagen,Michael E
Yeah.

0:15:12.646 --> 0:15:28.686
Rick Ormsby
Wrong, wasn't it? We didn't hit a recession. I mean, how could so many people be so stupid and wrong about it? And as I look outside, I I see a tale of two worlds. I look at at the overall picture and I think optimism is coming and it's coming like a freight train.

0:15:29.206 --> 0:15:48.566
Rick Ormsby
But then I look a little bit at our clients and friends and I see their PN LS and some of their businesses and they're not there yet. So any any kind of any kind of temperature check that I have is is that is that the consumer sentiment hasn't brought for many brands and many of the legacy QSR brands that the traffic and sales growth and EBITDA growth that we that we have.

0:15:48.686 --> 0:15:49.286
Rick Ormsby
Help to get.

0:15:55.366 --> 0:16:14.686
James Derek Ball
Question 3, how many new corporate borrowers, new customers have you added in the past month? About half the respondents or past six months, I apologize. About half said two to four, about 40% said five to six. And then there's just one or two respondents each that have said zero to one, seven to nine or 10 or.

0:16:3.966 --> 0:16:4.446
Rick Ormsby
Mhm.

0:16:15.126 --> 0:16:28.606
James Derek Ball
More generally speaking, it's it looks like lenders are adding more borrowers over two years ago, which you know, correlates I think generally with what we've been saying. You know, any thoughts?

0:16:25.646 --> 0:16:26.206
Rick Ormsby
Mhm.

0:16:31.6 --> 0:16:32.966
Rick Ormsby
What do you think, Mike? This is yours.

0:16:31.406 --> 0:16:50.846
Eagen,Michael E
Yeah, I I'd agree with that. I I think if you looked at a month to month, I think the the very beginning of the first quarter was strong and you had some hangover from the fourth quarter which was strong in terms of new financings that were happening. We upsized a large Saxby's transaction by.

0:16:50.966 --> 0:17:8.966
Eagen,Michael E
50% of the largest franchisee that we financed as agent. Then it went quiet and honestly it was like maybe May or June, things started to pick up a bit more. I mean, there was also a bit of a boost in consumer sentiment and activity levels somewhere around April or so.

0:16:55.46 --> 0:16:55.286
Rick Ormsby
Mm.

0:17:8.966 --> 0:17:25.366
Eagen,Michael E
And and I think there was a little bit more positive vibe. So that led to just more financings. I'm in the process of doing real estate financings today. We we were doing continued financing of development lines of credit for operators who are building new stores.

0:17:25.566 --> 0:17:41.526
Eagen,Michael E
That hasn't stopped. But yeah, I would say by June, the end of June was a very strong quarter for Synovus and for I think a number of other large lenders, the guys that I've talked to and gals out there generally speaking are head of budget this year.

0:17:41.646 --> 0:17:51.606
Eagen,Michael E
So that's probably where that's this question's coming from. And I like the next question, which is like compare six months to 12 months. That's that's always a good reference point.

0:17:52.726 --> 0:18:10.926
Rick Ormsby
Yeah. And and and and as you answer this question, Mike, give us a little bit of feeling, you know obviously we're M and A guys. So as you as you kind of make a stab at what percentage of this business is M and A versus refinancing and recapitalizations, you know money for new builds, real estate loans, I mean how does it kind of, how's it kind of shaken out?

0:17:52.806 --> 0:17:53.846
James Derek Ball
There you go.

0:18:11.326 --> 0:18:25.726
Eagen,Michael E
Yeah, I I would generalize and say that most of the volume that the franchise lenders do is driven by M and A, right. We're in a multi-decade late inning stretch for consolidation.

0:18:26.886 --> 0:18:46.126
Eagen,Michael E
Of smaller franchisees into bigger franchisees, the days of 10 and 2030 unit Taco Bell operators long past, right. So you you've got folks who are upwards of 300 or more and some of these brands you look at the monitor 200 in their list of large franchisees that big keep getting bigger so.

0:18:47.646 --> 0:19:2.686
Eagen,Michael E
As that's fading, right, we're in a late inning stretch, 8th inning maybe even for some of these legacy brands, you do have some new brands that are starting to come on the scene and and I think that's kind of exciting and that might be another leg up, so.

0:19:2.966 --> 0:19:19.926
Eagen,Michael E
And in November, I'm going to host a panel with the largest Jersey Mike's franchisee, the largest 7 Brew franchisee and the largest Wingstop franchisee, which is they are the hot concepts now. Those are very fragmented systems with thousands of restaurants and starting to grow the Seven Brew.

0:19:20.406 --> 0:19:38.726
Eagen,Michael E
Phenomenon is smaller, but growing rapidly and attracting a lot of attention as they sell out the country for franchise agreements. And you know, I think that's some of what's stimulating new deal flow. So organic growth from some of those brands that continue to grow that have great ROI.

0:19:39.206 --> 0:19:58.966
Eagen,Michael E
Or franchisees, there is some real estate financing as folks tap into embedded equity in order to maybe prop up operations or create some cash flow. But the heavy M and A of those larger transactions, it is more limited I I would say just because of the the nature of where.

0:19:59.46 --> 0:20:0.286
Eagen,Michael E
We are in the cycle.

0:20:0.6 --> 0:20:17.446
Rick Ormsby
Yeah, well said. I would agree. You know with some of your comments, one of the comments is you know lenders and M and I advisors too are starting to take note that some of these smaller brands that have really had pretty high growth and you mentioned some of them or you mentioned Wingstop, you mentioned 7 Brew, there are others.

0:20:17.686 --> 0:20:34.206
Rick Ormsby
Are are starting to to catch everyone's attention a little bit more than maybe the legacy brands which have been struggling and are more difficult to bank. And historically lenders have been very, very slow, you know like snail's pace slow at adding new brands to their portfolios.

0:20:34.246 --> 0:20:54.86
Rick Ormsby
I think that my comment to anyone who's a lender is that you know you're going to have to revisit how slow you move because because you know a lot of pivoting is happening among these brands. So I I make note here that it does, you know that the survey does, doesn't it Derek, tell us that since 20.

0:20:54.86 --> 0:21:4.6
Rick Ormsby
2023, we do have quite a few lenders who are lending to more customers if it's both through M&A and just through, you know, regular course of business.

0:21:6.966 --> 0:21:7.166
So.

0:21:8.286 --> 0:21:10.126
Rick Ormsby
All right, we go to the next one.

0:21:12.86 --> 0:21:27.286
James Derek Ball
Question 5, how much is your loan volume currently changing due to interest rate changes and credit conditions? Little over half are saying not much change, about a third saying a modest increase, nobody saying significant increase.

0:21:27.726 --> 0:21:33.966
James Derek Ball
And then you know a little under 20% essentially saying modest to significant drop, so um.

0:21:35.46 --> 0:21:48.606
James Derek Ball
Back in 2023, the quick comment is is about half of the respondents said they were showing a modest drop. So that has dropped significantly. Almost 1/4 of the respondents, you know, said that here versus 2023.

0:21:49.366 --> 0:22:4.606
Rick Ormsby
Mike, I got a question for you. First question here is, I mean, I know, I know you guys, you guys are typically on the optimistic side, you know, right, like lenders, you know, they're always saying we're open for business and there's more deal flow and things are great when really that may not be the case. How much of that?

0:21:50.366 --> 0:21:50.526
Eagen,Michael E
Sure.

0:22:5.286 --> 0:22:9.966
Rick Ormsby
Do we filter out of these answers just out of just out of curiosity?

0:22:9.686 --> 0:22:27.326
Eagen,Michael E
Well, well, this question specifically is probably much more impacted by what was happening in 23, right. So in spring of 23, you had a banking crisis and you had a, you know, at that point a much more rapid increase of interest rates from near 0.

