Valuations for Indian foodservice companies are 42% above the market average for that country. The current EBITDA margin for Restaurant Brands as of September 30, 2020 is . Aaron Allen & Associates. But some deals have gone even higher. Over the past ten years, European PE buyout EV/EBITDA multiples have typically outstripped public multiples on an annual basis. Chipotle, Shake Shack, and Starbucks are leaders with regard to purpose-driven brands, and Domino’s is at the foodservice technology frontier. For an investment banker or someone trying to sell a restaurant company, high multiples provide a basis for pricing a business at a premium while lower multiples offer a filter to find assets that might be undervalued. Historically speaking, restaurant valuations have increased significantly. This is primarily due to future growth considerations. We bring practical, relevant experience ranging from the dish room to the boardroom and apply a holistic, integrated approach to strategic issues related to growth and expansion, performance optimization, and enterprise value enhancement. In the second quarter of 2018, these multiples fell to 3.1x—the lowest levels since the third quarter of 2013. In general, any business with an EBITDA somewhere between the one million and ten million dollar range will enjoy an EBITDA multiple anywhere between 4.0 time to 6.5 times. Determining the multiple of EBITDA (by industry) to use for company valuation can be a challenging and debated decision. and multiply it for the business EBITDA. Another factor, for example, is the recent proliferation of bolt-on deals. BDO is continuously finding new ways to help your organization thrive. EBITDA multiples vary depending on the category, geography, company size, ownership type (private or public), if the business is franchised or not, and other factors. Restaurant Brands International Inc., the entity formed following the 2014 merger of Burger King and Tim Hortons, paid 21 times EBITDA for Popeyes Louisiana Kitchen, Inc. The rationale behind a deal can range from portfolio diversification—a brick-and-mortar-based business acquiring a company that specializes in food … There are many attributes that factor into choosing an EBITDA multiple, with one of the most influential aspects being the industry in which the valuated business operates. For instance, high tech businesses will typically be valued at higher EBITDA multiples than … The EV/EBITDA ratio is a popular metric used as a valuation tool to compare the value of a company, debt included, … Needless to say, these numbers are extremely generic, and plenty of industries have a multiple above or below that average. 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. For franchisees and for private companies with smaller footprints the multiples can be significantly different, and industry expertise is required to determine the right set of peers to arrive at an accurate valuation. On the one hand, companies like Etiler (Turkey fast food operator) and Saudi Airlines Catering have EV/sales multiples considerably higher than the median. Boards’ High Stakes Balancing Act: Navigating Through Crisis. You can think of us as a research company, think tank, innovation lab, management consultancy, or strategy firm. Subscribe to receive the latest BDO News and Insights, Prep Before the Rush: Restaurant M&A Heats Up, Business Restructuring & Turnaround Services, International Financial Reporting Standards, Financial Institutions & Specialty Finance, BDO Center for Corporate Governance and Financial Reporting, The Counter: Restaurant Industry Scorecard – 1Q 2019, Do Not Sell My Personal Information – For CA Residents as to BDO Investigative Due Diligence, Temporary agreements to reduce franchise fee for remodels. As previously mentioned, tech businesses that are within the same EBITDA range usually … Each of these companies also benefit heavily from earned media. To calculate EBITDA, restaurant owners must subtract their fixed costs from their gross profit. Undeployed capital in the restaurant industry is no exception, and investors often fail to find the right opportunities. The EBITDA Multiple is best considered a rule of thumb, a quick way to estimate business value by applying a discount rate to a measure of cash flow. On the buy-side, it may be worth paying a premium in valuation multiples for the right platform (in high-growth geographies and segments) and incremental add-ons. As with most things, whether or not it is considered a “good” metric depends on the specific situation. There are different reasons why restaurant valuations for some companies can reach such high values: The below map shows valuations for some of the biggest foodservice companies in the globe. 