2H:19 Franchisee EBITDA Multiples

Jan 18, 2020 | Unit Level Trends

  • The variation in valuation multiples over time is a key concern to buyers, sellers & financiers.
  • We took a look back to 2008 (the start of the Great Recession) to analyze multiple variances, and as you can see below, the asset class is fairly stable.
  • This primarily reflects the resourcefulness of owner operators who are just as skilled in managing for growth as in managing for downturns.
  • Notably, the largest multiple variance we calculated was for Taco Bell, but in this case it reflected variance to the upside which reflects the brands strong growth over the last 10+ years.

  • In any case, franchisee valuation multiples do move around quite a bit. This reflects more than just changes in the fundamental strength of the individual concepts, but also includes supply/demand considerations along with changes to macro factors like cost inputs and economic growth.
  • Interest rates represent perhaps the most important external factor for multiples (as a basis to discount the present value of future cash flows and as a basis for borrowing costs in a highly leveraged asset class).
  • Since 2008, the 10-year rate has varied between a low of 1.7% to a high of 3.8%. While this may seem like a large variance, it is important to note that this entire range actually represents a historical low (which is good for multiples).

  • Of course low rates also have provided a great incentive for private equity groups to roll-up individual assets as part of their leveraged buyouts in order to benefit from the arbitrage of higher multiples for larger franchise groups. This development over the last 10+ years has been great for valuation multiples all-around.

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