Recapitalizations of Franchisors: Partnership Considerations - PowerPoint PPT Presentation

Recapitalizations of Franchisors: Partnership Considerations

Executive Summary Bird Dog Capital Group, LLC (“B “Bird Dog”) ”) is is ple pleased to to share wit ith you our though th ghts ts on considerati tions to evaluate when choosing g a partn tner Bird Dog’s perspective is that of a private equity firm ● ⏜ We will also discuss attributes of franchisors (and franchisees) that private equity firms look for when assessing investment opportunities The Bird Dog team has decades of investing and operational experience in ● the franchise industry ⏜ Invested over $200 million in equity capital across nine franchise brands ⏜ Franchisor and franchisee transactions in both the food and non-food segments of the industry Private equity firms are very active in the franchise space and could present ● a viable option as a partner 2

Getting Started Th The f e first p part o of t the p e proc oces ess i is c critical a and c cou ould d det eter ermine w e which p path you you ultimately take ul What are you solving for? ● Retirement ● Li Lifestyle Partner for growth ● Generational transition ● Price ● Liqu Li quidi dity Structure ● Initial needs and future needs ● Values that are important to you ● Legacy Le Changes to your brand ● Sustainability of your brand ● 3

Preparation By By failing to prepare, you are preparing to fail Financial statements ● ⏜ Audited statements are preferred; however, internals may be relied upon ⏜ Adjustments for owner’s expenses Consider getting a transaction advisory services firm to perform a quality of o earnings review ⏜ Performance relative to budget Diligence checklist ● ⏜ Operational metrics (key performance indicators) ⏜ Financial forecast ⏜ Legal, Human Resources, Insurance, IT, and Environmental (if applicable) Forming your team ● ⏜ Consider hiring an investment banker / broker ⏜ Engage legal counsel ⏜ Prepare key members of your management team 4

The Recapitalization Process A A sum ummary of the he steps you u can n expect Exit Ex Ne Negotiate Do Docume ments So Solici cit Bids Prepare fo Pr for Sale ● Typically 30 to 60 ● Documents necessary ● Non-binding initially ● Obtain all necessary days to consummate the approvals and close ● Evaluate proposals transaction are and keep select Regulatory o dependent upon bidders in the process Landlord structure o ● Negotiate terms for Others o LOI Ac Acti tion Items (1 (15 to 30 week Process) IOIs, Implement Prepare Develop Mgmt. LOI & Post- Hire Preso & Acquisition Data Sales Definitive Advisor Room Materials Diligence Docs or Responses Transition 5

Valuation Considerations Th Ther ere a e are n e numer erou ous f factor ors t that c can i impact t the v e valuation on you you c cou ould ex expec ect Revenue • Si Size EBITDA • Same Store Sales performance • SSS SSS Price and traffic • Va Valuation Product / service mix • Margins Ma Stability • Organic • Gr Growth th Acquisition • 6

Valuation Considerations Th Ther ere a e are n e numer erou ous f factor ors t that c can i impact t the v e valuation on you you c cou ould ex expec ect Business lifecycle • Hi History Tenure of management • Ba Balance Current debt outstanding • Working capital • Sh Sheet Va Valuation Date of last remodel • As Assets Location / trade area • Br Brand Brand awareness • Eq Equit ity Brand integrity • 7

Valuation Considerations Th Ther ere a e are n e numer erou ous f factor ors t that c can i impact t the v e valuation on you you c cou ould ex expec ect Org Or Strength of management • Cha Chart Areas that need augmentation • General economic conditions • Economy Ec my Credit markets • Va Valuation Litigation history and pending • Risks Ri Revenue and profits concentration • All cash transaction • Structure St Owner participation in structure • 8

