Report Highlights

RR’s Finance & Valuation report is based on survey responses (equally weighted) from 52 finance companies including traditional cash flow franchise lenders, sale leaseback companies, SBA lenders, equipment finance companies and financial consultants/advisors.

Conclusion

(1) 2019 restaurant financing volume of $9.6 billion represents a -3.3%% y/y decrease and the 3rd consecutive year of declining volume that was also below initial survey expectations – we estimated $15.6 billion in total financing needs for 2019; (2) 2020 origination prospects are expected to come in slightly higher at $9.9 billion; (3) the total financing portfolio outstanding grew +2.6% to $54 billion in 2019; (4) underwriting standards are tightening slightly and LIBOR spreads increased in 2019 as lenders grow more cautious given expanding loan portfolio concentrations although overall lending rates remain favorable due to lower base interest rates; (5) private EBITDA unit level valuation multiples for large chains and large deal premiums remain slightly pressured due to ongoing unit level margin challenges; (6) public franchisor EV/EBITDA multiples continue to ramp higher relative to private franchisee EBITDA multiples (driven by FSR strength) and the public multiple premium is at the top of our historic range (reflecting an asset light model and buyout premiums paid by private equity buyers); and (7) cap rates fell from 1H:19 and are at the lowest level since at least 2008.

IDR Finance & 2H19 Valuations – Outline