0:22:29.286 --> 0:22:48.606
Eagen,Michael E
Beginning in 22 to the Fed started their climb of 4 or 500 basis points up. That obviously has dramatic impacts. You had by my estimates like 1.7, almost $2 trillion leaving the US banking system in the form of deposits and going to money market accounts or bonds or other things.

0:22:48.846 --> 0:22:51.886
Eagen,Michael E
That paid higher interest rates for your cash and so.

0:22:53.286 --> 0:23:8.286
Eagen,Michael E
Deposits are the jet fuel that let banks do what we do, which is make loans. And so you did definitely have an impact that was much more dramatic, more volatile in 23 coming out of 22 with the overall interest rate market.

0:22:57.406 --> 0:22:58.6
Rick Ormsby
Mhm.

0:23:8.566 --> 0:23:23.766
Eagen,Michael E
As over time, like anything, borrowers adjust, lenders adjust, the banks adjusted and their models changed a bit. As rates were higher, they're making a bit more money and they've got to kind of get their arms around that size of the business, but.

0:23:23.766 --> 0:23:41.766
Eagen,Michael E
Today, and I think it was even in the fourth quarter of 24, you were hearing it loud and clear from the lending community. It's like, all right, we're open for business, we're ready to go again. And and that was true of either the biggest banks and even the regional banks. So everybody wanted to grow their CNI loan portfolio, their commercial and industrial loan portfolio.

0:23:42.566 --> 0:23:59.206
Eagen,Michael E
Much more aggressively. So interest rates don't impact the banks when they're relatively stable. And yes, we may see 1/4 point in the in September from the Fed. We we may see the administration continuing to pound the table for even more than that.

0:23:59.846 --> 0:24:6.686
Eagen,Michael E
But I think the more important questions for growth and financing.

0:24:8.86 --> 0:24:23.246
Eagen,Michael E
For for investors, it's it's it's tougher now. Rates are higher, no question. And when I do real estate financings, you have a phenomenon happening where you might be financing a deal at six and a half, 7% in some cases.

0:24:23.846 --> 0:24:42.366
Eagen,Michael E
On a, you know all in rate, so for plus the spread and you might be looking at cap rates for the underlying real estate that have a lower interest rate. It's usually the inverse. The cost of debt is a percentage of the total value of the real estate and should be lower.

0:24:34.886 --> 0:24:35.486
James Derek Ball
Yeah.

0:24:37.846 --> 0:24:38.406
Rick Ormsby
Yeah.

0:24:42.806 --> 0:25:2.606
Eagen,Michael E
And so I've watched cap rates continue to stay in the fives, generally maybe six, 6 1/2% for QSR restaurant properties. So weird things happen that we haven't seen before in a very long time. Some of that is a phenomenon of inflation and and the after effects of inflation.

0:25:2.646 --> 0:25:21.926
Eagen,Michael E
Inflation, the hangover effects of people adjusting expectations and how things get financed. But the subtle changes, like I know that the question is is probably here going to be asked is are we going to get an interest rate drop and what will the impact be? I'm not sure it changes those bigger questions of how expensive it is to build a new restaurant.

0:25:22.486 --> 0:25:38.526
Eagen,Michael E
What's the cost of that debt? What's the cost of the debt to finance my my existing fee, simple real estate or restaurants in comparison to where they were in multiples? And so I'll probably throw back to you guys. Do you think interest rates have had a meaningful impact on?

0:25:38.886 --> 0:25:49.886
Eagen,Michael E
Multiples of EBITDA when it comes to valuation. Has that changed the expectations or do you see folks retreating, whether it be private equity or family office or large franchisees?

0:25:49.806 --> 0:26:5.886
Rick Ormsby
Yeah, you know you certainly see it in the I I my my answer to that question, Derek, you may have a different answer, but my answer is for strategic buyers, it's very, it's hard to see, you know it's it's hard to see whether interest rates have had much of an impact on pricing, but you see it with the financial buyers.

0:26:6.446 --> 0:26:25.606
Rick Ormsby
You know in a massive way I'd say you know certainly the cost of building and it you know in sales challenges and things like this have affected their interest in their pricing on deals. But in M and A transactions mostly the financial buyers, I I I would say interest rate has had a huge impact on their return on investment calculations.

0:26:26.166 --> 0:26:45.686
Rick Ormsby
Ability to borrow money, the ability to deploy it and and new unit growth and it's showing up by largely many of these financial buyers not not being interested in our segment as much at the moment, you know, but but I don't think you see it too much in the strategic side really and that's maybe.

0:26:40.126 --> 0:26:40.286
Eagen,Michael E
Mm.

0:26:41.526 --> 0:26:42.126
Eagen,Michael E
Mhm.

0:26:45.686 --> 0:27:0.606
Rick Ormsby
And that's maybe we'll watch for that to change. The question then becomes with some of the trouble that's happened over the last couple years are a lot of these financial buyers that came into this business in 2016, 1718 and 19 and 20 are the in 21 too.

0:27:1.126 --> 0:27:20.646
Rick Ormsby
Are they, you know, seeing that their buddies haven't done well, have they pivoted away from this industry and gone into other industries instead? And so I don't know the answer to that, but I suspect that a portion, if not a majority of them are in the yes camp to that answer, unless it's a Taco Bell, a Wingstop, A7 Brew or one of these other really, you know.

0:27:20.806 --> 0:27:28.846
Rick Ormsby
Powerful brands. It's doing really well. We've taken a lot of time with this question. Let's hit the next two questions fairly quick. What do you think, guys? Go for it, Derek.

0:27:29.446 --> 0:27:43.846
James Derek Ball
Question 6, how many franchise and NA deals are you personally trying to fund right now? You've got about 70% saying two to four, about 1/4 saying zero or one, and then you had one respondent saying essentially 5 or more.

0:27:44.246 --> 0:27:44.526
Rick Ormsby
Yeah.

0:27:44.486 --> 0:27:44.566
James Derek Ball
Um.

0:27:47.126 --> 0:28:5.126
Rick Ormsby
Yeah, it's it's down, it's down a little bit, but probably would would say flattish to 2023, which is our experience too, isn't it, Derek? I mean, I'll let you comment on this and speak up. How would you answer this from an M and a perspective, you know like in terms of what we see in terms of deal flow now versus the last couple of years?

0:28:5.46 --> 0:28:21.406
James Derek Ball
Yeah, it's actually, you know, I mean based on the 2023, there's actually, you know, I think it was almost 1/4 of the respondents said they were funding 5 or more deals. So in terms of lenders funding that many deals, it's actually dropped quite a bit.

0:28:21.806 --> 0:28:38.366
James Derek Ball
That doesn't shock me. The first half of this year, Rick, I think you said it. It might have been the slowest you've seen in 20 years from a new deal perspective. It has actually picked up quite a bit in the last month or two. Keep in mind lenders aren't funding deals.

0:28:38.566 --> 0:28:55.846
James Derek Ball
If they're just now, you know, calling us. So it doesn't shock me. 20 Twenty-three wasn't a robust M and A year by any stretch, but the first half of this year was extremely slow. So I I think this kind of fits with what I would have expected in terms of the five plus number anyway.

0:28:56.86 --> 0:29:15.606
Rick Ormsby
You might see a pickup, you lenders may see a pickup. You know if we're if what we're experiencing is any kind of a, I mean it's a very short sample size over a short amount of time. But with a pickup that we're seeing, we're internally saying six or seven or eight different clients are reaching out to us if we take three or four new transactions in the next you know 15 to.

0:28:56.246 --> 0:28:56.926
James Derek Ball
Yeah, the the.

