WEBVTT - Private Markets May Signal More Restaurant M&A 0:00:21.840 --> 0:00:24.800 Welcome to Chopping It Up. I'm your host, Mike Hallon, 0:00:24.800 --> 0:00:28.000 the senior restaurant and food Service analyst at Bloomberg Intelligence. 0:00:28.720 --> 0:00:31.920 Today we're joined by Ashish Sah, founder and Managing director 0:00:31.960 --> 0:00:35.280 of Harrington Park Advisors, a boutique investment bank focused on 0:00:35.320 --> 0:00:40.800 in restaurants and consumer services companies. Thanks for doing this, Ashish. 0:00:39.960 --> 0:00:40.880 Thanks for having me, Mike. 0:00:41.760 --> 0:00:43.040 Yeah, I've been looking forward to this. 0:00:43.120 --> 0:00:43.320 Man. 0:00:43.600 --> 0:00:47.080 You very opinionated. My favorite type of people. 0:00:46.880 --> 0:00:49.880 Just like I do have my opinion yees. 0:00:50.440 --> 0:00:54.040 Yeah, it's great. Can you talk about your previous career 0:00:54.120 --> 0:00:57.360 experience and what motivated you to start Harrington Park. 0:00:57.720 --> 0:01:01.600 Yeah. Sure. Look, I've been an investment banker now for 0:01:01.680 --> 0:01:05.320 twenty one years, and I've had the opportunity to work 0:01:05.360 --> 0:01:08.039 at some of the global investment banks. Started my career 0:01:08.040 --> 0:01:11.760 at Bank of America, went over to Marylynch when there 0:01:11.840 --> 0:01:15.560 was a separate Meryl Lynch at the time, and RBC 0:01:15.720 --> 0:01:18.200 and a few other banks you know. Spent thirteen years 0:01:18.200 --> 0:01:21.080 in my career at first in New York City, working 0:01:21.120 --> 0:01:24.920 at various banks. Eventually moved to Chicago and joined Bank 0:01:24.920 --> 0:01:28.319 of Montreal and had the opportunity to work with the 0:01:28.319 --> 0:01:31.560 restaurants when I was there and just absolutely fell in 0:01:31.640 --> 0:01:33.520 love with the space. You know, the you know what's 0:01:33.520 --> 0:01:36.960 not like your your meetings are at restaurants, you're trying 0:01:36.959 --> 0:01:40.360 new food. I love food, And it was the people 0:01:40.440 --> 0:01:44.280 around the restaurant space. They're they're hospitable, they're kind, they 0:01:44.440 --> 0:01:47.080 know the value of a team, and all that just 0:01:47.160 --> 0:01:50.040 made it made the work just so much enjoyable. Yeah. 0:01:51.440 --> 0:01:54.240 You know, during that time at BMO, I landed up 0:01:54.280 --> 0:01:58.440 working on some pretty landmark transactions in the space, including 0:01:58.520 --> 0:02:01.960 work we were including the lead left book runner on 0:02:02.040 --> 0:02:05.720 Kurasushi's IPO back in trade nineteen, which you might recall 0:02:05.720 --> 0:02:10.960 at that point no restaurants were going public and a difficult, 0:02:11.080 --> 0:02:16.279 difficult background young company. We successfully achieved a IPO for Kurasushi, 0:02:16.480 --> 0:02:18.720 and and you know, the rest is history. That stock 0:02:18.760 --> 0:02:21.640 has gone through the roof over the last several years now. 0:02:22.880 --> 0:02:25.000 And the other transaction that that I'm very proud of 0:02:25.120 --> 0:02:27.640 was Condato Taco is a private company out of Columbus, 0:02:27.680 --> 0:02:30.680 Ohio that we sold to the Beakman Group in twenty 0:02:30.760 --> 0:02:33.600 twenty March or twenty twenty in fact, and right before 0:02:33.639 --> 0:02:36.880 the pandemic, and that business has done an amazing job 0:02:36.960 --> 0:02:41.760 growing over the last several years. Since that time, my 0:02:41.880 --> 0:02:45.960 be more days. I've grown my practice into consumer services 0:02:46.000 --> 0:02:49.359 as well, some multi union consumer services companies, and I've 0:02:49.360 --> 0:02:51.840 had the privilege to advise on some of the leading 0:02:51.880 --> 0:02:57.400 brands such as Velvet, Taco, Imags Studios, Another Broken Egg, Fuzzies, Pinstripes, 0:02:57.880 --> 0:03:02.040 Houston Hot Chicken and been able to drive results that 0:03:02.120 --> 0:03:04.560 we believe are the best in class outcomes in the sector. 