Working primarily with multi-brand, multinational organizations, our firm has helped clients on 6 continents, in 100 countries, collectively posting more than $200b in revenue, across 2,000+ engagements. Worldwide, the average value of enterprise value to earnings before interest, tax, depreciation and amortization (EV/EBITDA) in the retail & trade sector as of 2021, was a multiple of approximately 18.5x. While QSR and fast-casual restaurant chains have increased valuation the most, casual dining chains, in general, have grown at a more modest pace. After a slowdown at the start of the Covid-19 pandemic, Mergers and Acquisitions in the Food & Beverage Industry accelerated through 2021, spurred in part - like other industries - by the hint of looming a higher capital gains tax rate that never materialized, while buyers leveraged low interest rates and . Led by the Inspire-Dunkin' Brands deal, 2020 turned out to be a bigger year for acquisition activity than anticipated. Ease of lending and availability of debt makes buyers put up less equity and offer higher prices. Premiums for high-quality restaurant investmentsare on the rise, with valuations reaching their highest multiple (1.3x EV-to-Sales) since 2010 in 2019. In addition, investors seem to invest in the companies of this industry based on their projected financial metrics instead of their historical financial performance. This multiple is preferred as it is normalized for differences in capital structure, taxation, and fixed assets. Debt usage tends to increase financial risk to equity holders. To evaluate the estimate of the value of the business one can use financial ratios such as: Enterprise value (EV) to gross revenues or net sales. Operating Profit. Expect more of the same this year. The trends observed in this article would tend to suggest that growth, size, profitability, and leverage all impact the valuations of the publicly-traded quick-service restaurant companies. You may also add interest if it is part of your operating profit. These restaurants have been struggling since government funding, Assuming there isn't another surge in COVID-19 cases which could be a risk as the, By signing up to receive our newsletter, you agree to our, Restaurant Brands International to acquire Firehouse Subs for $1B, Jack in the Box to buy Del Taco for $575M, Fat Brands to acquire Global Franchise Group for $442.5M, Fat Brands to acquire Twin Peaks for $300M, J. Alexander's Holdings sold to SPB Hospitality for $220M, BurgerFi acquires pizza chain for $161.3M, Jack in the Box franchisee to buy Taco Cabana for $85M, BBQ Holdings to buy Village Inn, Bakers Square for $13.5M, NPC International agrees to $801M sale of its Wendy's, Pizza Hut assets. The continued growth of dry powder (surpassing the $800 billion mark in 2021) has made investors anxious about finding investment prospects. In the LTM, however, valuations recovered precipitously and revenue and EBITDA began to increase again. For more than ten years, the multiples for quick-service restaurants and fast-casual restaurants have been higher than that of casual dining restaurant chains. Shake Shack shares trade at a valuation of 22 times enterprise value to 2019 EBITDA versus its peer group at 10.6 times, for instance. 1H 2022 Food & Beverage M&A Report. Two thirds of the companies in the top quartile (those with margins higher than 18.7%) are QSR concepts. While many adjustments are reasonable, we often see a credit to locations on the pipeline that dont have a certain opening date (for the buyer, it may be too risky to consider that 100% of franchised commitments will open). Whether you are an operator of a small family restaurant or looking to buy a multi-unit restaurant business, it is important to understand how to value your restaurant or group of restaurants. EV to EBIT and EBITDA (earnings before interest, taxes, depreciation, and amortization) Another potential factor are capacity constraints due to labor shortages felt across the broad restaurant industry. Average REV Multiple range: 0.27x 0.54x. HNA-Caissa Travel Group, listed in the Shenzhen Stock Exchange, has the highest valuation (34.4x EV/EBITDA ratio), while on the other extreme Italian-based Autogrill has a valuation ratio of 5.9x. There are plenty of opportunities for restaurant operators searching for capital particularly those in higher-growth markets. We did not observe a meaningful relationship between profitability and revenue multiples in the LTM period. In the U.S., publicly traded QSR chains have valuations 63% higher than casual dining, and fast-casual chains have valuations 20% higher (as of 2019, based on EV-to-EBITDA multiples). Recruiting and Staffing Company Valuations December 2022, Beauty Product Company Valuations June 2022, Surgical Instrument & Device Company Valuations June 2022, Cybersecurity Software Company Valuations June 2022, Quick-Service Restaurant Valuations June 2022. Restaurant EV/EBITDA: ~10.5x for large publicly traded chains, Restaurant EV/EBITDA: ~5x for private franchisees, usually with less than $5 million in EBITDA, More and more investors are considering ROIs together with purpose. Mergers and acquisitions activityhas been relatively robust, spurred by the