0:29:15.726 --> 0:29:35.326
Rick Ormsby
20 days, you know, and then we take a couple of more. But you guys, Mike, will start seeing more business, you know, three months from now, right? So, and these, yeah, trying, trying. Those of you who hear me all the time, you know, and see my personality know how well I sit.

0:29:24.566 --> 0:29:25.566
Eagen,Michael E
Yes, get busy, will you?

0:29:29.6 --> 0:29:29.86
Eagen,Michael E
Hi.

0:29:35.526 --> 0:29:43.246
Rick Ormsby
Quiet with my hands in my lap. I I like, I'm like the worst in the world at that, so we're trying to get it going again.

0:29:38.846 --> 0:29:39.166
Eagen,Michael E
Or.

0:29:42.806 --> 0:30:2.646
Eagen,Michael E
I I would for context guys, I would tell you that I, you know I track middle market, sponsor finance and other you know areas that are kind of adjacent to our world. And you know the the stories I read are that some M and A activity is as low as it was in the beginnings of COVID in 2020 like that's it's dried up to.

0:30:0.966 --> 0:30:1.606
Rick Ormsby
Mhm.

0:30:2.646 --> 0:30:19.86
Eagen,Michael E
Dramatically. So for private equity, family offices have generally pulled back and become more cautious because they won't invest unless they feel strongly about something and they feel positive about it. You know, they'll retreat to other assets perhaps, but that's this is probably consistent.

0:30:17.446 --> 0:30:37.286
Rick Ormsby
Other other segments, other segments are doing maybe different. I've got, I happen to have two buddies who have really, really good construction businesses. OK, like like really profitable. One of them's probably, you know, you know, approaching $100 million value. The other is maybe half of that and they're getting knock, knock, knock, knock all the time from consolidators and PE.

0:30:37.326 --> 0:30:53.486
Rick Ormsby
Companies and I'm like really like in our business you don't see that as much at this moment. So some of it's maybe dependent on the the industry certainly too. You know our our industry is taking a a probably a bigger beating than average relative to the other industries, you know. So yeah, hit the 7th 1 #7 Derek.

0:30:40.326 --> 0:30:40.486
Eagen,Michael E
M.

0:30:41.566 --> 0:30:41.966
Eagen,Michael E
Hmm.

0:30:54.846 --> 0:31:11.686
James Derek Ball
Question seven, in the past year, how many of your M&A deals have been retraded, repriced or restructured? Essentially, you know this indicates declining performance during the transaction. Typically a little over half, say a few, but generally isolated to the brand or the circumstance.

0:31:6.46 --> 0:31:6.566
Rick Ormsby
Yeah.

0:31:12.246 --> 0:31:31.366
James Derek Ball
About a third say really not many, no change from normal. And then you know about four, four people said you know some of them. But again, this is generally the more retrading, the more repricing you see generally indicating performance is dropping quite a bit during the transaction.

0:31:31.806 --> 0:31:31.966
James Derek Ball
2.

0:31:32.606 --> 0:31:50.646
Eagen,Michael E
Yeah, this is my old favorite saying. Nobody wants to catch a falling knife as as operations or EBITDA is falling, that just makes sellers very vulnerable. So that's probably also impacting a a bit more of a muted environment in some of the legacy brands we normally see trading a lot more actively is that.

0:31:32.846 --> 0:31:33.366
Rick Ormsby
Mhm.

0:31:43.6 --> 0:31:44.6
Rick Ormsby
Yeah, yeah.

0:31:50.926 --> 0:32:5.926
Eagen,Michael E
You don't want to go to market with a negative trend and that's just going to get extrapolated down versus, you know, trying to make a case that, hey, things are turning a lot harder to do during a sale process where buyers are definitely looking for value.

0:32:6.206 --> 0:32:8.406
Eagen,Michael E
If they can find it today.

0:32:8.486 --> 0:32:25.166
James Derek Ball
Yeah. And it's a little hard for a buyer to accept the declining performance when they're paying a 7 plus percent interest rate. You know, a few years ago when you were refining it three, three and a half, four, you see a little bit of a decline in performance. You can tolerate it a little bit better, but buyers are generally.

0:32:9.126 --> 0:32:9.246
Rick Ormsby
But.

0:32:25.486 --> 0:32:36.366
James Derek Ball
You know, they're they're, I would say significantly more disciplined than they were in say 20/20/2122. You know, I think that's a big part of it.

0:32:32.246 --> 0:32:32.406
Rick Ormsby
Mm.

0:32:36.46 --> 0:32:55.526
Rick Ormsby
Lenders are forcing them to be that way too, right? If businesses are trending downward and EBITDA is dropping precipitously during a transaction, lenders are going to reprice the deal just like a buyer would. So they kind of work hand in hand. But I would make a positive comment here while we've had kind of the last 12.

0:32:36.886 --> 0:32:37.246
Rick Ormsby
Yep.

0:32:55.646 --> 0:33:15.566
Rick Ormsby
Months in our industry has kind of been languishing sales and transaction and EBITDA situations. You know, we've seen a couple of breakout brands kind of in the last like 4 to 8 weeks start to quietly raise their head and say sales and profits are up a lot right now. And so I won't name them.

0:33:15.566 --> 0:33:35.86
Rick Ormsby
You know because the data is is kind of fresh and they're some of the you know older legacy brands that that may have some specific marketing promotion that's that's doing something for their brand. But I do think at this point in time as we're in the middle of Q3 that's really when we started seeing weakness.

0:33:35.286 --> 0:33:54.926
Rick Ormsby
Last year at the same time and maybe we've got a little bit of momentum over last year starting to reintroduce itself. Maybe it has something to do with the gas prices. There's a variety of factors, but I just kind of share that that when you have, when you have a little bit of optimism returning sales coming up a little bit EBITDA flat.

0:33:54.926 --> 0:34:8.846
Rick Ormsby
Out or improving a little bit. You know this, you know usually what happens is people will wait 6 to 9 months to build that business back into their P&L and then they potentially decide to to engage in the sell sell side process.

0:34:7.446 --> 0:34:7.686
Eagen,Michael E
Hmm.

0:34:10.326 --> 0:34:10.486
Eagen,Michael E
Yep.

0:34:14.126 --> 0:34:15.806
Rick Ormsby
Go for it, hey.

0:34:15.86 --> 0:34:32.846
James Derek Ball
Question 8, how many of your deals are not reaching closing? A little over a third said a few, but isolated again to brand or circumstance. About half said you know, no change from normal essentially and or respondents said you know some of them.

0:34:32.886 --> 0:34:33.206
Eagen,Michael E
Yeah.

0:34:32.886 --> 0:34:33.566
Yeah.

0:34:32.886 --> 0:34:47.726
James Derek Ball
So it sounds like, it sounds like in the lender's eyes, more deals are reaching closing today than back in 2023, which you know back in 2023 with interest rates going up during the transaction, it was probably pushing some buyers further out.

0:34:49.286 --> 0:35:5.566
James Derek Ball
You know, if their interest rates are a little, you know, a point higher than they expected, end up retrading, seller doesn't like it, says we'll keep it just naturally ends up potentially blowing up a deal at the fault really of nobody. But Mike, any thoughts?

0:35:7.206 --> 0:35:18.526
Eagen,Michael E
I I would agree with that. Again, it's a function of radical change that was happening in 2223 contributed to, you know, people finding an excuse to back away from a deal.

0:35:12.446 --> 0:35:13.646
Rick Ormsby
Mhm, mhm.

0:35:19.846 --> 0:35:34.326
Eagen,Michael E
It I would say I'm probably seeing more kind of dividend recaps today versus M and A. So if some of the financial buyers have an option to return capital to investors, they'll do a dividend and re lever higher.