0:03:06.320 --> 0:03:09.480 I started Heddington Park in early twenty twenty three, so 0:03:09.520 --> 0:03:13.040 we're a little bit over a year over now, and 0:03:13.120 --> 0:03:16.600 the goal was to provide bulge bracket white gloves service 0:03:16.680 --> 0:03:19.640 to emerging growth to middle market companies in the restaurant 0:03:19.639 --> 0:03:23.840 and consumers services space. We felt that needed to support 0:03:23.840 --> 0:03:26.280 the most but were unable to be served by the 0:03:26.360 --> 0:03:32.080 larger investment banks, and that was the goal behind Harrington 0:03:32.120 --> 0:03:37.080 Park Advisors. So over the last what is it now, 0:03:37.600 --> 0:03:41.600 fourteen to fifteen months, we've completed four transactions including Pinstripes, 0:03:42.040 --> 0:03:45.400 Houston Hot Chicken in its studios, and then just this 0:03:45.440 --> 0:03:46.920 week Untamed Brands. 0:03:47.400 --> 0:03:50.040 Yeah, that's great, it seems like a great niche. You've 0:03:50.080 --> 0:03:53.360 worked with some great brands and I'll circle back to 0:03:53.400 --> 0:03:58.120 those as we get into this. You know, let's just start, 0:03:58.200 --> 0:04:00.520 you know, at the five thousand foot view, as the 0:04:00.560 --> 0:04:03.280 restaurant M and A market improved that all this year. 0:04:04.400 --> 0:04:07.960 Yes, and no, I think if you look at the 0:04:08.120 --> 0:04:12.760 transactions that are getting done. Obviously we just had the 0:04:12.760 --> 0:04:17.280 Tropical Smoothie deal get done at a very robust valuation. 0:04:19.200 --> 0:04:23.240 We also had Benny Hannah a sale get completed this year. 0:04:24.920 --> 0:04:28.080 And then you know, we sold on Tame brands, We 0:04:28.120 --> 0:04:30.800 did it in the consumer services, we did image studios 0:04:30.800 --> 0:04:35.680 this year. But if you think about kind of the 0:04:35.800 --> 0:04:39.000 volume and the velocity of deals, it is not what 0:04:39.040 --> 0:04:42.480 it was in twenty nineteen, or for that matter, in 0:04:42.520 --> 0:04:44.960 twenty or twenty twenty one when the entire M and 0:04:45.000 --> 0:04:49.919 A market was on fire. And but what's happening, I 0:04:49.920 --> 0:04:53.280 believe behind the scenes is there are assets that are 0:04:53.680 --> 0:04:56.360 and I'm talking purely about private markets at this point, 0:04:57.520 --> 0:05:00.920 there are assets that are coming out. I think it's 0:05:00.920 --> 0:05:03.640 probably driven by a whole host of factors, including you know, 0:05:04.120 --> 0:05:09.400 founders needing monetization, people realizing that the gap that invaluations 0:05:09.560 --> 0:05:12.040 isn't going to come down. But so activity is starting 0:05:12.080 --> 0:05:15.360 to pick up. More more companies are talking about capital 0:05:15.440 --> 0:05:21.159 raises or partial or complete sales of the businesses, but 0:05:21.400 --> 0:05:25.080 it is nowhere near the velocity that we had in 0:05:25.160 --> 0:05:25.920 prior years. 0:05:26.520 --> 0:05:30.719 Okay, is there a wide gap in interests between company 0:05:30.800 --> 0:05:33.840 and franchise models as well as full and quick service? 0:05:34.240 --> 0:05:39.240 Huge gap? I think, you know the what we've seen 0:05:39.320 --> 0:05:42.280 over the last several years. I mean, this probably goes 0:05:42.320 --> 0:05:44.359 back a decade and a half or two at this point. 0:05:44.440 --> 0:05:46.640 But you know, if you look at the public markets, 0:05:46.680 --> 0:05:49.800 the valuations for franchise ors went through the roof, and 0:05:49.800 --> 0:05:52.600 we saw companies like Jack in the Box, for example, 0:05:53.080 --> 0:05:57.320 go from I don't know, mid sixties, mid seventies franchise 0:05:57.400 --> 0:05:59.839 all the way to ninety plus franchise because they're recognized 0:05:59.880 --> 0:06:04.320 that that the public market investors were rewarding companies that 0:06:04.360 --> 0:06:12.160 were asset light prior to the pandemic. That interest was 0:06:12.400 --> 0:06:16.200 there in franchise ours from the private markets too, from 0:06:16.279 --> 0:06:19.640 institutional capital, private equity, family offices, but it took a 0:06:19.680 --> 0:06:26.479 whole new turn during a post pandemic. Currently, the