Guest commentary: Preparing for the next wave of franchise M&As
By Luke Rhyner
After two years of subdued activity, the franchise M&A market is entering an opportune window for prepared operators. Valuations have recalibrated, operators have rebuilt liquidity, and buyer demand in the 10- to100-unit segment is showing renewed momentum.
Recent, well-publicized transactions demonstrate that deal flow is returning, including the consortium of private investors that plan to take Denny’s private and Bain Capital’s acquisition of Sizzling Platter, which are just two examples signaling renewed confidence in the market.
Beyond these headlines, a broader shift is taking place — franchisors are increasing their refranchising activity, expansion capital is stabilizing, and operators are stepping off the sidelines.
SHIFTING SENTIMENT OPENING DOORS
Many operators have been sitting on acquisition plans for several years — protecting liquidity while weathering inflation shocks. Now, with borrowing costs easing from their 2023–24 peaks, they are ready to act.
At the same time, system-level changes are creating openings that didn’t exist even 12 months ago. Several forces are converging to make the next 12–24 months a distinct business opportunity window:
• Liquidity strength: After two years of cash preservation, well-run operators have rebuilt balance sheets and are positioned to deploy capital.
• Recalibrating valuations: Valuations for owner-operated and capital-intensive concepts have moderated, creating opportunities for buyers.
• Operator fatigue: Some owners, particularly those who navigated inflation spikes and labor volatility without a clear succession plan, are ready to exit.
• Widening performance gap: The divergence between strong and struggling operators has accelerated, creating both acquisition targets and competitive pressure to grow.
• Brand-led refranchising: Major franchisors are actively marketing units owned by struggling operators.
Based on recent activity in the quick-service and fast-casual restaurant industry, the next wave of M&A will reward operators who prepare early, understand lender expectations and have strong banking relationships in place.
THREE COMMON M&A PATHS
In the current environment, franchise lenders typically emphasize cash-flow durability, leverage and whether an operator is bringing additional cash to a deal.
They also look closely at growth plans to evaluate operational readiness. With that backdrop, here are three M&A scenarios we see most often among operators in the 10- to100-unit range.
GENERATIONAL TRANSITIONS AND FAMILY EXITS
Family transitions come with their own complexities. Even when operations are strong, family dynamics tend to make these deals unique.
Operators who document succession plans prior to actively exploring an ownership change are typically better positioned to avoid surprises and disagreements.
Additionally, understanding the various financing options is critical. Creative structures, such as staged buyout notes, can help bridge potential gaps between the buyer’s and seller’s expectations.
For example, recently we worked with a family operating approximately 50 quick-service restaurants (QSR). The father was ready to exit, but the transition needed to happen gradually over time for financial reasons. We were able to structure a buyout note with a portion funded upfront and the rest over 10 years.
A strong lender will focus on how ownership will transfer and evaluate deal structures that satisfy both parties.
GROWTH ACQUISITIONS
When operators look to expand, whether by adding units, entering new markets, or absorbing another portfolio, operational readiness becomes a factor.
Strong operators should assess whether their current leadership and operational infrastructure can support added units. Expected profitability should also be accounted for.
Operators who understand both their current unit-level economics and the financial profile of the stores they’re acquiring, as well as how the combined business will perform post-integration, are typically best prepared to start evaluating their financing options.
Lenders will consider operational readiness as well as the operator’s cash flow durability, leverage, and the need for additional cash to support the acquisition.
If there is an expected dip in profitability, the operator should be able to explain the “why’ behind the numbers and present an actionable integration plan.
OPPORTUNISTIC/DISTRESSED
Distressed acquisitions often draw operators who see potential upside, but they aren’t always synonymous with “low cost.” These opportunities usually come with unique operational and financial considerations and may benefit from a tailored, longer-term plan.
Operators need to account for a realistic turnaround timeline, recognizing that stabilization and performance recovery typically unfold over several months.
Throughout this period, it’s common to see temporary pressure on cash flows as teams work through staffing needs, operating adjustments and initial improvements.
Operators should work with their lender to intentionally outline all potential capital needs, which will help inform the broader acquisition strategy and support a smoother path to turn units around and improve long-term performance.
IMPORTANCE OF FULL-BANKING RELATIONSHIPS
Beyond the transaction itself, lender-franchisee relationships work best when they span the entire business — from liquidity cycles and operating rhythms to vendor payments and capital needs.
When banking teams understand how the organization runs day-to-day, it leads to:
• The ability to provide creative solutions tailored to the business and its growth goals.
• Streamlined decision-making, because they understand the business’s financial performance, history and risk profile.
• Comprehensive, strategic options that extend beyond lending, such as treasury management, payment solutions, wealth management and more.
Multi-unit franchise operators looking to expand should identify a bank that specializes in growth opportunities, offers tailored financial solutions, demonstrates industry knowledge, and provides a relationship-based approach.
Luke Rhyner is Managing Director, Franchise Finance at UMB Bank.