0:35:34.966 --> 0:35:52.366
Eagen,Michael E
Which is, you know, just another way to return capital and and get a better return on investment. Time is the enemy of IRR. So the longer an investment runs and you don't return cash to the investors, the lower that return is. And so that's why you see some of those dividend recaps and.

0:35:52.486 --> 0:36:4.926
Eagen,Michael E
Our industry, you know that's that's always a lever to pull if it's not growth and and driving new EBITDA, you know the dividend recaps and options. So that that also happens. So those obviously close.

0:36:6.246 --> 0:36:25.726
Rick Ormsby
I think there's probably an expectation here that's changed. You know, back in 2023 we had, you know, the market was moving down, pricing was moving down, you know, and and maybe expectations, you know, sellers and buyers expectations were not properly calibrated for where it was headed. I think now the good news is.

0:36:24.86 --> 0:36:24.206
James Derek Ball
OK.

0:36:25.846 --> 0:36:26.166
Rick Ormsby
Is.

0:36:26.446 --> 0:36:45.206
Rick Ormsby
You know we've kept at Unbridled our 90% success rate through all of this, but but like I think I think the point would be that you know sellers that come to the market now and buyers that come to the market now have a kind of a steady state expectation for for like the last couple of years and that is.

0:36:46.406 --> 0:36:49.646
Rick Ormsby
Probably the reason why more of the deals are closing, you know?

0:36:49.886 --> 0:37:4.126
Eagen,Michael E
Let me ask you guys, 'cause I know you track this and and time is your only commodity that you own and control. So you got to make sure you execute, keep that 90% hit ratio. Are you seeing more?

0:36:56.686 --> 0:36:57.46
Rick Ormsby
M.

0:37:4.766 --> 0:37:17.406
Eagen,Michael E
Inbound phone calls saying, hey, I'm ready to sell, but you're not willing to take the engagement because expectations are out of whack with the seller. You see more or less of that now versus even last year or the year before?

0:37:14.926 --> 0:37:15.686
Rick Ormsby
Mhm.

0:37:18.166 --> 0:37:37.566
Rick Ormsby
I'd say less, Derek, wouldn't you? I mean, it was almost a wholesale. Your, you know, your expectations are 15 to 30% too high in 2023 and 24, you know, except for in really good brands or in circumstances that that just necessitated a sale. But it it feels to me like a higher percentage of what we see.

0:37:37.886 --> 0:37:48.926
Rick Ormsby
Now the the expectation isn't, isn't so far above what we think the value is, even though we still have that kind of dynamic going on, but but I'll let you comment. What do you think?

0:37:49.366 --> 0:38:6.206
James Derek Ball
2024, I mean, I wouldn't be surprised if we turned down 40 or 50 assignments due to due to expectations that were were not in line with what we thought the first, I don't know about first full half of this year, maybe at least the first four or five months of this year.

0:38:6.406 --> 0:38:24.606
James Derek Ball
I think was generally more of the same. I think the last few months that started to change. I think part of it is I actually think, I think pricing is their prices are generally climbing slightly. You're not going from a 4 1/2 to a 5 1/2 by any means, but.

0:38:25.126 --> 0:38:40.766
James Derek Ball
If your multiple a year ago was 4 1/2, I I do think that multiple is probably at least 1/4 turn higher now as long as you're still performing well. I mean if your businesses continue to decline, maybe not, but I think prices have have climbed very, very slightly.

0:38:41.366 --> 0:38:56.766
James Derek Ball
In the last six months that naturally is going to obviously close that gap a little bit. So there's still, there's still a, there's still a bit of a spread, but I think that's closing pretty much by the month.

0:38:55.46 --> 0:39:14.726
Rick Ormsby
It it, it appears there, it appears there, it appears there are more buyers now it you know, you know and that's that's a good sign. I think that's a good sign. I I'm not saying like oh golly Gee, you've got a business and you know couldn't sell it to anybody three years ago, but and now there's a billion people who want it. But I think there is an incremental income.

0:38:57.166 --> 0:38:57.326
James Derek Ball
Yeah.

0:39:14.726 --> 0:39:34.366
Rick Ormsby
Increase in buyers in the marketplace who want to pay reasonable prices and that's showing up in the this multiple that Derek's talking about and it may be more than 1/4 turn, it may be 1/2 turn higher, you know what I mean? And the example that he gave a 4 1/2 to 475 or five to five and a quarter, I mean that's kind of where we are on decent.

0:39:34.646 --> 0:39:52.886
Rick Ormsby
Legacy businesses that have not been doing all that well in the last several years. You know, obviously our our market moves all the way up to 10 plus almost 11 times EBITDA when you get to the Taco Bell and Wingstop and seven brews of the world, you know, so it swings it, you know, it swings depending on the concept.

0:39:50.286 --> 0:39:50.766
Eagen,Michael E
Mhm.

0:39:53.126 --> 0:39:53.766
Eagen,Michael E
Mhm.

0:39:53.966 --> 0:39:59.966
Rick Ormsby
OK, we're running. We're running maybe 5 minutes slow, so we pick it up slightly as we keep going here, but not much.

0:40:1.486 --> 0:40:19.726
James Derek Ball
Question nine, if you're willing to be a participant in a syndicated credit facility in the past, if you were willing, would you still today you've got, you know, 30 ish percent saying yes, pricing is the number one consideration. Deposits aren't required.

0:40:20.166 --> 0:40:39.686
James Derek Ball
You've got about, you know, 10% saying no, they're a sole lender. You got a little under half saying yes, no change. And you know you have 4 respondents essentially saying yes, but only with depository participation. Back in 2023, the depository participation was was closer to half 43.

0:40:40.86 --> 0:40:47.606
James Derek Ball
3% of the respondents. So that has dropped quite a bit over the last three years. Any reason why, Mike?

0:40:48.86 --> 0:41:3.806
Eagen,Michael E
I think it's just banks have adjusted accordingly, right? There's a lot happening in the banking industry, right? And stable coins are a new phenomenon and the amount of, you know, trillions of government debt that needs to get issued.

0:41:3.926 --> 0:41:12.366
Eagen,Michael E
And or rolled over are all, you know, huge sucking sounds for pulling deposits out of the banking system potentially.

0:41:14.166 --> 0:41:31.406
Eagen,Michael E
Banks are are better at managing that now than than the sudden changes they were caught with and and their balance sheets were also somewhat impacted back in 2223 by buying of bonds that were one and 2% and now they were at 3-4 or or percent or higher right so.

0:41:32.486 --> 0:41:49.206
Eagen,Michael E
That created a lot of consternation, if you will. I I do think that it's less of an issue today in participations. Everybody's got a mandate to go find some ancillary business to make an argument that this is a whole relationship that we've got.

0:41:49.606 --> 0:42:5.886
Eagen,Michael E
A little bit more. What I have had success with in the syndication side of things is offering bigger allocations of debt versus smaller ones. And so if you're making more on, you go through a lot of work to you get a credit approval on a participation.

0:42:7.846 --> 0:42:22.646
Eagen,Michael E
And to get an allocation that's half of what you were hoping for was always disappointing, right? I try to be more generous around that. That helps. I do think that people making a mandate that I got to have deposits and you're not.

0:42:22.726 --> 0:42:38.686
Eagen,Michael E
#2 in the syndication is it's gone away. I I don't think that's that's as much of an issue or you're you're not invited into those syndications as much if you're constrained that that hard. So that's that's my opinion of where it is today.

0:42:38.806 --> 0:42:51.126
Rick Ormsby
I got a question, probably unrelated, Mike, but what do you think about the impact of private credit, you know, against, you know, in our industry, maybe overall and then in our industry?