drivers of a healthy deal-making environment, like high equity markets, investor confidence, and favorable credit markets. Therefore, we have included financial leverage among the considerations we analyze to explain the observed valuation multiples. Questions are always welcome! In the context of company valuation, valuation multiples represent one finance metric as a ratio of another. While the full-service restaurant groups also expected solid post-pandemic growth, the industry did not enjoy the same level of investor confidence. Average SDE Multiple range: 1.5x 2.83x including inventory. In 2019, as in 2009, the reverse has occurred. Woworks also boosted its newly formed platform with the purchase of The Simple Greek while Fuzzy's Taco Shop's parent created a new restaurant group called Experiential Brands, suggesting future buyouts. The industry constituents for this analysis are listed below. The calculation is as follows: EBITDA X Multiple = Value of the Business For example, a fast-food restaurant has an EBITDA of $252,000 and transacts at an EBITDA multiple of 3.97x. We also looked to identify a meaningful relationship between growth and observed LTM revenue and EBITDA multiples. For example, if a startup is showing an annual revenue of $1,000,000, the estimated valuation of this company using revenue multiple valuations by industry will be: Valuation = $1,000,000 * 3.67 = $3,670,000. In recent years, EV/EBITDA multiples for restaurants and bar brands have typically been between 7x - 8x but COVID-19 changed things overnight. Dunkin Dresses Up Its Espresso Experience with Three New Signature Lattes, QDOBA Mexican Eats Hosts Second Annual QDOBA for Kindness Celebration This Valentines Day, Feb. 14, Little Caesars Tests Crazy Bread Bouquets for Valentines Day in Key Market. One approach is to obtain an EBITDA multiple for the category (QSR, fast-casual, casual dining, etc.) Though on the surface this may seem like a positive sign, its more related to a decoupling of Enterprise Value and EBITDA growth. Brands like Chipotle, McDonalds and Starbucksarewalking a tightrope charge enough to protect the bottom line without alienating customers. While M&A dipped in 2020, activity picked up this year as the restaurant segment began to show signs of recovery, especially in the QSR space. Similarly, Japanese foodservice companies have an EV/EBITDA ratio 30% higher than the market average (excluding financial companies). If you are a potential buyer of a fast-food restaurant a business valuation can help you feel confident in the purchase price. The rule of thumb is that a small independent restaurant may be worth 3x 4x EBITDA while a multi-unit restaurant chain may be worth 6x EBITDA or more. The EBITDA multiple is the inverse of your required rate of return on capital, independent of income taxes or capital expenditures. The TEV of full-service restaurants declined dramatically in 2020 due to the pandemic. Pacific Bells, one of Taco Bell's largest franchisees, sold itself to private investment firm Orangewood Partners, for example. Some of the links in this post may be affiliate links such as part of Amazon Associate program. Debt holders have a senior position within a companys capital structure, and debt servicing occurs before any cash flow benefits (i.e., dividends) issued to equity holders. Every fast-food restaurant is different and as such the range of value can be significant. Total enterprise value calculated as the sum of market capitalization and interest-bearing debt less cash; Median earnings before interest, taxes, depreciation, and amortization (EBITDA). Latest fiscal year is abbreviated LFY (2020) and LTM means latest 12 months (latest available information as of June 30, 2021). EV to net income. Global reserves of private equity funds continue to increase, reaching a record high of $2.5 trillion in 2019. We focus on providing valuable information to help you grow, sell, or buy a fast-food restaurant. Internal Corporate Planning/Financial Benchmarking, Forecasting Financial Statements for Business Valuations. EURO STOXX 600: EV/EBITDA sector multiples Q1 2016-Q4 2021 Published by Statista Research Department , May 24, 2022 This statistic displays a sector breakdown of median enterprise value. Many of the ratios presented in this article are based on public companies, which usually get a premium in valuation due to their size or because they have large and established franchising businesses. The range of valuations given by comparable companies multiples, comparable transactions (past M&A activity of similar restaurant chains in the industry), and introducing some sensitivity in the DCF model will allow establishing minimum and maximum thresholds. All input, feedback, suggestions, and questions (including disagreements with my high-level analysis) are welcome! We provide cafe and restaurant valuation reports for clients across Australia. We support the sell-side and buy-side with valuations opinions for restaurants and foodservice technology. Full-Service Restaurant Valuations December 2021 Update, Animal Health Company Valuations December 2021 Update, Recruiting and Staffing Company Valuations December 2022, Beauty Product Company Valuations June 