RRupdates
Thursday
Mar072019

 

RR Roundtable: Key Trends in Franchise Finance

 

 

 

  • Originations have been trending down which reflects increasing share from regional banks without dedicated franchise finance groups (not included in our survey) and the wrap-up of refranchising with corporate store ownership declining from 22% in 2008 to 16% in 2018. The QSR corporate ownership level is even more pronounced at just 11% with Starbucks representing half of all corporate owned stores currently.

 

Increase in loan size follows operator consolidation trends driven by:

  1. Franchisees scaling-up to maintain cash flows in an inflationary cost environment.
  2. Franchisors encouraging consolidation because larger operators tend to have more capital for facility investments.
  3. Succession planning.
  4. Greater availability of consolidation capital from lenders who are increasingly comfortable with this space.
  5. Proliferation of private equity and family offices pursuing roll-up strategies.

 

  • Despite the decline in annual originations, the number of lenders has steadily increased since GE Capital's exit in 2015.
  • Some of these new players do not originate loans, but rather, participate by purchasing large syndicated loans. This model can be profitable given a significantly lower overhead relative to loan originators.

  • The industry has evolved from the predominance of a few, large lenders to a structure which includes many more, smaller players. This benefits borrowers and also helps to spread credit risk across a greater number of financial institutions.
  • Notably, despite the increase in industry players, loan spreads have remained fairly stable since 2015 which suggests that increased competition does not necessarily mean less profit for the lenders. 

 

 

Please pass on to your colleagues

 

Disclaimer of Liability: Although the information in this report has been obtained from sources Restaurant Research® LLC believes to be reliable, RR does not guarantee its accuracy. The views expressed herein are subject to change without notice and in no case can be considered as an offer or solicitation with regard to the purchase or sales of any securities. Restaurant Research’s analysis and opinions are not a guarantee of the future performance of any company or individual franchisee.  RR disclaims all liability for any misstatements or omissions that occur in the publication of this report. In making this report available, no client, advisory, fiduciary or professional relationship is implied or established. This report is intended to provide an overview of the restaurant industry, but cannot be used as a substitute for independent investigations and sound business judgment. Copyright 2019.