The mergers & acquisition market for restaurant franchisees and multi-unit restaurant brands has changed dramatically over the past three decades, and Brookwood Associates’ Amy Forrestal has had a front row seat to that evolution.
Originally, the market for franchisee sales was limited. The main buyer on franchise resales was often the franchisor. Franchisors have the right of first refusal, and it was common for them to buy the franchisee business when operators wanted or needed to sell. That started changing in the early 1990s.
"Wall Street started telling franchisors that wasn’t a great use of their capital, and so we saw an opportunity to apply the M&A process to franchise restaurants," says Forrestal. The buyer pool began expanding to other franchisees that wanted to grow or add another brand. Private equity investors started to get involved in franchising in the late 1990s.
"Now there is a plethora of investors with all kinds of people wanting to own franchisees," says Forrestal. Buyer groups include private equity investors, family offices, entrepreneurs and other strategic buyers. "So, the investor base has broadened tremendously, which has driven multiples and has been good for the industry overall," she says. Investors like restaurants because they are generally a cash generating business with a model that is easy to replicate, she adds.
Forrestal started out her career nearly 30 years ago working in the M&A group at what is now Banc of America Merrill Lynch. She completed her first restaurant franchise M&A transaction in 1992 with a Taco Bell deal and continued to work with major restaurant franchise brands that include the likes of Wendy’s, Pizza Hut, Applebee’s and others.
Currently, Forrestal is a managing director at Brookwood Associates, an investment banking firm that focuses on middle-market companies across a broad range of industries with transactions and companies up to $250 million in value. She joined the firm in 2002 to start the firm’s restaurant M&A group. She provides M&A acquisition services for restaurant clients on the buy and sell side, as well as advising firms on recapitalization strategies and with private capital raising. Forrestal was recognized by Mergers and Acquisition magazine in 2015 and 2016 as one of 35 top women in Mid-Market M&A.
Despite the larger pool of buyers that exist in the M&A market today, franchise restaurant businesses are seeing a wide range of multiples depending on the brand, financials and the specific situation. Sellers also can take some simple steps to get the highest and best value out of a sale. For example, Forrestal advises franchisees to get their costs in line and P&Ls in the best possible shape. Another tip is to make sure that real estate leases have options to renew. Operators should address term on a short-term lease for their best stores prior to a sale process, because that could hurt the value of the business if they lose a lease or terms increase dramatically, she notes. Operators need to look at the condition of units to see if they need any improvements or upgrades. "Importantly, you also need to understand how much growth is available within their market," she adds.
M&A has been a great fit for Forrestal. She loves the finance and analysis part of working on transactions. She earned a Bachelor of Arts degree cum laude with a double major in mathematics and economics from Duke University in 1987. "What I really like about this industry is the people," she adds. "They are in the hospitality industry, and it’s fun to be around people who enjoy what they do and are in an industry that they enjoy."