0:42:52.86 --> 0:43:12.6
Eagen,Michael E
In restaurants, I don't see it. Private credit. I'm going to generalize again. Private credit is typically a spread of four 500600 basis Points, over SOFR. Most restaurant operators don't want to pay that or can't afford to pay that. It's the same reasons why you don't see a lot of.

0:43:12.126 --> 0:43:31.926
Eagen,Michael E
Mezzanine debt lenders in our space demanding 10/12/14% interest rates like the the PNL just can't stomach that much of A interest expense, right. So I I don't see it very often. I don't think there's an appetite to come into it. You do still see term loan.

0:43:32.6 --> 0:43:50.446
Eagen,Michael E
And B financings, but I've also you know in in a large franchisee space, I've seen some of those unwind and and you know having a relationship with a banker or a group of bankers is very different than having a relationship with a bunch of bond investors who are running a fund and.

0:43:39.6 --> 0:43:39.206
Rick Ormsby
Yeah.

0:43:50.846 --> 0:44:7.646
Eagen,Michael E
Don't want to hear about your reasons why the business is suffering, they just want to get paid. So our world is much more relationship driven and therefore much more of a bank environment, maybe some finance companies as well on the fringes, but generally it's.

0:44:7.846 --> 0:44:14.606
Eagen,Michael E
It's in the right place. You can't have a lot of leverage on restaurants today that just it just can't carry that much debt.

0:44:14.926 --> 0:44:33.686
Rick Ormsby
No, I appreciate you answering that. I I I've, I've gotten more introductory calls from those types of people recently in the last four, three or four months than than than in the past. So maybe that's for non-bankable type of of businesses. But yeah, for sure. All right, go for it.

0:44:31.126 --> 0:44:31.606
Eagen,Michael E
Mhm.

0:44:34.806 --> 0:44:37.966
Rick Ormsby
Derek, what's the next one? #10, right? Uh, this one.

0:44:37.366 --> 0:44:54.886
James Derek Ball
Yeah. So what percentage of your clients are currently out of loan covenant compliance? It's actually, yeah. So, so I went back earlier today and looked at the 2023 results. It's actually significantly lower.

0:44:43.486 --> 0:44:45.606
Rick Ormsby
Nobody is. Nobody.

0:44:54.926 --> 0:45:10.726
James Derek Ball
Back then it was AI think a third or like 35% ish of the respondents had had selected 10 or more with quite a bit of people in that 25 plus percent range.

0:45:11.566 --> 0:45:14.486
James Derek Ball
So it's dropped significantly in the last two years.

0:45:14.606 --> 0:45:25.86
Rick Ormsby
Man, you can't get 96% agreement on anything. I mean, somebody's lying here. That's 38 out of 39, man. 29 out of 30 or whatever. What? What the heck?

0:45:19.886 --> 0:45:20.806
Eagen,Michael E
I again I.

0:45:23.486 --> 0:45:35.726
Eagen,Michael E
I I think you should have waited a week or two. You should have waited a week or two for the second quarter to come through because there's there's definitely some brands that are shifting into. I saw that.

0:45:26.46 --> 0:45:27.126
Rick Ormsby
Yeah, yeah.

0:45:32.846 --> 0:45:48.46
Rick Ormsby
I got a dude just pinging it. Mike, I got a guy pinging in here who said there's no way this is true. I'm like, OK, I agree. Like, you know, you could save a baby out of a burning building and half the people will say it's a terrible thing. You know what I mean? Like it's it's like.

0:45:45.206 --> 0:45:45.446
Eagen,Michael E
Yeah.

0:45:48.126 --> 0:45:48.406
Rick Ormsby
Yeah.

0:45:48.926 --> 0:46:8.526
Eagen,Michael E
There's definitely less pressure in the business. Operators have adjusted even to inflation. Labor costs are more manageable than they were a year or two years ago. And so the one big uncertainty is going to be cost of goods sold and food and beef. You know, we're out of a chicken bird flu scenario and.

0:46:8.606 --> 0:46:28.126
Eagen,Michael E
Eggs have moderated, but beef is going to be a big challenge for some operators. I mean there's there's definitely some pressures there. They're going to eat up margin and then honestly I'm I'm in a camp of you know This is why you pay a royalty expense to your franchisors. It's on the back of the franchisors to deliver the top line to deliver the the new.

0:46:28.206 --> 0:46:46.966
Eagen,Michael E
Concept menu concepts to have a barbell approach, you know, some value at the low end versus introducing new and exciting, maybe more premium products. This is when franchisors need to shine in order to help operators as they're drifting towards.

0:46:47.646 --> 0:47:1.566
Eagen,Michael E
A compromised middle of the P&L, right? They need that top line help. They need the big Doritos Locos tacos that puts up double digit same store sales or the Popeye's chicken sandwich. Now is the time. Now is the time to pull that one out of the hat.

0:46:49.926 --> 0:46:50.246
Rick Ormsby
Yeah.

0:47:2.126 --> 0:47:21.726
Rick Ormsby
You know, Mike, it's funny some of this, you know you're you're a wise guy. You know, I always say young man, but I but I couldn't say that. I could say old man like middle-aged, wise middle-aged man. You know the comment, the comment that you made is a good one, which is it's the franchisor's job to deliver the top line. And that's not entirely true in my opinion, but but it is there's a lot of truth.

0:47:10.166 --> 0:47:10.406
Eagen,Michael E
Sure.

0:47:21.726 --> 0:47:41.326
Rick Ormsby
I mean, good operations is going to drive the top line, right? Friendly service is going to clean assets, all these other things, low turnover, clean all this stuff. But it's a very good comment and I think we don't focus on this enough. Like the franchisor needs to buck up and they need to produce something exciting that brings the.

0:47:25.886 --> 0:47:29.926
Eagen,Michael E
True table stakes. Those are table stakes.

0:47:41.406 --> 0:48:1.126
Rick Ormsby
Customers in the door, I mean, and we somehow, I think in this world we live in, are exempting the franchisor from their responsibility. They need to step up and do something. You know what I mean? They're the ones managing these brands. And I, you know, I just took a comment that I know to be true good promotions and.

0:47:42.446 --> 0:47:42.806
Eagen,Michael E
Yeah.

0:47:52.446 --> 0:47:53.726
Eagen,Michael E
Yeah, yeah.

0:48:1.326 --> 0:48:5.406
Rick Ormsby
Innovative ideas drive people into into into these businesses.

0:48:5.646 --> 0:48:25.166
Eagen,Michael E
And guess what? When you're making money, you build more stores and that's what franchise stores want at the end of the day is growth and they want growth multiples on their stock price and so forth. So certainly incentives are all aligned. They're in the right place. But it is innovation that, you know, keeps this thing exciting for people. They have lots of options, lots and lots of options.

0:48:8.526 --> 0:48:8.966
Rick Ormsby
Yeah.

0:48:18.526 --> 0:48:18.886
Rick Ormsby
Yeah.

0:48:22.926 --> 0:48:23.286
Rick Ormsby
Totally.

0:48:25.246 --> 0:48:41.86
Eagen,Michael E
Options, whether it's, you know, drinking your your calories or buying power bars in the convenience store or and going to the supermarket for prepared meals, there's many other options and so providing that innovation and that excitement.

0:48:25.406 --> 0:48:25.606
Rick Ormsby
Totally.

0:48:41.86 --> 0:48:44.526
Eagen,Michael E
is very important right now, especially.

0:48:44.206 --> 0:49:0.886
Rick Ormsby
Yeah, and and you know, I was reading the book The Psychology of Money recently and one of the points was people, people who make a lot of money overtime don't necessarily just do great at any one point in time, but they avoid the massive screw up that destroys everything. And so, you know, you think about.

