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Friday
Jan112019

Public Valuations Outperform Franchise Valuations

 

Public Valuations Outperform Franchise Valuations

  • Public franchisor EV/EBITDA multiples edged higher relative to private franchisee EBITDA multiples during 2H:18 and the public multiple premium is at the top of our historic range (since 2010).
  • Notably, the QSR public valuation multiple premium widened to an all-time high vs. FSR (+67% premium)

  • In a stark contrast with the ascent of public stock valuations and their "asset light" model, 2H:18 franchisee EBITDA valuation multiples declined from 1H:18 and are expected to remain under pressure in 1H:19 due to unit level margin challenges driven by modest sales prospects, high level of industry discounting & rising labor costs.
  • Also, valuations are pressured by higher interest rates (although they have pulled back in January) and greater unit supply.
  • Finally, we hear that some lenders are turning more cautious although overall access to capital remains strong.

  • Consistent with public stock valuation trends, the casual segment experienced the steepest franchisee multiple decline (-4.7%) with every chain posting lower multiples as decelerating comp performance (+3.4% 3Q vs. +1.9% 4Q outlook) coupled with more aggressive discounting (39% value mix 1H:18 vs. 48% 2H:18) is expected to continue to weigh on casual store level margins. 

 

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

 

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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.

 

 

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