Franchise Valuations are based on a factor of Net Cash flow in a given year. For example, if the Franchise System generated $1,000,000 in net cash flow in a year, the Franchise System would be valued at 16X – 20X EBITDA, which would mean the system would be worth $16,000,000 to $20,000,000. This valuation for existing, operating and profitable franchise systems is what the general market has valued franchise systems in today’s market.
Franchise brands routinely generate what seems to be increasingly higher multiples on EBITDA for some key reasons:
- Multiple Locations across a range of markets offers brand power and economies of scale for buying power and marketing prowess.
- Healthy Cash Flow – Franchise systems operate at significantly higher profitability than company owned chains which require high levels of management and oversight.
- Track Record – good franchise systems have a history of success and a proven blue print.
- Understandable expense structure – Franchise models have a simple, low overhead cost structure that allows for high margin business and an attainable growth plan.
The following examples exemplify the valuations placed on franchise systems which were acquired by investors or private equity groups:
Restoration 1 – a 305 Unit Water, Fire and Mold Remediation Franchise was sold in 2020 to MPK Private Equity Group for $165 Million which was based on 16X EBITDA.
https://www.pehub.com/mpk-seeks-to-build-out-recession-resistant-restoration-1/
Patch Boys Handyman – a 96 Unit handyman services franchise sold to Balfor Restoration for $22 Million in 2020 based on 17X EBITDA.
Zaxby’s Chicken – the 900 Unit Chain was purchased by Goldman Sachs in 2020 for $2 Billion, which was an 18 – 20X Earnings valuation on the system.
Advantaclean Restoration – the 230 Unit Restoration and Cleaning Services network sold for $106 Million in 2019 to Home Franchise Concepts based on a 15X EBITDA multiple.
Dunkin Donuts – Purchased by Inspire Brands for $11.3 Billion at a 38 – 40X Earnings valuation.
RedBox Dumpster Rental – The 300 Unit dumpster rental service business was purchased also by Belfor for $115 Million at a 15X EBITDA Multiple in 2021.
Koala Insulation – in 2022 the service franchise model was purchased by Empower Brands, a PE firm focused on adding service franchise systems to it’s portfolio of brands. The system was generating 2.5 Million in EBITDA and was purchased for $87 million. (34.8X EBITDA)
Ellie Mental Health – the mental health and therapy services franchise was sold to Princeton Private Equity in 2022 for $70 million at a 18X multiple of EBITDA.
Strickland Brothers Oil Change – in 2021, the automotive services franchise sold to Princeton Private Equity for $120 million at a valuation of 19X EBITDA.
Premier Martial Arts – in 2022, the brand sold to Unleashed Brands Private Equity Firm for $205 Million with 564 franchise locations and a valuation of 21X EBITDA.
For more information on franchising and how to franchise your business model, contact Strategic Franchise Brokers: www.StrategicFranchiseBrokers.com