0:49:1.86 --> 0:49:16.286
Rick Ormsby
You know what's happening at Cracker Barrel and some of these other things like you know, you know you got to, you know, you've got to be innovative, you got to find the right products for your customers, but you got to avoid the big screw up too. And and I know that's a that's a big thing on the corporate boards these days.

0:49:13.846 --> 0:49:14.46
Eagen,Michael E
Yeah.

0:49:16.46 --> 0:49:16.686
Eagen,Michael E
Yeah.

0:49:18.606 --> 0:49:18.926
Rick Ormsby
Next one.

0:49:23.86 --> 0:49:39.206
James Derek Ball
Question 11, which deals are most likely to get through your bank? You've got tier one on the larger deals. About 1/3 of the respondents said larger deals at a high leverage. You've got smaller tier one deals at lower leverage. Nobody said distressed.

0:49:39.646 --> 0:49:47.126
James Derek Ball
And larger Tier 2 brands with lower leverage, generally about in line with what we saw two years ago.

0:49:40.286 --> 0:49:40.526
Rick Ormsby
Hmm.

0:49:47.246 --> 0:50:6.846
Rick Ormsby
That's healthy. It's healthy for our business, right that that that look, I look at this and I'm like, OK, so roughly 1/3 and 1/3 and 1/3 of this pie chart that we're looking at once large low leverage deals, large high leverage deals or smaller low leverage deals that that kind of typifies the the the industry.

0:49:48.526 --> 0:49:51.566
Eagen,Michael E
I'll be consistent, Sir.

0:50:6.286 --> 0:50:7.846
Eagen,Michael E
Yep, Yep.

0:50:6.846 --> 0:50:15.646
Rick Ormsby
That we have which has large operators, small operators, I mean and they're lenders that kind of, you know, kind of, you know have different different specialties within that, right.

0:50:14.846 --> 0:50:19.246
Eagen,Michael E
Yeah, I would say there's more lenders. Um.

0:50:20.206 --> 0:50:37.406
Eagen,Michael E
Open to newer concepts to try to start it. It takes time. Nothing happens fast with lenders approving things. I'm going to point to 7 Brewer as an example, but more lenders are opening up their eyes to that, starting to see it the longer it goes on and continues success and doesn't show.

0:50:22.206 --> 0:50:22.606
Rick Ormsby
Yeah.

0:50:37.406 --> 0:50:44.406
Eagen,Michael E
Signs of stress, the more likely they are to, you know, jump in and and start taking opportunities on their books.

0:50:46.926 --> 0:50:55.286
Rick Ormsby
That's great. I don't have much else to add there. What about you, Derek? Anything? No, I guess we're probably, yeah, move on to the next one.

0:50:50.926 --> 0:50:51.46
Eagen,Michael E
OK.

0:50:54.606 --> 0:51:14.526
James Derek Ball
We've got 15 minutes. What segment are you the most positive on? So you've got nobody claiming pizza, 0%. You've got about a third saying chicken, 17% saying burgers, 20% Mexican and 28% specialty. I think that's the biggest change over 2020.

0:51:13.46 --> 0:51:13.286
Rick Ormsby
Yeah.

0:51:14.606 --> 0:51:30.486
James Derek Ball
23 is the specialty has really grown just over the last couple of years. You've got obviously the coffee concepts that we've already discussed. You've got the smoothie concepts that have kind of grown. You've got cookie concepts that are that are that are growing quite a bit.

0:51:30.806 --> 0:51:30.886
James Derek Ball
Um.

0:51:32.126 --> 0:51:33.806
James Derek Ball
Rick, any thoughts?

0:51:34.126 --> 0:51:54.6
Rick Ormsby
I I guess my comment would just go back to what I was rambling about before the in in you know on Mike's comment about the franchise or bringing new products to the marketplace because like we got some I mean I you know I kind of have always you know viewed myself I used to work for young brands years ago right KFC, Taco Bell and Pizza Hut. So I think like more of a legacy QSR guy and I think.

0:51:54.126 --> 0:52:13.606
Rick Ormsby
Myself as I just drive down the road in my hometown, you look left and right and these smaller like chains are coming up and kicking everyone's ***, aren't they? They they really are in many cases. And so I'm not surprised to see this specialty number growing really and and I I would suspect that it's going to continue to grow.

0:52:14.126 --> 0:52:29.366
Rick Ormsby
Chicken was always the big one. Like over the last five or six or seven years, chicken exploded like at the expense of burgers. Really. Mexican has always kind of been that 20% number, but it's the specialty that I think is probably grabbing from the chicken and the burgers.

0:52:21.526 --> 0:52:21.766
Eagen,Michael E
Yeah.

0:52:30.686 --> 0:52:33.446
Eagen,Michael E
Mm-hmm. Bad time to be a chicken.

0:52:33.86 --> 0:52:38.6
Rick Ormsby
Yeah, a lot of competition on the chicken side, you know, you know what I mean?

0:52:36.806 --> 0:52:53.646
Eagen,Michael E
Yeah, on on a specialty stuff on a coffee, I mean I'm in a mindset like people are looking for affordable indulgences and you guys have heard me say this before when the average ticket at a drive through is you know, mid teens, 12/13, $14.00 if you can get a.

0:52:53.726 --> 0:53:4.446
Eagen,Michael E
Special coffee for less than 9 dollars, $8 that becomes an affordable indulgence somebody can reward themselves with at a reasonable level.

0:53:6.686 --> 0:53:24.686
Rick Ormsby
Yeah, it's funny. And and I realize too, don't you guys, that I'm not the target market for some of this stuff anymore. It's difficult for me and and maybe it's our generation too. I'm 50, almost 51. It's it's difficult for me to envision drinking like 500 calories. Like I just, I'm not accustomed to that.

0:53:25.606 --> 0:53:44.846
Rick Ormsby
But I realized when I talk to my kids that they don't. I mean, like in my kids aren't like overweight or whatever. They just like reallocate their calories and what they eat differently than the way I do. And so I was always the guy who had a Big Mac, a large fry and a Diet Coke, you know what I mean? But they're like, they're like a smoothie and salad or what I mean, like, you know?

0:53:33.166 --> 0:53:33.486
Eagen,Michael E
Yeah.

0:53:42.966 --> 0:53:44.326
Eagen,Michael E
Alright, alright.

0:53:44.926 --> 0:53:47.166
Rick Ormsby
It's a totally different deal, right?

0:53:46.886 --> 0:53:46.966
Eagen,Michael E
Hi.

0:53:48.46 --> 0:53:53.726
Rick Ormsby
Yeah, yeah. Anyway, you think I'm crazy. OK, #13. Like, who is this guy, right?

0:53:51.766 --> 0:53:52.806
Eagen,Michael E
You're good.

0:53:53.766 --> 0:54:5.446
James Derek Ball
I didn't. I I 8 to 9 bucks for a coffee. I'm a black coffee drinker, so I mean that that's crazy to me. But again, I couldn't fathom drinking a 500 to 1000 calorie drink.

0:53:53.846 --> 0:53:55.926
Rick Ormsby
Like, who is this guy, right?

0:54:0.486 --> 0:54:2.6
Rick Ormsby
Yeah, yeah.

0:54:5.126 --> 0:54:6.206
Rick Ormsby
Me neither.

0:54:7.486 --> 0:54:12.246
Rick Ormsby
Yeah, for sure. #13, we got three more. It looks like we'll make it. We got to go quick though.

