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 … In 2018, restaurant M&A multiples ranged from 8–12x EBITDA, according to Citizens Financial Group. Among public foodservice companies in the U.S., large companies (those with more than $1b in enterprise value) tend to have higher valuations (13.5x the median) than middle-market chains (core middle-market restaurants have a 38% lower valuation). However, the top-quartile is valued at a 176% higher multiple. (EBITDA does not reflect noncash expenses such as depreciation and interest payments.) EBITDA = Earnings Before Interest, Taxes, Depreciation and Amortization for latest 12 months. As previously mentioned, tech businesses that are within the same EBITDA range usually … In the UK, Just Eat was trading at 3.7 times the average EV/Sales for foodservice companies. Undeployed capital in the restaurant industry is no exception, and investors often fail to find the right opportunities. We've created the BDO Library as a "go to" source for informative and thought provoking knowledge resources. Private Capital through Crisis: Calculating Risks. The EBITDA stated is for the most recent 12-month period. Cracker Barrel invests in Punch Bowl Social. There are plenty of opportunities for restaurant operators searching for capital — particularly those in higher-growth markets. Despite that, the Coffee/Snacking segment continues to hold the highest valuation (10% higher than QSR). 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. In QSR, pizza chains (like Domino’s) and coffee/snacks restaurants (like Starbucks) tend to have higher valuations than the average fast food chain. WARNING: use with caution. 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. A creative and modernized investment thesis, due diligence, and custom market landscape insights are requisite for an acquisition and expansion strategy that leapfrogs the competition. The market cap of McDonald’s, for instance, is much greater than that of other large foodservice leaders in 11 other countries. There are three valuation methods employed widely across different types of businesses: the cost approach, market approach, and discounted cash flow. The most accurate result will likely be obtained by a combination of methodologies. Some of the ways you might find effective include: Upselling: Train your staff to upsell your menu items. What does the COVID-19 crisis mean for your business, and for you? 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. This means increasing your earnings and reducing your cost. BDO is continuously finding new ways to help your organization thrive. Among publicly traded companies in the US, the range of EV-to-EBITDA multiples goes from 5x to 37x. Approximately 67percent of these transactions were backed by private equity firms.7 O… 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. 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). 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. 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. Aaron Allen & Associates is a leading global restaurant industry consultancy specializing in growth strategy, marketing, branding, commercial due diligence for emerging restaurant chains and prestigious private equity firms. Valuation multiples for hospitality and related public companies in the MENA region can vary significantly. In the second quarter of 2018, these multiples fell to 3.1x—the lowest levels since the third quarter of 2013. These EBITDA multiples are generally in the range of 3.0X – 8.0X. 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. This is the highest amount of investment capital available in history. The median Enterprise-Value-to-EBITDA multiple for US targets this sits at 10.5 times EBITDA — a massive spike to say the least. 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). The most common rules of thumb to value a restaurant apply valuation multiples. The variation in valuation multiples over time is a key concern to buyers, sellers & financiers. 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. The value of the restaurant will likely end up being in the range given by these valuation methodologies, but will also depend upon the negotiating power of the sell-side and buy-side. 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. Aaron Allen » Insights » Restaurant Valuations: Global Trends. Historically speaking, restaurant valuations have increased significantly. Valuations for Indian foodservice companies are 42% above the market average for that country. Boards’ High Stakes Balancing Act: Navigating Through Crisis. The continued growth of dry powder has made investors anxious about finding investment prospects. "Average EV/EBITDA multiples in the transportation & logistics sector worldwide in 2019 and 2020, by industry." Top-quartile performers can be valued many times the average market valuation. As an example, a restaurant chain with $1 million in EBITDA would be valued at approximately $10.5 million. Many operators and owners view restaurant EBITDA a… In September of 2019, Sweetgreen closed a $150 million funding round earning a valuation of $1.6 billion. Alternatively, DO & CO (Turkey — restaurant, cafes, airports, gastronomy) and Al-Tajamouat (Jordan — catering and other services) are well below the median valuation for their respective markets. 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. Valuation multiples for publicly traded foodservice companies have decreased for all segments (except QSR) since 2013. 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. Improving restaurant EBITDA requires you to focus on cash items of your revenue. It’s especially noteworthy considering 25% of the world restaurant & dining public companies are in the US, while only 2% are in India. The insights and advice you need, everywhere you do business. In the last few years, there have been some changes in the valuations of public companies across markets. 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. 