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. And foodservice companies are increasingly becoming a target. Jan 18, 2020 | Unit Level Trends. The basic calculation is: Normalized EBITDA x EBITDA Multiple … where a company’s EBITDA is adjusted to remove discretionary or non-recurring expenses, and the multiple reflects the re… In 2018, restaurant M&A multiples ranged from 8–12x EBITDA, according to Citizens Financial Group. Undeployed capital in the restaurant industry is no exception, and investors often fail to find the right opportunities. Food delivery companies tend to be valued comparatively higher than restaurants and this is consistent across markets. When it comes to business, innovation is changing everything. RESTAURANT VALUATIONS ARE HIGHER FOR LARGE COMPANIES, What the Future Holds for Restaurant Mergers and Acquisitions, Earned Media: The Unsung Hero of a High Valuation, The Most Active Restaurant Private Equity Firms, A History of Restaurant Initial Public Offerings, 2000-2017, Private Equity Deals Make Their Mark On the Middle East Restaurant Industry. As an example, a restaurant chain with $1 million in EBITDA would be valued at approximately $10.5 million. Among publicly traded companies in the US, the range of EV-to-EBITDA multiples goes from 5x to 37x. Despite that, the Coffee/Snacking segment continues to hold the highest valuation (10% higher than QSR). Those with a unique concept in a growth market will be most likely to see investment; though this also means that valuations for many CDRs are lower, making for prime investment opportunities with the right turnaround plan (though this is obviously not true for all CDRs). The market cap of McDonald’s, for instance, is much greater than that of other large foodservice leaders in 11 other countries. 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. The median across all industry sectors is 3.0x. With only a handful of public restaurant companies in the Middle East, comparisons turn to the broader “Consumer Cyclicals” segment when a market approach of comparable companies is used to value a restaurant chain. It’s especially noteworthy considering 25% of the world restaurant & dining public companies are in the US, while only 2% are in India. In QSR, pizza chains (like Domino’s) and coffee/snacks restaurants (like Starbucks) tend to have higher valuations than the average fast food chain. When Private Equity firm The Abraaj Group invested in the Saudi Arabian quick-service restaurant brand Kudu, it was rumored to have paid 22 times the company’s earnings. We are focused exclusively on the global foodservice and hospitality industry. Private Capital through Crisis: Calculating Risks. These EBITDA multiples are generally in the range of 3.0X – 8.0X. Many operators and owners view restaurant EBITDA a… If there’s a liquidity crisis, M&A opportunities will come through consolidation and distressed assets investment. Among public foodservice companies in the US, large-caps tend to have higher valuations (15.2x the median) than mid-caps (25% lower valuation) and small-caps (38% lower valuation). Among U.S. publicly traded restaurants, the companies with the best public image are in the top quartile of valuations (measured by EV/EBITDA). On the other end of the spectrum, Restaurant Group, Bravo Brio, and Punch Tavern have the lowest valuation ratios. U.S. restaurant valuation multiples are 5.5% above the global average, only surpassed by India, which has valuations 21% higher than the US. Over the years, the average restaurant valuation multiple has slowly crept up, now hovering somewhere around 10.5x. In 2019, as in 2009, the reverse has occurred. Our clients count on us to deliver on our promises of meaningful value, actionable insights, and tangible results. The more you upsell, the more sales you make. Innovative solutions to nonprofit organizations, helping clients position their organizations to navigate the industry in an intensely competitive environment. Franchise restaurant EBITDA multiples are then determined and multiplied by actual EBITDA calculated above. There are plenty of opportunities for restaurant operators searching for capital — particularly those in higher-growth markets. 