Tips Before Transacting: A Look at Restaurant M&A

The restaurant industry is abuzz with opportunity resulting in new companies emerging and a flurry of M&A activity. Some restaurant companies are looking to acquire additional units and strengthen their brand, while others are introducing new concepts into their portfolio. If you’re a restaurateur considering a transaction in the near term, there are three key practices to keep in mind:

  1. Understand “4 Wall EBITDA”

  • “4 Wall EBITDA” represents the EBITDA within the four walls of an individual store, as opposed to the entire company’s EBITDA. Steady EBITDA at the store level is the most critical aspect of understanding the profitability.

  • While looking at a restaurant’s 4 Wall EBITDA, keep in mind that scrubbing historical operating results for non-recurring or non-operating income/expenses is likely to impact valuation.

  • In addition, analyzing costs allocated from a corporate entity may affect go-forward profitability as allocations may not reflect the go-forward costs of the buyer.


  1. Know the run rate of store openings/closings, including non-recurring costs

  • Beyond the simple number of store openings and closings, a buyer should realize the costs associated with the opening and closing of a store that are not capitalized, and can be used to adjust valuation (e.g. payroll costs of training new employees or employees from other stores).

  • One must also consider the cash impact of capital expenditures to open a new store, which are not reflected in EBITDA.

  1. Don’t forget about gift cards

  • If a larger corporate entity is not tracking gift card purchases and redemptions, it is possible that the current owner is accounting for gift cards on a cash basis, which could result in a significant unrecorded liability, in addition to state escheat tax implications.

The above tips are important to keep in mind when approaching a transaction, but they are certainly not all-encompassing. For more on what to keep in mind ahead of an M&A transaction, contact Dana Zukofsky at [email protected] and Ross Vozar at [email protected]. And be sure to keep up with our restaurant practice’s latest thoughts by subscribing on the Selections homepage here and by following us on Twitter @BDORestaurant.