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. BDO is here to help your business – and you – navigate the COVID-19 health crisis, prepare for recovery, and once again, thrive. As of 2019, the valuation multiple for QSRs was 14.3x, whereas fast-casual had a median of 10.6x. 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. and multiply it for the business EBITDA. On the other end of the spectrum, Restaurant Group, Bravo Brio, and Punch Tavern have the lowest valuation ratios. 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. Global reserves of privat… © All rights reserved. The insurance agency and broker industry are in the mature stage of itseconomic life cycle, which is characterized by a higher level of M&Aactivity. Asset-based methods are not very common except in the case of distressed businesses. 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. Stay abreast of legislative change, learn about emerging issues, and turn insight into action. 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 a restaurant chain with $10 million in sales, applying a multiple of 1.3x would result in an enterprise value of $13 million. Casual Dining had a valuation 17% lower, at an 8.8x EV-to-EBITDA multiple. Investment in restaurants is starting to mirror the writing on the wall: investors are pulling back from Casual Dining chains and moving increasingly toward QSR — just as many diners have. In the US, the median EV-to-EBITDA multiple in 2019 was 10.5x. 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. Alignment with consumer demand (and purpose) has been key to unlock such a high value. Among U.S. publicly traded restaurants, the companies with the best public image are in the top quartile of valuations (measured by EV/EBITDA). For instance, high tech businesses will typically be valued at higher EBITDA multiples than … Undeployed capital in the restaurant industry is no exception, and investors often fail to find the right opportunities. EBITDA shouldn’t stand alone . In many cases, restaurant valuation multiples are partially generated through a brand’s story. 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. 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). Chart. Current and historical EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) margin for Restaurant Brands (QSR) over the last 10 years. You can find in the table below the EBITDA multiples for the industries available on the Equidam platform. Similarly, Japanese foodservice companies have an EV/EBITDA ratio 30% higher than the market average (excluding financial companies). One approach is to obtain an EBITDA multiple for the category (QSR, fast-casual, casual dining, etc.) In the last ten years, valuations measured in EV/EBITDA multiples increased by 44% for U.S. publicly traded companies from 7.3x in 2009 to 10.5x in 2019. When it comes to business, innovation is changing everything. Deals like these illustrate the strength of restaurant transaction activity and a future that will prove favorable to the right bets: foodservice platforms with a high-growth potential, purpose-driven brands investing in mature and emerging markets, those that keep innovating and betting on convenience engineering, and those align with consumer trends on multiple fronts. Each of these companies also benefit heavily from earned media. On the one hand, companies like Etiler (Turkey fast food operator) and Saudi Airlines Catering have EV/sales multiples considerably higher than the median. Ways of Improving Restaurant EBITDA. 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. 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. EBITDA is characterized as net cash income, or net operating income. For example, Monster Beverage has the highest EV/EBITDA multiple which could be because it has the highest growth rate, is considered the lowest risk, has the best management team, and so on. Statista. The EV/EBITDA ratio is a popular metric used as a valuation tool to compare the value of a company, debt included, … 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. Global reserves of private equity funds continue to increase, reaching a record high of $2.5 trillion in 2019. While QSR and fast-casual restaurant chains have increased valuation the most, casual dining chains, in general, have grown at a more modest pace. Brands, McDonald’s, and Domino’s Pizza) have some of the highest EV/EBITDA multiples. Originally just a valuation solidity check, multiples have become a popular approach to value young, fast growing companies. The EV/EBITDA Multiple . In the U.S., Grubhub would be in the top-quartile valuation among publicly traded companies. The $1.8 billion purchase price valued the fried-chicken concept for its growth prospects and attractive margin trends. U.S. restaurant valuation multiples are 5.5% above the global average, only surpassed by India, which has valuations 21% higher than the US. Our clients count on us to deliver on our promises of meaningful value, actionable insights, and tangible results. To calculate EBITDA, restaurant owners must subtract their fixed costs from their gross profit. Operating profit, on the other hand, is calculated by subtracting the costs of goods sold, plus expenses, from total sales. Jan 18, 2020 | Unit Level Trends. If there’s a liquidity crisis, M&A opportunities will come through consolidation and distressed assets investment. January 5, 2020. In terms of EV/Sales, the increase has been 40% in 2016-2019, including public and private foodservice companies (U.S.). Notice that the valuation multiple should result from an accurate set of peers. Insurance industry consulting firm MarshBerry reported that average base purchase prices hit 10.37 times Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) in the third quarter of 2019. Meanwhile, the lowest EBITDA multiples are in the accommodation and food services (2.5x) and the other services sectors (3.0x). 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. There is, however, a large variability within each service category. Aaron Allen & Associates. In 2019, as in 2009, the reverse has occurred. 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.