0:54:12.686 --> 0:54:31.766
James Derek Ball
Well, part of the loan process is getting the most scrutiny from your risk department. You've got about 1/4 saying interest rate and fees, 1/3 saying amortization and terms, another quarter saying deposits and ancillary business and you've got you know 14% saying personal guarantees. Looks like deposits and ancillary business is.

0:54:13.206 --> 0:54:13.966
Rick Ormsby
This important one.

0:54:31.966 --> 0:54:37.646
James Derek Ball
Is a little less important today than two years ago. That's the major change from two years ago.

0:54:35.126 --> 0:54:35.766
Rick Ormsby
Yeah.

0:54:37.766 --> 0:54:48.766
Rick Ormsby
Yeah, yeah. I think that's the that's the that's the comment here. We talked about that a little bit before. So yeah, I think Mike might have jumped off for a second or or went mute. So let's go to the next one to 13 or 14.

0:54:51.206 --> 0:55:5.806
James Derek Ball
What metric's the most important right now? You've got about half saying lease adjusted leverage, a third saying the FCCR and 20% saying debt to EBITDA. Generally speaking, it's in line with what we saw two years ago, so not really much change.

0:55:6.406 --> 0:55:9.446
Rick Ormsby
Yeah, there was a.

0:55:7.406 --> 0:55:13.6
Eagen,Michael E
Sorry guys, my head headset died out there. I had to grab another one real quick. Um.

0:55:11.526 --> 0:55:24.46
Rick Ormsby
I think what I think what Mike's going to say here is he would have expected fixed charge coverage ratio to be more impactful now because of the higher interest rate and interest expense.

0:55:22.446 --> 0:55:23.366
Eagen,Michael E
It is.

0:55:24.566 --> 0:55:41.126
Eagen,Michael E
It is. That's something you got to watch. It's it's more sensitive than it was before and I and I I think it's probably true to say versus three years ago you've probably lost 25 basis points in that ratio because interest has has climbed as a bigger percentage.

0:55:41.806 --> 0:55:43.326
Eagen,Michael E
Cash flow coverage.

0:55:42.86 --> 0:55:42.406
Rick Ormsby
Yeah.

0:55:43.606 --> 0:56:3.446
Rick Ormsby
I've got a question coming in here that we can just address. He said this, this gentleman said I might have missed it, but how do you guys think about beverage as a category? So you know we we talked about that just a little bit, but any any comments, you know high margin looks like you got high traffic growth, growth, a lot of excitement in some of these concepts I do.

0:56:3.526 --> 0:56:22.766
Rick Ormsby
Wonder you know how much of this is being taken at Starbucks expense and what will will the growth flatten it all? But but again, I I think I fall must fall into this camp where I don't fully understand the 500 calorie drink and maybe I never will, but it certainly has some incredibly good.

0:56:23.86 --> 0:56:28.446
Rick Ormsby
Unit economics, some of these brands, I mean like outstanding, you know, what do you guys think?

0:56:25.886 --> 0:56:26.6
Eagen,Michael E
Yeah.

0:56:28.366 --> 0:56:44.686
James Derek Ball
Well, it's growing big. I mean, I'm, I'm only, well, I'll just say I'm only thirty-five. I graduated high school about 20 years ago. I don't recall anybody in my high school drinking like maybe the one or two crazy people would bring like a coffee to school.

0:56:44.966 --> 0:57:4.806
James Derek Ball
And I feel like every high school kid I see nowadays has a coffee or an energy drink in their hand. Like, it's just something that was unheard of, I think even 20 years ago. I think it's a pretty massive shift. And you mentioned it for your kids. It's a pretty massive shift. Like, you know, they're going to, they're going to the Seven Brewer Dutch Brothers and and getting that.

0:57:4.886 --> 0:57:18.886
James Derek Ball
Massive drink with 500 to 1000 calories with two or 300 milligrams of caffeine that that was not a thing 20 years ago, I think personally, but I saw anyway for for kids that age, it's it's growing massively.

0:57:16.286 --> 0:57:16.566
Eagen,Michael E
Agree.

0:57:18.646 --> 0:57:19.566
Eagen,Michael E
Yeah, alright.

0:57:18.726 --> 0:57:38.6
Rick Ormsby
I don't think you're going to convince people our age ever, I would say in general to to change their habits and drink 1000 calorie drinks. So the the question would be for the person who asked the question, you know, talk to 100, go talk to 125 year olds and see what and and see what they say. You know, you know what I mean? Like I try to convince our 21 year old daughter how crazy.

0:57:38.326 --> 0:57:51.886
Rick Ormsby
Is to drink those drinks and I can't get through to her. She she's like, I love them. It's my favorite concept. I'd stand in a line at Stephen Brewer Dutch Bros for 30 minutes to get the drink that I want with the little flavors and all the things. And so it's great.

0:57:42.486 --> 0:57:42.846
Eagen,Michael E
Yeah.

0:57:50.326 --> 0:58:5.966
Eagen,Michael E
I I don't lose sight of the fact it's legal addiction. It's caffeine, right? So it's habitual. It is part of a routine. I would tell you that you guys are the wrong sex because honestly, some of the study I've done of these brands, they they skew much more female oriented.

0:58:5.126 --> 0:58:6.726
Rick Ormsby
Well, they do. They do, huh?

0:58:6.86 --> 0:58:25.726
Eagen,Michael E
And and it is younger people, it is affordability, but it, you know, it's something new and it's exciting and it's a lot of what I kind of described earlier with the franchisors is it's something new and exciting. It's is it trendy? I haven't seen the weakness yet and I would tell you that if if there was going to be a stress test on.

0:58:25.926 --> 0:58:45.766
Eagen,Michael E
Some of these coffee brands, it would have happened in the first six months of this year when the consumer started retreating, right? So on the consumer, look, GDP, 70% of GDP is consumer spending and the lower income households have pulled back hard. There's plenty of empirical data out there on that, right?

0:58:39.126 --> 0:58:39.886
Rick Ormsby
Mhm.

0:58:45.846 --> 0:59:5.6
Eagen,Michael E
If you own assets, you go to, if you own more assets, you go to more restaurants, frankly, yeah. And and oftentimes the higher income will go to the full service restaurants. So they skew that way. But I would have expected weakness on the first six months of this year in some of these brands and they're still putting up double digit comps.

0:58:51.166 --> 0:58:51.726
Rick Ormsby
Mhm.

0:59:5.246 --> 0:59:5.886
Rick Ormsby
Mhm.

0:59:5.446 --> 0:59:20.726
Eagen,Michael E
Over double digit comps the year prior. So it's it's similar. I make the joke in Kubler Ross, which is a psychological term for the five stages of grief. This is the five stages of disbelief you start out.

0:59:8.206 --> 0:59:9.326
Rick Ormsby
Mhm. It's amazing.

0:59:20.806 --> 0:59:40.326
Eagen,Michael E
I don't believe this. There's no way people drinking that much coffee or at that price or why they go so often to, well, maybe it works. Then you start to see the numbers, then you start to believe and then eventually you start to evangelize on it. And I'm I'm kind of getting to that point. It's just like this might be something new at that's got some legs and some of the other.

0:59:40.326 --> 0:59:47.926
Eagen,Michael E
The restaurant brands are out there trying to, you know, replicate that, especially the QSR folks as well, but one of the magic.

0:59:49.726 --> 1:0:4.326
Eagen,Michael E
Buttons on this whole thing is the fact that it's throughput, it's quick and if you try and sell food or around the beverage or you try and manage delivery through the the queue and the drive through, it's going to create pressures for some of these brands. So it's unique.

0:59:53.966 --> 0:59:54.206
Rick Ormsby
Yeah.