interest 0:06:26.600 --> 0:06:30.800 in franchised models is at an all time high. If 0:06:30.839 --> 0:06:35.200 you look at the activity since twenty twenty with you know, 0:06:35.279 --> 0:06:42.560 whether it's Shipley's Donuts or Tropical Smoothie twice. Now the 0:06:42.600 --> 0:06:47.320 investors are all about franchise models. Given the asset light 0:06:47.720 --> 0:06:50.320 nature of the model, the more predictable nature of cash flows, 0:06:51.040 --> 0:06:55.360 the ability to get leverage on those cash flows. That 0:06:55.360 --> 0:07:00.200 that has created a huge gap between interesting franchise models 0:07:00.480 --> 0:07:04.320 versus company owned models. Uh. I think the other other 0:07:04.520 --> 0:07:07.480 part that the company or model is suffering from right 0:07:07.520 --> 0:07:10.520 now is if you again go back over the last 0:07:10.680 --> 0:07:14.200 decade or two, uh, there was once a belief that 0:07:15.320 --> 0:07:20.240 any innovative company owned model can become a national brand. 0:07:20.680 --> 0:07:24.560 And the post child for that obviously was Chipotle. You know, 0:07:24.760 --> 0:07:29.240 started from you know, one town into a national phenomena 0:07:29.280 --> 0:07:33.760 and continues to be a national phenomena today. And based 0:07:33.800 --> 0:07:37.480 on that success, a lot of institutional capital started chasing 0:07:37.560 --> 0:07:42.520 these innovative, younger, fast casual brands. And what has happened 0:07:42.560 --> 0:07:44.960 over the over the last decade is that a lot 0:07:44.960 --> 0:07:48.480 of those investments in those companies have not really been 0:07:48.560 --> 0:07:53.080 very successful. I think what is what maybe folks did 0:07:53.120 --> 0:07:56.080 not know but are now realizing, is that, you know, 0:07:56.120 --> 0:08:01.559 it obviously takes capital, right, unit economics don't typically match, 0:08:01.800 --> 0:08:03.760 you know, what the home marketing and economics are as 0:08:03.760 --> 0:08:05.960 you go into new markets, the marketing spend needed to 0:08:06.040 --> 0:08:09.480 expand into those markets is a significant amount and it 0:08:09.560 --> 0:08:12.480 just takes time. You know, when you have a five 0:08:12.600 --> 0:08:16.720 six seven year old as as private aquity typically does, 0:08:16.800 --> 0:08:19.280 it is very difficult to take an emerging brand and 0:08:19.360 --> 0:08:22.920 convert it into a even a regional brand for that matter. 0:08:24.600 --> 0:08:27.240 You know, we we we We've seen companies like you know, 0:08:27.320 --> 0:08:29.760 Cafe Rio for example, that you know was owned by 0:08:30.440 --> 0:08:32.360 a private acquity from Carpriley, but they owned it for 0:08:32.400 --> 0:08:34.840 almost twelve years and over that time they really grew 0:08:34.880 --> 0:08:39.360 that business into a super regional West Coast, Mountain West, 0:08:39.520 --> 0:08:43.680 you know, Midwest brand. But it took time and oftentimes 0:08:43.679 --> 0:08:46.800 those windows are not available for most private equity firms. 0:08:47.360 --> 0:08:50.199 So so those are the factors that are are are 0:08:51.200 --> 0:08:54.880 on people's minds as they think about franchise growth. Where 0:08:54.920 --> 0:08:57.520 you can if you have a really good franchise development platform, 0:08:57.800 --> 0:09:00.320 the right person in that seat, an amazing brand needing 0:09:00.320 --> 0:09:04.520 economics and cash and cash returns that work for franchisees, 0:09:05.440 --> 0:09:09.520 you can supercharge growth. Those franchisees are sitting in their 0:09:09.559 --> 0:09:12.319 local markets. They are the mom and pop that run 0:09:12.400 --> 0:09:15.440 that business, they know their community, they're invested in that business, 0:09:15.440 --> 0:09:17.120 and they're taking care of it day in and day out, 0:09:17.160 --> 0:09:21.440 as opposed to a regional manager who just runs you know, seven, eight, 0:09:21.480 --> 0:09:26.400 ten restaurants. And so today, in today's market, franchise concepts 0:09:26.400 --> 0:09:31.920 have been our hot property and company models have taken 0:09:31.920 --> 0:09:34.440 a little bit of a backseat compared to the franchise models. 