Several unusual words popped up today in the opening Dealmakers Week panel about deal activity, valuations and trends—“impregnable,” “blistering” and even “cooperation” among tenants, landlords and lenders—with speakers saying those bode well for restaurant operators seeking capital, especially quick-service restaurants.
“We all know that QSR is like Superman. It’s impregnable, and money is rushing into QSR like you can’t believe. How do you deal with it?” asked John Hamburger, publisher of the Restaurant Finance Monitor, of his panelists. He noted that only about a year ago, when pandemic shutdowns had just begun, these same panelists had discussed a much different picture.
“In the short term, that’s certainly very healthy and great for the operators. Capital is abundant. In the longer run, I’ll be curious how much the supply outpaces demand,” said Thomas Hung, with First Horizon Bank.
“I’m feeling optimistic for the rest of this year and next year, really for the restaurant industry overall. Consumers are starting to go out again, the fundamentals look solid. This pandemic has shown that restaurant operators are a very resilient and innovative group.”
Glen Kunofsky with STNL Advisors said he’s optimistic about the performance as a whole for restaurants. “I think the private equity funds and the public companies that own restaurants, the growth trajectory from a development standpoint, there’s an amazing amount of development in restaurants, especially QSR. Even casual, there’s a demand for it. M&A activity is still going to be robust and it will even outpace the first part of the year in the second half.”
Prospective sellers who own real estate will enjoy especially good valuations, he said. “Demand really outweighs supply. The real estate will drive a higher multiple than the business multiple.”
Derek Ladgenski with Katten Muchin Rosenman noted a great deal of collaboration between landlords, tenants and lenders throughout the pandemic, as parties worked together to make it through. As different as 2020 was from 2019, “2021 is going to be that much different than 2020,” he said.
“We’ve seen a tremendous amount of cooperation among different tranches of the capital sector now for 13 months. We expect that to continue,”leading to more parties “making more money and getting more deals done with that sense of cooperation. Looking forward to more, together,” he said.
He expects add-on acquisitions and continued workouts, “but also a tremendous amount of new deal activity.”With early performance in 2021 starting to go on the books, and with potential changes in capital gains tax laws, “we’re not expecting anything other than a blistering year in deal pace,” he said.