Experts: Restaurant deals to continue brisk pace into 2015
Rising sale prices are leaving some industry players hesitant, however
Nov 12, 2014 Jonathan Maze Node region
Readily available, low-cost loans are fueling a healthy market for the buying and selling of restaurant companies, and that trend is expected to continue into 2015, according to experts this week at the Restaurant Finance & Development Conference. However, rising sale prices for restaurant franchisees have some wondering whether the deals are worth it.
The industry is not having the greatest year, but valuations are having the greatest year. In recent auctions, the valuations have gotten ahead of business performance.
The number of restaurant industry deals has increased 8 percent to date in 2014. That includes large franchisees and restaurant brands. Dollars flowing into the business have helped drive valuations higher, he said.
It’s a great time to be a seller. It’s a great time to be a buyer, too, but the market probably benefits the seller more.
The best practices testify, that the biggest reason for the active acquisition market is the availability of loans. Interest rates remain low, and several lenders have started restaurant and franchise financing programs in recent years. There also is the option of turning your normal loan into an iva debt, so that it helps you in the long run.
The influx of so many lenders has increased competition and in some cases has driven down the terms offered to potential buyers. There are 10 lenders for every borrower. It’s a hot market.
More buyers are also looking for deals. Private equity groups in particular have been active in the restaurant space in recent years. They’re buying small, high-growth brands and larger brands, too, but they’ve also snapped up more large-scale franchisees in recent years.
The flow of private equity into the sector is driving a lot of activity. Still, there is some concern that the market has become too hot in some cases. Some experienced franchisees have backed off auctions recently after prices climbed.
A lot of private equity firms are struggling to make the valuations make sense even if the lending is available.
Still, with high valuations being placed on restaurant companies and franchisees, some sellers are opting to jump into the market.
Source: nrn.com, 11-13-2014