Valuation Considerations So Some prospective par artner will an anal alyze metrics of publicly-tr traded companies, pr prece cedent transact ctio ions and develo lop p fin inancia cial l models ls to to arriv ive at valu luatio ion COMPARABLES BY SERVICE FORMAT EBITDA Price Equity Enterprise P/E P/E/G EV / EBITDA EV / Revenue Margin CY2017 CY2018 CY2017 CY2018 IQ_LTM CY2017 CY2018 IQ_LTM CY2017 CY2018 IQ_LTM Name 11/10/17 Value Value CY17 CY18 CY17 CY18 LTM CY17 CY18 LTM CY17 CY18 LTM Affordable Upscale & Fine Dining KR Ark Restaurants Corp. $0.00 $84 $103 0.0x 0.0x 0.0x 0.0x 9.9x 0.0x 0.0x 0.7x 0.0x 0.0x 6.8% BBRG Bravo Brio Restaurant Group, Inc. $2.15 $33 $76 11.0x 9.6x 2.0x 1.7x 3.2x 2.9x 3.0x 0.2x 0.2x 0.2x 5.9% AKE The Cheesecake Factory Incorporated $44.31 $1,966 $2,090 17.1x 16.7x 1.3x 1.3x 7.8x 8.2x 8.0x 0.9x 0.9x 0.9x 11.8% DFRG Del Frisco's Restaurant Group, Inc. $13.15 $279 $319 18.0x 16.6x 1.5x 1.4x 7.9x 7.1x 6.7x 0.9x 0.9x 0.8x 11.2% FOGO Fogo de Chao, Inc. $10.75 $304 $414 14.0x 12.9x 0.9x 0.8x 8.0x 7.7x 6.9x 1.3x 1.3x 1.2x 16.8% JAX J. Alexander's Holdings, Inc. $9.85 $145 $163 28.1x 21.9x 0.0x 0.0x 8.4x 6.6x 6.3x 0.7x 0.7x 0.7x 8.4% NA Kona Grill, Inc. $2.05 $21 $55 NM NM 0.0x 0.0x 14.9x 12.5x 6.7x 0.3x 0.3x 0.3x 2.0% RUTH Ruth's Hospitality Group, Inc. $19.90 $599 $624 19.2x 17.3x 1.4x 1.3x 10.3x 9.9x 9.0x 1.6x 1.5x 1.4x 15.2% Mean $429 $480 15.3x 13.6x 0.9x 0.8x 8.8x 6.9x 5.8x 0.8x 0.7x 0.7x 9.8% Median $212 $241 17.1x 16.6x 1.1x 1.0x 8.2x 7.4x 6.7x 0.8x 0.8x 0.7x 9.8% Casual Dining BJRI BJ's Restaurants, Inc. $31.20 $644 $809 22.6x 19.9x 1.4x 1.3x 6.9x 7.5x 6.7x 0.8x 0.8x 0.8x 11.3% MN Bloomin' Brands, Inc. $16.98 $1,550 $2,666 12.7x 12.3x 1.1x 1.1x 6.9x 6.5x 6.6x 0.6x 0.6x 0.6x 9.4% EAT Brinker International, Inc. $33.74 $1,562 $2,916 10.7x 10.2x 0.7x 0.7x 6.8x 6.9x 6.8x 0.9x 0.9x 0.9x 13.7% LD Buffalo Wild Wings, Inc. $118.85 $1,844 $2,237 23.9x 21.5x 1.5x 1.3x 8.7x 8.3x 7.9x 1.1x 1.1x 1.1x 12.8% CHUY Chuy's Holdings, Inc. $22.75 $385 $367 23.3x 21.4x 1.4x 1.3x 9.5x 9.1x 8.2x 1.0x 1.0x 0.9x 11.0% BRL Cracker Barrel Old Country Store, Inc. $154.64 $3,726 $3,972 18.6x 17.0x 2.9x 2.6x 9.9x 10.0x 9.0x 1.4x 1.3x 1.3x 13.7% DRI Darden Restaurants, Inc. $82.64 $10,220 $11,010 19.7x 17.9x 2.1x 1.9x 11.3x 10.6x 9.6x 1.5x 1.4x 1.3x 13.2% AY Dave & Buster's Entertainment, Inc. $48.84 $2,007 $2,288 18.7x 16.9x 1.2x 1.1x 8.7x 8.3x 7.4x 2.1x 2.0x 1.7x 24.4% ENN Denny's Corporation $12.30 $803 $1,097 22.5x 20.3x 0.0x 0.0x 11.8x 10.8x 10.4x 2.1x 2.1x 2.0x 17.7% DIN DineEquity, Inc. $46.63 $839 $2,137 11.3x 11.3x 0.0x 0.0x 9.5x 10.1x 10.4x 3.5x 3.5x 3.6x 36.7% AVE Famous Dave's of America, Inc. $3.65 $25 $31 NM NM NM NM 10.2x 12.6x 10.1x 0.3x 0.4x 0.4x 3.2% LUB Luby's, Inc. $2.62 $76 $106 0.0x 0.0x 0.0x 0.0x 9.0x 0.0x 0.0x 0.3x 0.0x 0.0x 3.1% RRGB Red Robin Gourmet Burgers, Inc. $46.95 $607 $879 20.8x 17.5x 1.9x 1.6x 6.5x 6.4x 5.9x 0.7x 0.6x 0.6x 10.2% Ruby Tuesday, Inc. $2.37 $143 $309 0.0x 0.0x 0.0x 0.0x 8.3x 0.0x 0.0x 0.3x 0.0x 0.0x 4.1% XRH Texas Roadhouse, Inc. $49.04 $3,487 $3,437 25.3x 22.9x 2.0x 1.8x 11.9x 11.6x 10.6x 1.6x 1.5x 1.4x 13.3% Mean $1,861 $2,284 16.4x 14.9x 1.2x 1.0x 9.1x 7.9x 7.3x 1.2x 1.2x 1.1x 13.2% Median $839 $2,137 19.2x 17.3x 1.3x 1.2x 9.0x 8.3x 7.9x 1.0x 1.0x 0.9x 12.8% 9