2022, Surgical Instrument & Device Company Valuations June 2022, Cybersecurity Software Company Valuations June 2022, Quick-Service Restaurant Valuations June 2022. Our clients count on us to deliver on our promises of meaningful value, actionable insights, and tangible results. On the one hand, companies like Etiler (Turkey fast food operator) and Saudi Airlines Catering have EV/sales multiples considerably higher than the median. As is indicated in the table above, EBITDA multiples ranged from 6.0x to 7.9x in the 1 st quarter of 2021, with an average multiple of 6.8x for the current YTD period, which was slightly lower as compared to the previous quarter's average of 6.9x. The first three months of 2021 saw a slight decrease, which lowered the median multiple to 10.2x. We examine this market data and compare it with historic data to identify key trends. Keep up with the story. In the first example, we'll demonstrate the impact of a 250 basis point increase in interest rates on EBITDA multiples for RIAs with no debt in their capital structure. In the U.S. and Canada, the median valuation for publicly traded restaurants (measured by EV/Revenue) is 1.2x (as of 2019). Be sure to also check out Valuing a Fast-food Restaurant and Value Drivers for a Fast-food Restaurant. Fat's $442 million acquisition of Global Franchise Group was the company's most ambitious purchase to date, adding a group of five brands to its portfolio. In general, fast food (QSR) and most broadly limited-service restaurants (including QSR and fast-casual) tend to have higher valuations than casual dining restaurant chains. The financial sector tends to trade at high multiples to EBITDA, of between 7-12x .Some outliers can be as low 3-4x or as high as 14-20x. Revenue X Multiple = Value of the Business. Valuations (measured by the EV/EBITDA ratio) in the restaurant industry are at 10.5x (as a median, in 2019) for publicly traded companies in the U.S. For more than ten years, the multiples for quick-service restaurants and fast-casual restaurants have been higher than that of casual dining restaurant chains. If you have been reading these articles, you know that we next look to identify a meaningful relationship between projected growth and valuation multiples. Figure 7 shows a possible correlation between size (measured by market capitalization) and LTM revenue multiples. As evidenced in the trends illustrated by the blue line (current data), actual 2020 revenue were in line with expectations. Located in a busy shopping center In Richmond Texas very close to Amazon Warehouse that has thousands of employees and close to a huge church. I hope you found this analysis helpful. If the economy is booming, emerging brands and markets will reveal new growth acquisition targets (38.6% of global M&A activity across all sectors features cross-border transactions already). We also looked to identify a meaningful. That said, fast food has been around for a long time and is successful in both good and bad markets. The effective date of this analysis is December 28, 2021. Subscribe to the Restaurant Dive free daily newsletter, Subscribe to Restaurant Dive for top news, trends & analysis. Brands, McDonalds, and Dominos Pizza) have some of the highest EV/EBITDA multiples. On the other hand, foodservice companies in China have a valuation ratio 35% lower than the market average. In some cases we will use an EBITDA multiple to capitalise maintainable EBITDA. The average EBITDA multiples for a fast-food restaurant ranges between 3.34x 4.25x. Private equity capital has been poised for picking up smaller companies with strong growth, "[M&A] might cool off in the first half of [2022], The second half of 2022 could bring more of an uptick in dealmakingaround full-service brands. Top-quartile performers can be valued many times the average market valuation. Chipotle, Shake Shack, and Starbucks are leaders with regard to purpose-driven brands, and Dominos is at the foodservice technology frontier. For example, if were dealing with a small restaurant franchisor with $1 million in EBITDA, and there was recently a similar restaurant chain that was acquired by a multiple of 5x, the value of the business would be around $5 million. This factor appears to have specifically influenced investor sentiment towards certain companies within the industry as was discussed earlier. factors that impact the value of a fast-food restaurant, 5 Questions to Consider Before Buying a Small Business, Valuation Multiples for Iron & Steel Manufacturing. The most recent EBITDA of said company is $5,500,000. Using multiples of similar businesses recently sold on the market, a valuation expert will apply a multiple to your fast-food restaurant to get a range of value. For a quick read on the basic concepts of risk and return and how they apply in the context of this article, please visit:What is Value? Aaron Allen & Associates is a global restaurant industry consultancy specializing in growth strategy, marketing, branding, and M&A advisory for emerging and established restaurant chains and prestigious private equity firms. Notice that the valuation multiple should result from an accurate set of peers. 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