0:09:35.240 --> 0:09:39.920 But these things come in waves, you know, and things change. 0:09:40.760 --> 0:09:43.720 You know, five six years ago, people were talking about 0:09:43.720 --> 0:09:46.600 why company models are more superior because you can actually 0:09:46.679 --> 0:09:49.720 maintain the culture of your organization when you own the stores. 0:09:51.320 --> 0:09:54.560 And in any company that is growing is and you 0:09:54.640 --> 0:09:58.960 hope to grow it into a super regional or even 0:09:58.960 --> 0:10:03.720 a national chain. Without culture, you will you cannot succeed 0:10:04.280 --> 0:10:08.920 having a single mission and and that can be hard 0:10:09.040 --> 0:10:13.160 in in enfranchised concepts. So look, we're currently in a 0:10:13.200 --> 0:10:18.760 wave of where franchise companies are attracting more attention. You know, 0:10:19.000 --> 0:10:25.240 my expectation is that the the quality of assets in 0:10:25.280 --> 0:10:27.400 any space or you know, there's a limited finite amount 0:10:27.480 --> 0:10:30.400 of high quality assets and some of those have already transacted, 0:10:30.760 --> 0:10:34.600 and then over time, those will those opportunities will diminish. 0:10:34.760 --> 0:10:38.440 And then you know, private equity firms, family offices will 0:10:38.440 --> 0:10:41.880 again start to consider companial models. Look, we're advising on 0:10:42.000 --> 0:10:44.839 businesses that are company or models right now that are 0:10:45.520 --> 0:10:49.000 absolutely fantastic, and have advised on companies that have company 0:10:49.000 --> 0:10:52.160 and models that are absolutely fantastic. And despite the changes 0:10:52.160 --> 0:10:54.400 in the current em and environment, those businesses in their 0:10:54.440 --> 0:11:00.000 own are outperforming uh and building into you know, juggernaut. 0:11:00.280 --> 0:11:02.600 So these things come in waves, they come and go, 0:11:02.760 --> 0:11:06.280 and right now we're in a place where franchise modelsm 0:11:06.440 --> 0:11:10.200 are more attractive, but I expect that to kind of 0:11:11.120 --> 0:11:11.840 change over time. 0:11:13.240 --> 0:11:15.680 That's really interesting because it feels like for over a decade, 0:11:15.960 --> 0:11:17.320 everybody's been chasing the next. 0:11:17.240 --> 0:11:20.319 Rapole that's right, and we haven't found one. 0:11:21.600 --> 0:11:24.480 And so you know, for some of these say fast 0:11:24.480 --> 0:11:27.880 casual brands that maybe have a few dozen stores, you know, 0:11:28.160 --> 0:11:33.120 should they be starting the franchise, says franchise or would 0:11:33.120 --> 0:11:36.880 be almost rather you know, get involved with a company 0:11:36.920 --> 0:11:40.120 owned fast casual and then they do the franchise. 0:11:40.760 --> 0:11:44.920 Yeah. Look, the franchise model is obviously very attractive from 0:11:44.920 --> 0:11:48.559 an acid light and growth perspective and the velosophy of 0:11:48.600 --> 0:11:51.360 that growth perspective, but it takes time to build up, 0:11:51.400 --> 0:11:55.439 and it takes investment to build up. You know, if 0:11:55.480 --> 0:11:58.280 you're just let's just say you've got a handful of stores, 0:11:58.320 --> 0:12:00.680 and you say, actually, I've got a pretty simple operation. 0:12:00.760 --> 0:12:02.680 My kitchen op offs are pretty simple. I think I 0:12:02.720 --> 0:12:06.080 can franchise this. First, you got to go set up 0:12:06.080 --> 0:12:08.040 that organization. You got to go follow FTDs, you got 0:12:08.080 --> 0:12:12.920 to get the right people in place to go find franchises. Eventually, 0:12:12.960 --> 0:12:15.719 when this franchisees sign up, provide them support on real 0:12:15.800 --> 0:12:20.480 estate marketing store opening, and then those franchises then have 0:12:20.520 --> 0:12:27.079 to go successfully open those stores right, and all that 0:12:27.120 --> 0:12:30.360 takes time. So if you're starting from scratch today, it 0:12:32.240 --> 0:12:34.839 can take you at least two to three years before 0:12:34.840 --> 0:12:40.520 you start seeing a a franchise store open. And