Evalueserve’s Approach to Solve Data Challenges to Arrive at Optimal Deal Valuation for Franchising Deals Advised by Boutique Advisory Firms

Lately, Boutique Advisory firms have seen a huge uptick in deal activity, and franchising deals are contributing to a major chunk of deals for banks and advisory firms focusing on consumer and retail sector. Most of the bankers and analysts working on these franchise deals have to work around their way with multitude of unstructured and unaudited financial statements.

In this blog, we have summarized few approaches to analyze these statements which are helpful to achieve a more functional analysis of revenue and EBITDA and arrive at an optimal deal valuation for these franchise businesses.

Uptrend in US M&A industry continues in 2022 after an extraordinary 2021

In 2021, the US M&A industry recorded a deal value of more than $2.9 trillion, up 55% from $1.9 trillion in 2020. During the same period, the US accounted for ~60% of all global deals (announced value), up from less than 50% in 2020. Flushed with cash and encouraged by soaring stock market valuations, large buyout funds, corporates, and financiers struck 62,193 deals in 2021, up 24% from the year-earlier period, as records tumbled throughout the year.

Last two years have seen all kinds of deals, including Franchising sector also splurging into M&A and establishing great records. The franchising industry has experienced rising trends towards consolidation with large and well-established brands and operators acquiring competitors and/or fellow franchisees. Top franchising deals of 2021 include acquisition of Neighborly by KKR, Thompson Street Capital acquired Freddy’s Frozen Custard and Steakburgers, Tutor Doctor acquired Code Wiz, Xponential Fitness acquired Rumble, FAT Brands acquired the Global Franchise Group, Service Brands acquired TWO MEN AND A TRUCK, Restaurant Brands International acquired Firehouse Subs, etc.

With the increasing volume of deals, deal teams at investment banks and boutique advisory firms are spending a lot of time in managing an immense amount of unstructured and large data sets of franchise companies and unaudited numbers with various abnormal income / expense items reported by companies. Banks and advisory firms working with private companies are struggling with data management, segregation, and meaningful analysis for deal valuation purposes.

Key franchise valuation challenges for boutique advisory banks

  • Analysis of large data sets from multiple units with different tenures in a franchise system
  • Collation of scattered data spanning a decade or more in some cases
  • Analysis of the financial performance of mature units over a period
  • Benchmarking of franchisees’ performance in their progressive years
  • Performance evaluation of various dataset categories, mature versus new, etc.
  • Understanding different dynamics and methodology for revenue forecast

Few Solutions to Overcome Data Challenges and Analyzing Revenue and EBITDA for Deal Valuation


1. Vintage or Cohort analysis

Vintage / Cohort analysis is a proven and insightful data-driven method to gauge this highly significant and dynamic factor. The analysis involves the categorization of franchisees into groups with common characteristics such as year of establishment and years into operations. It provides highly valuable insights that analysts can use to isolate, analyze, and detect patterns in the lifecycle of a franchisee to gauge franchisee stickiness to a business and understand franchisee behavior in a particular cohort.

Sample revenue growth across vintages

Vintage / Cohort analysis helps franchisors to study and understand their performance, as well as enables them to investigate and take corrective steps if a recent performance pattern does not mirror their historical performance.

2. Revenue range analysis

Revenue range analysis helps analysts to understand the maturity of a franchise, as well as its revenue density in each categorization. With this, analysts also get a starting point to deep dive into the franchise’s functioning. Sometimes new units are in a higher bracket compared with matured units or vice versa, providing a comprehensive view of the business performance. It also gives an extensive overview of the top-line numbers of a company.

Further, this comparison can be modified on a y-o-y basis. The calculation in the graph below shows how many franchises as a percentage of the total fall in each category. The analysis enables analysts to understand which range base is dominant in a particular year and if in the next year, there is some improvement or not.

3. Revenue Maturity

A revenue maturity chart (presented below) enables analysts to understand the average trend of the units opened in a particular year and their business performance from year 1 to year 5. The analysis can be further improved by using filters to select units that are above a certain revenue threshold.

Across vintages, units demonstrate a consistent track record of positive y-o-y growth in average unit volume.

4. Same-store sales analysis

Same-store sales analysis is an important metric in the franchise retail business model. To analyze the y-o-y revenue growth, it is essential to understand the revenue structure, as well as whether the contribution is coming from new stores or the old ones. The analysis removes the outlier sales of new stores, as they usually tend to have high revenue in the initial period, which can mislead analysts trying to determine the overall growth of the franchise. Further, to get more insights, the sales number can be divided by the number of the same stores to calculate the average same-store sales. The calculation helps in preparing the long-term average output, which can be used in projections by analysts.


1. EBITDA run rate

Acquisitions are typically priced based on EBITDA multiples. Analysts are required to critically analyze the business model of a target to derive EBITDA adjustments. If the adjustment is not done judiciously, the valuation may become too high and the buyer could end up paying more than expected.

To mitigate this risk, the EBITDA run rate is calculated after normalizing earnings. The major purpose of the run rate is to reflect both current and known performance to produce a P&L, reflecting the state of business in the near future once known / secured benefits and costs are taken into consideration. The typical run rate adjustments include pay increase, headcount, non-recurring work, etc. After the adjustments, the run rate percentage is used for future projections. The analysis can be improved by using industry-related metrics while annualizing the numbers.

Evalueserve has expertise in analyzing and valuing large franchising private companies for boutique advisory firms. In last couple of years, Evalueserve has supported clients on more than 10 live franchising deals. We helped our clients to identify and resolve data challenges such as managing unstructured data, benchmarking and analyzing, and providing pinpointed and meaningful output used in the deal valuation process.

How Evalueserve Can Help

Evalueserve has extensive experience working with large, mid-market investment and boutique advisory firms that deal with franchising companies across sectors (sports, education, home improvement, entertainment, health and wellness, food and beverages, etc.). Our resources are experienced and qualified to support clients with in-depth analysis and detailed presentations. Evalueserve team works as an extended team for clients and helps in identifying and profiling potential targets / buyers with relevant metrics, financial and operational benchmarking, financial modeling and valuation, franchise financials benchmarking, confidential information memorandums, detailed management presentations, indications of interests, live deal support, deal marketing, etc.

Read more about our end-to-end deal support at Corporate Finance Research Consulting | Evalueserve

To know more about our Investment Banking offerings, visit our webpage: Investment Banking Advisory – Evalueserve

Raghav Ahuja
Manager – Corporate and Investment Banking LoB Posts

Raghav has 8+ years of experience in working with investment banking and commercial lending teams

Shilpa Chaudhary
Associate Vice President – Corporate and Investment Banking LoB Posts

Shilpa has 14+ years of experience in working with investment banking and capital markets teams

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