Restaurants Have Become Attractive Acquisition Targets
The prices buyers are willing to pay have risen as well.
Restaurants have become attractive targets for acquisitions despite ongoing challenges with sales rising 10.3% over the previous year in the second quarter of 2023 following a 3.2% gain in Q1, according to BizBuySell, an online business for sale marketplace. Furthermore, restaurants that sold in Q2 generated more revenue and buyers paid more for them.
“The median sale price rose by 15.9% over the previous quarter and 6.7% over the previous year, with median revenue up 10% over the previous quarter and 11.3% year-over-year,” the company reported.
Nevertheless, sale activity remained below pre-Covid levels. Similarly, median cash flow rose 4.2% in 2Q 2023, but was still 1.4% below its level in the same period 2022.
Buyers are especially interested in buildings with food and beverage operations that are owned by the operator, BizBuySell notes, quoting Steven Zimmerman, CEO of California-based Restaurant Realty Company. Zimmerman added that sales volume and profits at a number of restaurants have not yet recovered to pre-Covid levels. Others have achieved that goal, but have still seen profits fall because they could not increase prices sufficiently to offset higher operating costs.
“Many operators are holding on by a string and are burning through their PPP (Paycheck Protection Program) money as their lifeline,” Zimmerman said.
Such operators could also represent targets for takeovers by competitors searching for equipment, employees or location upgrades, with the added advantage of enabling new operators to set up quickly, without the hassle or cost of securing brand new assets, BizBuySell noted.
While restaurants have begun the process of recovery, retail has fallen behind. “After making a strong post-pandemic comeback in 2022 with annual growth in transactions of 22%, sale prices up 12.4%, and revenue surging 18%, the retail sector contracted in the second quarter. Compared to the prior year, second quarter retail transactions declined 12.3%, sale prices dropped 22%, revenue slipped 24%, and cash flow declined 9.4%,” BizBuySell reported.
It attributes this shift to online shopping, inflation-driven moves to cheaper alternatives, and clients holding back on non-essential purchases.