then 0:12:40.640 --> 0:12:43.480 you having a franchise store does not make you a 0:12:43.520 --> 0:12:47.560 franchise or to really get the value as a franchise 0:12:47.720 --> 0:12:52.880 or you need to have I would say, you know, 0:12:53.040 --> 0:12:56.080 about one hundred hundred and twenty units franchise units open, 0:12:56.120 --> 0:12:59.200 because at that point you really start to leverage your infrastructure, 0:12:59.240 --> 0:13:02.120 and every new unit you open, the royalties from that 0:13:02.360 --> 0:13:06.960 start to trickle trickle down. Also, because you're only taking 0:13:07.040 --> 0:13:10.480 five six seven percent royalties and not getting the full 0:13:10.480 --> 0:13:13.600 EBIT of the store. As a company owned model, it 0:13:13.720 --> 0:13:16.920 just takes a longer time to scale your business into 0:13:16.960 --> 0:13:23.800 a larger scale EBITDA business, so to to for for 0:13:23.800 --> 0:13:26.719 for companies that are seeking the franchise route and to 0:13:26.880 --> 0:13:30.440 converting them into into franchise ors, it's going to take 0:13:30.480 --> 0:13:34.240 time to get those stores open, for those stores to 0:13:34.280 --> 0:13:38.000 show performance, to get scale, to get to one hundred 0:13:38.040 --> 0:13:42.120 plus units, to really fully achieve that valuation that you're 0:13:42.160 --> 0:13:45.560 seeking as a franchise or so oftentimes we're speaking to 0:13:45.679 --> 0:13:48.959 you know, private equity firms that are that have invested 0:13:48.960 --> 0:13:50.760 in a brand and are as asking hey, should I 0:13:50.800 --> 0:13:53.480 go down the franchise route? This seems French franchise Well, 0:13:53.480 --> 0:13:56.320 and for all the reasons I just stated, Uh, my 0:13:56.400 --> 0:14:00.440 advice is that unless you plan to hold for the 0:14:00.480 --> 0:14:06.960 next five to seven to nine years, a franchise route 0:14:07.000 --> 0:14:10.960 is not really going to drive the valuation that you're seeking. 0:14:11.960 --> 0:14:15.640 Yeah, yeah, that's great. It's a completely different muscle. 0:14:15.520 --> 0:14:19.000 Right, It completely is. It completely is. And and look, 0:14:19.160 --> 0:14:22.040 even companies that have company owned units and franchise units, 0:14:22.120 --> 0:14:25.360 there are plenty of brands out there that do both. 0:14:26.480 --> 0:14:29.240 It's almost like having two different organizations supporting those. 0:14:29.520 --> 0:14:34.440 Very cool valuation You mentioned any rebounding valuations at all 0:14:34.600 --> 0:14:35.040 this year. 0:14:37.920 --> 0:14:42.880 I think valuations continue to be not where they used 0:14:42.880 --> 0:14:46.480 to be prior to the pandemic. But you know, maybe 0:14:46.760 --> 0:14:50.479 if you look at it a different way, maybe valuations 0:14:50.480 --> 0:14:55.280 prior to the pandemic were highly elevated or all time highs. Right, 0:14:55.320 --> 0:14:59.640 so we're just coming back to where businesses like restaurants 0:14:59.680 --> 0:15:02.840 and services should be trading. Consumer services continues to be 0:15:03.080 --> 0:15:05.560 on a tear and those valuations are at an all 0:15:05.640 --> 0:15:09.680 time high as we speak, but restaurant valuations have come 0:15:09.720 --> 0:15:15.200 down from prior to the pandemic. I'm starting starting to 0:15:15.240 --> 0:15:19.360 see some hope that valuations will get a little bit 0:15:19.400 --> 0:15:21.960 of a pickup here, and I think that's going to 0:15:22.000 --> 0:15:24.960 be driven by the fact that there has been a 0:15:24.960 --> 0:15:29.440 little bit of easying on the credit side, whether it's 0:15:29.440 --> 0:15:34.960 banks but most likely private lenders are starting to reconsider 0:15:35.040 --> 0:15:39.240 investing into the restaurant space. Interest rates are starting to, 0:15:39.280 --> 0:15:43.080 you know, have have come down a little bit. No, 0:15:43.200 --> 0:15:46.160 not maybe compared to trade nineteen, but but where we 0:15:46.160 --> 0:15:50.920 were just about a year and a half ago. And 0:15:50.960 --> 0:15:53.400 I think that is driving some of the interesting restaurants 0:15:53.440 --> 