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. While EBITDA multiples across all industries were highest over a five-year period in the third quarter of 2017, at 4.7x, in the second quarter of 2018, these multiples plummeted to 2.8x—the lowest level … EV/EBITDA multiples: Index indicating the enterprise value (EV) multiples against earnings before income tax and depreciation and amortization (EBITDA ) *In this analysis, we determine EV as the total of market capitalization and interest-bearing liabilities. For announced transactions in 2019, restaurant multiples saw a not-so-modest increase from 1.4x revenue in 2018 to 1.5x revenue. Statista. Improving restaurant EBITDA requires you to focus on cash items of your revenue. When it comes to calculating an exit valuation, the most common and basic formula that is used is Valuation = EBITDA x Multiple (sometimes EBITDA – or profit – is substituted for revenue).. Ways of Improving Restaurant EBITDA. Mergers and acquisitions activity has been relatively robust, spurred by the drivers of a healthy deal-making environment, like high equity markets, investor confidence, and favorable credit markets. We help executive teams bridge the gap between what’s happening inside and outside the business so they can find, size, and seize the greatest opportunities for their organizations. On the sell-side, with valuations at a ten-year high (U.S. restaurants EV/Sales averaged 1.5x in 2019), it’s a good time to evaluate an exit. The most accurate result will likely be obtained by a combination of methodologies. Alignment with consumer demand (and purpose) has been key to unlock such a high value. Multiples fall in 1Q 2019 EBITDA multiples across all industries were highest over a five-year period in the third quarter of 2017, at 4.8x. Pros and cons of EV/EBITDA. Global reserves of private equity funds continue to increase, reaching a record high of $2.5 trillion in 2019. 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. Premiums for high-quality restaurant investments are on the rise, with valuations reaching their highest multiple (1.3x EV-to-Sales) since 2010 in 2019. Valuation multiples for publicly traded foodservice companies have decreased for all segments (except QSR) since 2013. As of 2019, the valuation multiple for QSRs was 14.3x, whereas fast-casual had a median of 10.6x. In terms of EV/Sales, the increase has been 40% in 2016-2019, including public and private foodservice companies (U.S.). In a high-valuation environment, a seller will want to have a clear idea of the growth and value drivers of the pro forma entity. Analysts speculated that the sale could eventually result in boosting the stock’s price-earnings multiple and expanding McDonald’s margins significantly. What does the COVID-19 crisis mean for your business, and for you? Dynamic resources for board of directors and financial executives. © All rights reserved. For a restaurant chain with $10 million in sales, applying a multiple of 1.3x would result in an enterprise value of $13 million. The EV/EBITDA Multiple . However, the top-quartile is valued at a 176% higher multiple. For high performing restaurant chains and those showing exponential (current or potential) growth investors as willing to pay close to three times higher multiples than the market average. • Report highlights: (1) 2019 restaurant financing volume of $9.6 billion represents a -3.3%% y/y decrease and the ... RR’s franchisee unit level business valuations (post G&A EBITDA multiple) are based on estimates provided by 8 leading appraisal firms (responsible for approximately 1,800 store valuations over the last 6 months across 45 national chains). Operating profit, on the other hand, is calculated by subtracting the costs of goods sold, plus expenses, from total sales. For EV/Sales, valuation multiples in the Middle East are close to four times those of the U.S. (when comparing the median). This is the highest amount of investment capital available in history. The Company will pay as per the agreed upon terms of the LOI, a transaction value in cash of CAD 1.03 million representing an EBITDA multiple of 2.6x. Top-quartile performers can be valued many times the average market valuation. Asset-based methods are not very common except in the case of distressed businesses. I’m still recovering from my surprise at this investment. 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. Some of the most prominent foodservice companies in the world also have a dominant presence on stock exchanges. Another common rule of thumb used is to apply the EV-to-Sales or EV-to-Revenue multiple. Stay abreast of legislative change, learn about emerging issues, and turn insight into action. In September of 2019, Sweetgreen closed a $150 million funding round earning a valuation of $1.6 billion. In general, a lower cap rate (20 to 30 percent range) effects a higher restaurant value and a higher cap rate (30 to 50 percent range) effects a lower restaurant value. Meanwhile, the lowest EBITDA multiples are in the accommodation and food services (2.5x) and the other services sectors (3.0x). Its simplicity and apparent ease of comparison across transactions and industries have made this a frequently reported measure in M&A discussions and the business press. We’ve seen a number of high restaurant valuation multiples as a result of this dry powder. 