1:0:4.246 --> 1:0:11.486
Rick Ormsby
Kubler's 5 stages of grief. What the heck, Mike? Nutty professor. Nutty professor. All right, here we go. But.

1:0:7.806 --> 1:0:12.326
Eagen,Michael E
Google Ross was it was the psychology minor that I had.

1:0:12.566 --> 1:0:32.246
Rick Ormsby
Good friend of ours and hello, you know, man, how you doing? He he typed in here and he goes, I think QSRS will work on trying to get some of those beverages and and some of that share from the beverage market. And you know, watch out, you know, because they will. You know the smart ones will get in there like Taco Bell and they'll start cranking out those same drinks, but they got better footprint.

1:0:26.326 --> 1:0:27.806
Eagen,Michael E
Yeah, yeah.

1:0:32.326 --> 1:0:39.686
Rick Ormsby
Better real estate all over the country. And so that's something to watch. OK, we got two more questions in just a couple of minutes, so fire away #15.

1:0:42.926 --> 1:0:59.646
James Derek Ball
What's your expectation on lease adjusted leverage movement in the next six months? You've got nobody saying 25 to 45 basis points lower, got 10% saying 1015 to 25 basis points lower. You've got 35 saying zero to 15 basis points change.

1:1:1.966 --> 1:1:11.166
James Derek Ball
15 to 25 saying it's gonna, I'm sorry, 15 to 25 basis points higher. It's about 40% and about 17%, you know, 25 plus basis points higher.

1:1:13.446 --> 1:1:18.486
Rick Ormsby
Comment. Why, Mike? Yeah, why? What? What do you what? What do you make of this?

1:1:13.966 --> 1:1:16.766
Eagen,Michael E
You know, I'd I'd say it depends on the brand that that.

1:1:18.726 --> 1:1:38.46
Eagen,Michael E
Depends on the brand and and you've been through some of the more difficult points I I think up to this you know and and there's just a view that portfolios are holding up. Lenders didn't over lever, they didn't blow up. They didn't have a lot of write downs over the past 2-3 years even in this environment where interest rates.

1:1:38.326 --> 1:1:53.366
Eagen,Michael E
Sensitivity is a big issue, so you can take a little bit more risk and everybody's got loan growth goals to fulfill. And so I do see some situations that stretch. I've seen syndications that get a little bit hung.

1:1:53.446 --> 1:2:3.726
Eagen,Michael E
Where they can't clear market at the levels that they really wanted to, but they do clear market. So we're back to an environment of taking a little bit more risk, risk on if you will.

1:2:4.6 --> 1:2:11.566
Rick Ormsby
Yeah, well said. Well said. All right. Final question, I believe, right, Derek, #16.

1:2:13.46 --> 1:2:27.486
James Derek Ball
Based on the Fed's actions, where do you see the interest rates settling over the next six months? You've got 25 to 50 basis points lowers, 3/4 of the respondents got two people saying over 50 basis points lower. You've got four people saying no change.

1:2:28.126 --> 1:2:43.566
James Derek Ball
And you've got one person saying they think interest rates will go up 25 to 50 basis points. Nobody's saying anything higher than that. So compared to 2023 where they were still raising rates, obviously it's a little, little nicer environment here on the decline.

1:2:44.646 --> 1:3:2.6
Rick Ormsby
It's funny, I see this. You know what comes to my mind? I see so many people say 25 to 50 basis points lower, right? So what do you think? I think right now they're obviously wrong. You know what I mean? Like, you know, all the smart people always come out with the wrong answer. You know what I mean? So.

1:2:45.206 --> 1:2:45.406
James Derek Ball
Yeah.

1:3:2.406 --> 1:3:21.726
Rick Ormsby
Who the heck? Who the heck knows? We're expecting, you know, interest rates to go down. How much we don't know. There's been a lot of national news about that. Lower interest rates hopefully have a good impact on our business, on the real estate market too. And one of the things we'll do is we'll have it later this fall, have a real estate kind of seminar, webinar pod.

1:3:22.446 --> 1:3:22.806
Rick Ormsby
Cast.

1:3:22.846 --> 1:3:42.726
Rick Ormsby
Where we'll talk about cap rates, Mike, you alluded to it. Cap rates are still kind of in this kind of crazy place where you know they're in the, you know, high fives, low sixes. There's been a lot of supply build up in the in the real estate market and not as much demand, but we're kind of seeing things start to clear a little bit more, you know, kind of gradually little.

1:3:42.806 --> 1:4:2.406
Rick Ormsby
By little and that may mean that the that the cap rates get worse slightly before they get better because it's a supply and demand thing. But I that's the comment that I make when I see this Fed action and the interest rate movement. We are one minute or so away. So I'll leave maybe any other final comments. Mike, you want to have a, you know.

1:3:55.566 --> 1:3:56.86
Eagen,Michael E
Yeah.

1:4:2.486 --> 1:4:4.526
Rick Ormsby
30 seconds here and then we'll end U.

1:4:3.406 --> 1:4:19.766
Eagen,Michael E
Yeah, yeah, yeah. No, I I think for the big picture, this is a lender survey. Things are happening with the current administration, whether it's interest rates, you know, the pounding of the table to make them lower or or threats to board members in order to force them to go lower, I think they will go lower.

1:4:20.126 --> 1:4:38.606
Eagen,Michael E
In the near term, what that impact is on the yield curve is questionable. I think the long end of the yield curve went up the more the Fed cuts because investors expect inflation in the future as a result of that the banking industry, things are happening around the banking industry where.

1:4:38.726 --> 1:4:54.606
Eagen,Michael E
You can now close bank mergers in three or four months in some cases, where before it was 14 months and you may not get to the finish line. So the current administration has relaxed the regulatory constraints in order to make mergers happen, and so Synovus is in the middle of merging with.

1:4:54.766 --> 1:5:11.446
Eagen,Michael E
Pinnacle Bank that's been announced as a merger of equals. We're both about the same size and we'll we'll continue to serve this market with a robust action of of you know grow the portfolio. It's it's been a great place to put money to work. I think you're going to continue to see.

1:5:11.726 --> 1:5:31.206
Eagen,Michael E
Bank mergers occur, maybe not at the level that I saw when I was coming out of school in the early 90s where there was a bank merger every week, but it has been made more benign for mergers to occur. And so there's there's going to be some volatility that comes with that as well as banks try to get bigger and crossover into.

1:5:31.366 --> 1:5:50.46
Eagen,Michael E
There's a few key thresholds of asset size, 100 billion, 250 billion, 750 billion. You're gonna see more activity in that space when it comes to the lending market. But overall, I mean, this is still a great industry to put money to work in. It has been for me for 27 years, 28 years now.

1:5:51.366 --> 1:6:9.166
Eagen,Michael E
There's always something new and fascinating to to find a spot that catches the imagination of consumers and and I'm I'm still feeling really good about the industry. I think this year ahead will be better than last year. So I think there's a silver lining through all the all the noise and and confusion.

1:6:10.526 --> 1:6:30.326
Rick Ormsby
Thank you so much. We really appreciate it, Mike. Thank you for joining us and for everyone who attended, we really appreciate it. I guess the for for for this to end this way, we would say mild and modest optimism and we hope for better things to be happening. We kind of see it playing out and so we're encouraged by that. Hang in there, call us if you have any questions.

1:6:30.526 --> 1:6:33.766
Rick Ormsby
Thank you so much for being a part of it, Mike and Derek. Really appreciate it.

1:6:33.46 --> 1:6:33.846
Eagen,Michael E
OK. Thank you.

1:6:34.566 --> 1:6:35.326
Thanks everybody.

1:6:35.6 --> 1:6:37.486
Rick Ormsby
You're awesome. See you around. Bye. Bye now.