In case you missed it!Many in the franchise community have been asking themselves : How can restaurants be sold in the current environment? How are they getting financed? How are they being valued?
These and other questions were examined recently during Restaurant Finance Monitor’s presentation of Buying and Selling Restaurants: Insight on the Restaurant Deal Climate .
National Franchise Sales Vice President Michael Ingram joined esteemed Franchise Times Corp. President, John Hamburger and a panel including Brad Cashman, Attorney with Monroe Moxness & Berg; and Dru Garcia-Richardson, Senior Vice President of Manufacturers Bank.
Much of the conversation surrounded buyer activity and what type of buyer is currently in acquisition mode. Mr. Ingram described the buying market in recent months as a mix, with diversification trends seen among private equity firms that are already in the restaurant niche, and multi-unit operators looking to expand into different concepts – these are well capitalized organizations with money to deploy and they are scouring the market for the next opportunity. Also, first time buyers and smaller franchise operators are showing interest in the possibility of running ‘simpler’ operations with no in-room dining or restroom maintenance.
Ms. Garcia-Richardson offered a look at current lender underwriting considerations. Banks are focusing on revenue trends and what’s driving them, looking at short-term adjustments that could be driven by tenuous circumstances that are prone to change, like gradual re-opening of facilities, or PPP recipients with temporary extra funds who are looking to spend on comfort food. QSR appears to do fairly well through underwriting but lenders are diving deeper into even up-revenue brands to determine what stabilized revenues look like once more brands and markets expand into normalized operating practices.
Mr. Cashman discussed the activity load lenders are dealing with as currently centering on PPP and preservation tasks and noted that many banks are low on man-power to focus on new loans.
Both financial experts cited changes in financing since pre-COVID: Higher interest rates, an increase in the mandate for guarantees, less leveraging tolerance and more conservative underwriting guidelines.
Mr. Ingram, as part of the valuation conversation, advised that valuations as always are market based. Supply and demand and what a buyers who will be approved by the franchisor, the landlord and the lender are willing to pay must be considered when settling on a list price with a seller. Ms. Garcia-Richardson cautioned that even if market value may be higher a bank might finance a lower multiple because of 2020 numbers, as they want to be sure cash flow is sufficient to pay the debt.
The outlook for a post-COVID market may see franchisees without a family succession plan, ready to sell once AUVs normalize.
To view and listen to the entire webinar Click Here