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. In the UK, Just Eat was trading at 3.7 times the average EV/Sales for foodservice companies. The valuation ratio EV/EBITDA for emerging markets went from being the highest in 2013 to the lowest of all the regions considered by the end of 2016. The variation in valuation multiples over time is a key concern to buyers, sellers & financiers. So What is a Restaurant Valuation EBITDA Multiple? While QSR and fast-casual restaurant chains have increased valuation the most, casual dining chains, in general, have grown at a more modest pace. EBITDA = Earnings Before Interest, Taxes, Depreciation and Amortization for latest 12 months. In the last two years, the rank of EV/EBITDA has been unaltered, with US restaurant companies on the high end and emerging markets in the low end of valuations. Note that due to the exclusion of negative multiples from the analysis, the number of companies used in the computation of each of the three reported multiples across the same industry may differ, which may occasionally result in a counterintuitive relationship between those multiples (e.g. Since EBITDA isn’t regulated by American accounting standards, US GAAP, public restaurant groups are at liberty to disclose the figure without scrutiny. The study found that EBITDA multiples are highest for the information sector (11.1x) and the mining, quarrying, and oil and gas extraction sector (8.6x). Cracker Barrel invests in Punch Bowl Social. Brands, McDonald’s, and Domino’s Pizza) have some of the highest EV/EBITDA multiples. The average EV/Sales multiple reached 1.3x in the U.S. in 2019 — 40% higher than three years before. As Private Equity activity continues to flourish in the foodservice sector, restaurant valuation multiples have followed suit — rising even when deal volumes drop. Similarly, Japanese foodservice companies have an EV/EBITDA ratio 30% higher than the market average (excluding financial companies). Chart. EBITDA is characterized as net cash income, or net operating income. Casual Dining had a valuation 17% lower, at an 8.8x EV-to-EBITDA multiple. Founded and led by third-generation restaurateur, Aaron Allen, our team is comprised of experts with backgrounds in operations, marketing, finance, and business functions essential in a multi-unit operating environment. EBITDA shouldn’t stand alone . Valuation multiples (which help investors decide whether to enter or exit a stock) are affected by a company’s perceived growth, risk and uncertainties, and investors’ willingness to pay. A range of values for the restaurant chain will be obtained from each valuation model and the expected valuation for the business will most likely be agreed upon in the intersection of the results. This was up from 8.95 at the same point in 2018 and 7.73 at that point in 2016. Aaron Allen » Insights » Restaurant Valuations: Global Trends. For example, a 25 percent cap rate would be a 4 times earning multiple and a 33.3 percent cap rate would equate to a 3 times earning multiple. WARNING: use with caution. If you’ve been researching restaurant valuation, you might have come across another method that’s referred to as EBITDA Multiple Valuation. There are many pros and cons to using this ratio. In the U.S. and Canada, the median valuation for publicly traded restaurants (measured by EV/Revenue) is 1.2x (as of 2019). This puts their enterprise value per unit at about $16.5m per store — close to 81% higher than that of Chipotle, and more than three times the value per unit of McDonald’s. Wall Street cheered when McDonald’s announced the sale of 80% of its operations to a consortium led by China’s CITIC and the private equity firm Carlyle for $2.1 billion in 2017. In global Private Equity markets, dry powder (marketable securities that are highly liquid and therefore considered cash-like) is reaching new heights, as the number of closed deals falls short of demand. The $1.8 billion purchase price valued the fried-chicken concept for its growth prospects and attractive margin trends. One approach is to obtain an EBITDA multiple for the category (QSR, fast-casual, casual dining, etc.) Notice that the valuation multiple should result from an accurate set of peers. You can find in the table below the EBITDA multiples for the industries available on the Equidam platform.
2020 restaurant ebitda multiples 2019