0:15:56.320 because I think we're also working against a backdrop where 0:15:57.560 --> 0:16:00.960 the there has been if if you think about the 0:16:01.120 --> 0:16:06.280 restaurant space has absorbed over the last four years, it 0:16:06.400 --> 0:16:09.960 is incredible the fact that we are here still and 0:16:10.040 --> 0:16:13.840 have and have a restaurant industry. We had a pandemic 0:16:13.920 --> 0:16:16.680 where nobody knew what was going on. And I remind 0:16:16.720 --> 0:16:18.960 people who have who are forgotten, these are the days 0:16:18.960 --> 0:16:21.480 when we were spraying down Amazon packages before we brought 0:16:21.480 --> 0:16:25.520 them into our houses. Okay, those are the days. And 0:16:26.160 --> 0:16:29.240 they figured out how to adjust the models. Not everybody survived, 0:16:29.240 --> 0:16:33.080 but a lot did. But there to readjust their models 0:16:33.160 --> 0:16:38.520 there there how they communicate with their consumer and and 0:16:38.520 --> 0:16:41.840 and and so that was one. Then uh, you know, 0:16:42.120 --> 0:16:44.360 they got a lot of support from the government uh 0:16:44.400 --> 0:16:46.520 in PvP loans and they were you know, that helped 0:16:46.520 --> 0:16:50.760 a lot a lot of companies stay afloat. And then 0:16:50.800 --> 0:16:52.960 coming out of it, we had a consumer that had 0:16:53.000 --> 0:16:56.240 been saving for for during the pandemic. The government was 0:16:56.400 --> 0:17:00.160 you know, uh providing them uh support during that time 0:17:00.200 --> 0:17:04.280 as well. Student debt was taken off the table for 0:17:04.320 --> 0:17:07.320 a while there, right, and you had a consumer that 0:17:07.400 --> 0:17:09.639 was flushed with cash, had not been out of their 0:17:09.640 --> 0:17:13.560 homes in two years, and they were on a vendor. 0:17:14.160 --> 0:17:15.000 They were ready to rock. 0:17:15.119 --> 0:17:17.600 They were ready to rock, right, And so we saw 0:17:17.680 --> 0:17:21.440 in twenty twenty one, in twenty and twenty two, as 0:17:21.480 --> 0:17:25.080 a part of twenty twenty two, just in huge amount 0:17:25.080 --> 0:17:29.320 of traffic rolled through the doors of restaurant companies. But 0:17:29.359 --> 0:17:32.000 then what happened next is kind of what we're going 0:17:32.040 --> 0:17:35.520 through right now. The government incentives were taken away from 0:17:35.560 --> 0:17:38.040 both of them, or went away, i should say, from 0:17:38.080 --> 0:17:42.280 companies and from consumers. Student debt was back on the table. 0:17:43.280 --> 0:17:48.880 Interest rates went through the roof, and the consumer eventually 0:17:48.960 --> 0:17:51.240 exhausted a lot of their savings and had to come 0:17:51.280 --> 0:17:54.119 back to real life. But you know, living and living 0:17:54.440 --> 0:17:57.360 and saving for their personal expenses. And what we saw 0:17:57.359 --> 0:17:59.800 in twenty and by the way, this is all the 0:18:00.119 --> 0:18:03.959 background of huge inflation in twenty twenty two. But chicken prices, 0:18:04.000 --> 0:18:07.280 poork prices, beef prices were had had gone through the roof, 0:18:07.480 --> 0:18:13.520 and restaurants were taking five price increases. All these things 0:18:13.520 --> 0:18:15.960 happened all at the same and kind of narrowed in 0:18:16.080 --> 0:18:18.600 all at the same time into twenty twenty three and 0:18:18.640 --> 0:18:23.720 we saw a traffic decline in across the board for restaurants. 0:18:23.720 --> 0:18:26.200 That are only a few restaurants that I can think 0:18:26.240 --> 0:18:29.040 of at least that we speak to that have had 0:18:29.080 --> 0:18:32.360 positive traffic in twenty twenty three and now coming into 0:18:32.359 --> 0:18:36.040 twenty twenty four. And so that's the backdrop too that 0:18:36.200 --> 0:18:39.360 this m and a ENVI you know, private equity, which 0:18:39.400 --> 0:18:43.600 is a big investor in the restaurants space. This is 0:18:43.640 --> 0:18:47.920 a backdrop that they're trying to understand and invest against. 0:18:48.280 --> 0:18:53.680 So this impacts you know, obviously this impacts corporate owned 0:18:53.680 --> 0:18:56.360 models more than franchise models. 