Restaurant dealmaking has shifted dramatically from the pandemic's irrational exuberance. Ashish Seth, a principal at Harrington Park Advisors, the investment banking firm specializing in food service transactions, reveals that today's M&A landscape demands rigorous fundamentals rather than speculative valuations.
During the 2020-2021 period, restaurants commanded inflated multiples based on growth projections and EBITDA assumptions that rarely materialized. Buyers gambling on recovery paid premiums that proved unsustainable. Now, Seth explains, transactions require proven unit economics, consistent cash flow, and realistic expansion timelines.
The new playbook prioritizes operational metrics over narrative. Acquirers scrutinize same-store sales trends, labor costs relative to revenue, and supply chain resilience. They demand detailed P&L statements from existing locations and stress-test scenarios against rising interest rates. Seth notes that sellers who cannot demonstrate these fundamentals struggle to attract serious buyers.
Several factors drove this reset. Rising interest rates increased borrowing costs, making highly leveraged deals less attractive. Inflation pressured margins across the industry. Failed expansion plans at multi-unit operators exposed the dangers of overleveraged growth. Private equity firms reduced their appetite for speculative restaurant bets after several portfolio companies underperformed.
Seth highlights that operators preparing for sale now need more than ambitious growth stories. They need documented systems, trained management teams, and proven replicability across locations. Franchisors particularly benefit when they show consistent franchisee profitability and lower failure rates.
The market still moves for quality assets. Brands with strong unit volumes, defensible margins, and clear differentiation attract competitive bidding. But the bar for "quality" has risen considerably. Buyers want to see two to three years of solid performance data, not projections. They want clarity on customer loyalty metrics and traffic patterns.