Franchise Loan Originations Peaking

  • 2016 restaurant originations reached a new all-time high as the entrance of new lenders more than offset the void from GE Capital’s exit.
  • 2017 origination prospects are solid, although slightly less bullish.
  • Borrowing rates ticked-up in 2016 due to a slight increase in spreads and index rates with a similar outlook expected for 2017.


Source: RR's 2017 Franchise Finance & Valuation Report (outline)



Public Valuations Outdistancing Franchisee Multiples 

  • Peaking franchisee unit level EBITDA valuation multiples.
  • Public franchisor EV/EBITDA multiples continue to rebound, creating a larger premium to private multiples. 
  • Current real estate cap rates reached new lows.


Sources: Hedgeye; RR's 2017 Franchise Finance & Valuation Report (outline)

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Inflation Coming?? 

  • Treasuries are telegraphing higher inflation which, in turn, suggests elevated interest rates. While real assets (restaurants or stores) represent a great inflation hedge, prospects of higher interest rates could also suggest lower valuation multiples for a highly leveraged asset class. One thing is for sure, operators must maintain pricing power by improving service, experience & product if they are to pass along higher input prices. 


Who Wants to Tip?

  • With declining unit supply and only 30% of consumers shopping deals, what is the problem with casual sales?
  • Could it be that consumers are growing tired of tipping? If so, growing to-go sales maybe more important to the segment than we know as this channel allows consumers to avoid tips and lower their bill by 15% to 20%, leveling the playing field with fast casual.  

Source: Brinker reports

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