Acquiring performing units is faster and lower-risk than building new. Here is how to value, structure, and finance a franchise restaurant portfolio purchase.
Why Acquisition Often Beats Development
Building a new unit means eighteen months from site selection to stabilized volume, with construction risk, permitting risk, and trade-area risk stacked on top of each other. Buying an existing store means cash flow from the closing date. For an operator focused on returns rather than pride of authorship, the math frequently favors acquisition.
Existing units also come with something a new build cannot provide: real sales history. You can underwrite three years of actual transactions, actual food cost, actual labor percentages, and actual daypart mix rather than a franchisor’s model. That certainty is why lenders will advance more against an acquisition than a ground-up project.
The premium you pay for that certainty is the goodwill embedded in the purchase price. Whether it is worth paying comes down to disciplined valuation, which is where most first-time acquirers go wrong.
How Restaurant Units Are Valued
QSR units generally trade on a multiple of store-level EBITDA after a market-rate general manager salary and a corporate overhead allocation. Single units in average markets often change hands at 3.0x to 4.0x. Portfolios of five or more units with a functioning management structure command 4.5x to 6.0x, sometimes more for premium brands in growth markets.
The adjustments are where deals are won or lost. Sellers add back everything: personal vehicles, family payroll, one-time repairs, and remodel costs they should have capitalized. Scrutinize each one. A $60,000 add-back at a 4.5x multiple is $270,000 of purchase price, and it is far cheaper to argue about it in diligence than to service the debt for a decade.
Also confirm remodel obligations. If the franchisor requires a $400,000 reimage within eighteen months of transfer, that is not a future problem, it is a present reduction in enterprise value and it must be financed at closing.
Structuring the Debt
For deals under $5 million, the SBA 7(a) remains the workhorse: ten-year amortization on the business, twenty-five if real estate is bundled in, and 10% minimum equity of which half can sometimes be seller financing on full standby. Because the amortization is long and there is no balloon, coverage ratios work at higher purchase multiples than conventional debt allows.
Above $5 million, conventional acquisition financing takes over, generally structured as a five- to seven-year term loan with a twenty-year amortization and a balloon, priced over SOFR. Leverage lands around 3.0x to 3.75x total debt to EBITDA, with the seller often carrying a note for the last half-turn.
Angel Funding Group arranges both paths through our mergers and acquisitions financing group, and for larger portfolio purchases we will run an SBA and a conventional process in parallel to see which delivers better net terms before you commit.
Franchisor Approval Is a Gating Item
No matter how clean the financing is, the transfer does not happen without the franchisor’s written consent. Franchisors evaluate the buyer’s net worth, liquidity, operating experience, and development commitment, and many will require the buyer to sign a new franchise agreement at current terms rather than assume the seller’s older, often more favorable, agreement.
Read the current agreement carefully. Royalty rates, advertising fund contributions, technology fees, and territory protections may all differ from what the seller enjoyed. A 1.5 percentage point royalty increase on $8 million of system sales is $120,000 of annual EBITDA that vanishes at closing, and your lender will size the loan accordingly.
Start the franchisor approval process the same week you sign an LOI. It routinely takes 45 to 75 days and runs on the franchisor’s calendar, not yours.
Diligence Items That Uncover Real Money
Walk the equipment with a service technician, not the seller. Deferred maintenance on refrigeration, HVAC, and hood systems is the most common hidden liability in restaurant acquisitions, and a $90,000 surprise in month two is enough to break a tight coverage ratio.
Review the leases with the same intensity as the P&Ls. Remaining term shorter than your loan amortization is a serious problem, since a lender will not amortize past lease expiration including options. Percentage rent clauses, relocation rights, and co-tenancy provisions all affect value.
Finally, examine labor. Understaffed stores show artificially strong margins that evaporate the moment you staff to standard. Compare the seller’s labor percentage to brand benchmarks and adjust the pro forma before you agree to a price.
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