0:18:57.040 --> 0:18:59.840 Got it. How's the lending market right now? 0:19:00.320 --> 0:19:04.160 Yeah, the lending market is better still not where we 0:19:04.160 --> 0:19:08.080 were a couple of couple of years ago, But it 0:19:08.080 --> 0:19:11.480 also depends on what sort of business and model that 0:19:11.560 --> 0:19:17.600 you have. The lending market for franchise brands never never 0:19:17.680 --> 0:19:19.399 kind of really went away. Yeah, maybe the depth was 0:19:19.400 --> 0:19:22.760 a little bit more expensive, but the interest from especially 0:19:22.840 --> 0:19:27.159 the private lending community remained strong through the pandemic for 0:19:27.280 --> 0:19:32.119 franchise brands franchise ours, and then continues to be very 0:19:32.119 --> 0:19:37.720 strong today. If you're a corporate own business, the lending 0:19:37.800 --> 0:19:41.440 environment has gotten got really weak during the pandemic and 0:19:41.520 --> 0:19:44.120 kind of post pandemic, it's starting to get a little 0:19:44.160 --> 0:19:49.200 bit better. Today. Interest rates are still higher, not maybe 0:19:49.240 --> 0:19:51.080 at the highest that at the peaks that there were 0:19:51.119 --> 0:19:52.800 maybe a year and a half ago, but so the 0:19:52.840 --> 0:19:55.760 interest rate environment is getting better for corporatedome models too. 0:19:56.680 --> 0:20:00.280 And then look frinanally, there's the franchise ze models themselve els. 0:20:00.359 --> 0:20:05.520 Like I'm talking about larger uh blocks of Taco Bell 0:20:05.600 --> 0:20:11.800 franchisees or dunkin Donuts franchises, and the lending environment for 0:20:11.840 --> 0:20:15.040 those companies is is really strong. We're talking about leading 0:20:15.080 --> 0:20:17.160 brands that have been around for a long time. They've 0:20:17.160 --> 0:20:21.320 got thousands of thousands stores in the US, and there's 0:20:21.359 --> 0:20:23.880 a real history of success behind these brands, and these 0:20:23.880 --> 0:20:30.639 franchisees can get access to capital uh pretty pretty easily. Uh, 0:20:30.680 --> 0:20:32.760 And that's what's actually driving a lot of the interest 0:20:32.880 --> 0:20:38.520 from private equity in that franchisee space. You've got you've 0:20:38.560 --> 0:20:43.480 got you know, from a private private equities perspective, you're 0:20:43.520 --> 0:20:48.800 buying you know, a block of Taco bells wing stops 0:20:48.920 --> 0:20:52.560 or dunkin Donuts stores. Right there are one hundred plus 0:20:52.560 --> 0:20:55.080 stores in this in this one block that you're going 0:20:55.160 --> 0:20:59.960 to buy and uh, it is stable cash flow, right, 0:21:00.240 --> 0:21:02.199 and you can you can you can see it. You 0:21:02.240 --> 0:21:04.200 can look at look at the business over the last 0:21:04.200 --> 0:21:06.119 several years and see what the business does, so you 0:21:06.200 --> 0:21:10.400 know what the cash flows are going to be. Typically, Uh, 0:21:10.480 --> 0:21:14.120 you've got lending that is available to you. You still 0:21:14.160 --> 0:21:17.760 have some room for growth by opening new units, and 0:21:17.840 --> 0:21:21.920 you have the support of you know, multi billion dollar 0:21:22.400 --> 0:21:25.040 enterprises backing it. Like whether it's you know, whether it's 0:21:25.040 --> 0:21:29.600 again a dunkin Taco or a Wing Stock marketing dollars 0:21:29.680 --> 0:21:31.520 go a lot further, they really do. And these are 0:21:31.560 --> 0:21:34.879 national brands, but with national marketing campaigns and and and 0:21:36.080 --> 0:21:40.840 a national impression right on on consumers and you know, 0:21:40.960 --> 0:21:44.040 and and their value products. And in today's environment where 0:21:44.640 --> 0:21:47.440 people are worried about uh, the future, where they're worried 0:21:47.440 --> 0:21:52.920 about their their their wallets, the value plays really help. 0:21:53.960 --> 0:21:57.240 So that space, the franchise e space has seen a 0:21:57.280 --> 0:22:00.800 lot of interest from private equity and from recory investors 0:22:00.840 --> 0:22:04.199 that were previously buying company on models, branded company own 0:22:04.240 --> 0:22:07.480 models or franchise ors are now also dipping their toe 0:22:07.520 --> 0:22:08.639 into the franchise e space. 