Multi-Unit Franchisee Magazine Issue I, 2014 | Page 93

felt there were G&A synergies, margin
opportunities, sales upside associated with
image improvements, pricing opportunities, and other enhancements based on
the fact that the buyer was considered
to be a “better operator.” The buyer was
confident that he had paid a fairly low
multiple for the business. Unfortunately,
the buyer soon discovered that the seller
did a much better-than-anticipated job
of squeezing margins out of operations.
What’s more, the adjacent market did
not allow for pricing increases, several
higher-volume stores had new competition, and the new image enhancements
fell flat. All this occurred while the brand
was experiencing a cyclical decline. What
appeared to be an attractive multiple
ballooned to a high single-digit multiple post-closing, putting not only the
acquisition but the parent company at
risk for a default. The buyer clearly had
not done his homework and set himself
up for a difficult situation. In this situ-

Using an EBITDA
multiple to value
a transaction can
be a dangerous
thing unless all
the variables
and nuances are
properly factored
into the equation.
ation, the seller had agreed to a lower
multiple from this buyer based on lower
escrow requirements, no seller paper,
and an all-cash deal. After one year, the
post-cl