Franchise Valuation multiples

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November 10, 2022

by a searcher from INSEAD in Miami, FL, USA

Looking at a company in healthcare with 1.5m EBITDA - a franchise with multiple units and potential to continue to expand the number of units and revenue per unit. Is it fair to look at this deal with as a 5x multiple price or should there be a discount for being part of a franchise? say 3.5x instead of 5x?

What are typical exit multiples for a franchise operator with $1m+ in EBITDA?

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Reply by a searcher
from INSEAD in Miami, FL, USA
Hi Banji, I've received a couple of wildly different responses:
- One the one hand, I've heard yes, we should expect a bit of a devaluation on a franchise so where a deal this size might be 5x as independent, a franchise cloud reduce that to 4x.
- For the sub-industry I'm looking at, another owner spoke about "high-single digits/low double digits", regardless of the fact that it's a franchise and spoke of units he had bought himself for that price. I struggle to believe that.
- The most comparable acquisition I could find went for 6-7x to a strategic buyer

Does anyone have any other experiences to share?
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Reply by a searcher
from Harvard University in New York, NY, USA
Franchisees trade for lower multiples, particularly if the franchisor needs to approve new buyers. You should read this section of the FDD and get comfortable with those risks, which are specific to each franchise system and will dictate the discount to average multiples.
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