0:22:10.080 --> 0:22:12.520 Yeah, it's interesting, you know that they're willing to play 0:22:13.040 --> 0:22:16.080 the royalties and they add fund expense for these brands 0:22:16.119 --> 0:22:18.159 that they have faith in, like you know, Brentwood and 0:22:18.440 --> 0:22:20.640 wing stuff. Yeah, it's an interesting turn. 0:22:21.160 --> 0:22:25.600 Yeah. And look, you know, just in general, what they're 0:22:25.640 --> 0:22:29.000 giving away, especially in this environment, they may be giving 0:22:29.040 --> 0:22:35.080 away supercharged growth, but they're exchanging it for stability. They 0:22:35.119 --> 0:22:37.040 have to put dollars to work. They've got funds that 0:22:37.160 --> 0:22:40.640 need to be invested, so they're choosing. It's a risk 0:22:40.680 --> 0:22:43.120 reward analysis that they're doing, and they're saying, look, yeah, 0:22:43.119 --> 0:22:44.880 maybe my reward is going to be lower with matter 0:22:44.920 --> 0:22:49.440 risk is even lower. Let's put our dollars to work 0:22:49.440 --> 0:22:49.880 over here. 0:22:50.720 --> 0:22:54.720 Cool. Yeah, that's good insight into the companies I cover. 0:22:55.000 --> 0:22:58.760 Very cool. All Right, So you've worked with some great brands. 0:22:58.800 --> 0:23:00.520 You mentioned a lot of them at the top of 0:23:00.560 --> 0:23:04.399 the pod. What makes an emerging chain attractive? 0:23:05.720 --> 0:23:09.159 Yeah, it's uh, it's it's it's. It's one of those questions, 0:23:09.280 --> 0:23:13.000 which is, you know, what is beauty and it's it's it's. Uh. 0:23:13.359 --> 0:23:14.919 Some parts of it are hard to define, but other 0:23:15.000 --> 0:23:17.320 other parts are very easy definable of what makes a 0:23:17.359 --> 0:23:21.879 brand super attractive. So just kind of starting off with 0:23:22.359 --> 0:23:27.760 the concept itself. What is your concept is? Is is 0:23:27.880 --> 0:23:32.760 it a super niche concept that maybe works in say La, 0:23:32.960 --> 0:23:35.760 or works in New York City, or works in San Francisco, 0:23:37.600 --> 0:23:39.920 But does it work in the rest of the country? Right? 0:23:39.960 --> 0:23:43.520 And I think that is one of the key things. 0:23:44.760 --> 0:23:47.480 You know, all of all of us and maybe a 0:23:47.520 --> 0:23:49.639 lot of your listeners are sitting in you know, in 0:23:49.840 --> 0:23:53.040 in one of those cities today and they go to 0:23:53.080 --> 0:23:55.479 their local you know, solid chain, and they go to 0:23:55.480 --> 0:24:01.800 their local you know, eighteen dollar taco chain or eighteen 0:24:01.840 --> 0:24:04.440 dollars sandwich chain, right, and it's it's fine, that's it's 0:24:04.480 --> 0:24:08.000 within their price points. It's in the community. The taste 0:24:08.040 --> 0:24:14.879 profiles work, But does it work in Kansas City, doesn't 0:24:14.920 --> 0:24:20.479 work in Oklahoma, doesn't work in Texas? You know? And 0:24:20.520 --> 0:24:24.760 that's the question can you take to be successful as 0:24:24.800 --> 0:24:27.240 a brand in New York City or La or San Francisco? 0:24:28.040 --> 0:24:30.440 You know, in my view, you can probably put up 0:24:31.359 --> 0:24:33.560 one hundred and fifty two hundred, two hundred fifty units 0:24:33.640 --> 0:24:39.359 doing that. But to be a several hundred thousand plus, 0:24:39.359 --> 0:24:42.520 two thousand plus chain, you have to cater to the 0:24:42.560 --> 0:24:45.560 masses of this country and the masses of the country 0:24:45.560 --> 0:24:49.120 do not buy twenty dollars sandwiches twenty dollars salads, right, 0:24:50.840 --> 0:24:53.240 And so as we think about concepts, it has to 0:24:53.280 --> 0:24:56.080 be something and if you are if that is what 0:24:56.200 --> 0:24:58.439 you are selling, that is what you're marketing as a 0:24:58.480 --> 0:25:02.560 banker that this is a super regional potential for national chain. 0:25:03.000 --> 0:25:05.399 You have to demonstrate that the food will actually work 0:25:05.760 --> 0:25:08.120