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Restaurant Deal Trends to Watch

By October 13, 2020No Comments

By Laura Michaels

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As every edition of Franchise Times’ Dealmakers e-newsletter demonstrates, merger and acquisition activity in franchising hasn’t stopped during the coronavirus pandemic—it just might look a little different.

Whether it was MOD Pizza acquiring 13 locations from operator SD Holdings, which filed for bankruptcy in February, or franchisee Conifer Industries selling 16 KFCs to fellow operators Mike Kulp and Barry Dubin of KBP Foods—Conifer’s first M&A transaction—restaurants are moving. How they’re being sold, their valuations and the financing options out there were a few of the topics discussed during yesterday’s Buying and Selling Restaurants webinar, presented by FT sister publication the Restaurant Finance Monitor.

Keep reading for some key takeaways from the webinar, and watch the full recording here.

More than 1,000 new buyers are actively looking for restaurants through National Franchise Sales, noted Vice President Michael Ingram, only about 20 percent less than normal and demonstrative of the level of capital that’s ready to be deployed.

“We’ve seen lots of situations where clients may want to look at different concepts to diversify their portfolio. So there’s capital on the side and buyers that are interested in expanding their world,” said Dru Garcia-Richardson, senior VP at Manufacturers Bank. “And then of course there are the smaller franchisees that are looking to determine what is a good time to sell, given the challenges they’re having to deal with in terms of maintaining their sales levels or AUVS.”

The vast majority of buyers are already in the restaurant space, added Brad Cashman, an attorney at Monroe Moxness Berg who works on franchise M&A deals, as well-capitalized groups are always looking to buy. Another type of buyer, he continued is one who, surprisingly, has maintained strong cash balances through the pandemic.

“A lot of the QSR restaurants with great drive-thru businesses have actually improved revenue, as well as profitably with less costs in the in-dining services. So some of these folks out there are looking to buy with cash or looking to buy with pretty limited leverage to find the next deal,” said Cashman.

Plus, noted Ingram, “the private equity groups have been coming out of the woodwork” as they see opportunity ahead.

On the sell side of the equation, Ingram said some brands are doing so well, up 40-plus percent in sales with fewer costs, that while they’re in a good position to go to market, they’re instead “going to ride it out” and see how long they can continue to generate profit.

Valuations, meanwhile, are largely dependent on looking at both 2019 and 2020 financials, and the viewpoints of buyers and sellers who either believe the unit performance last year is a better long-term representation of the value or who see their sales lift in 2020 as sustainable.

Though demand is there for QSRs, a restaurant with a large alcohol component or big sit-down area, pointed out Cashman, “is a no-go. Nobody is out there willing to buy those at this point until they see what it’s going to look like post-COVID.”

In deals that are moving through the sale process, the panelists agreed they’re seeing a more relaxed attitude from franchisors on remodel requirements, though adjustments to development schedules are less common.

Catch the full webinar here.

Source: Restaurant Deal Trends to Watch – Franchise Times News – September 2020 – FranchiseTimes.com