How To Evaluate A Multi-Unit Restaurant Chain Before You Buy
Multi-unit independent restaurants are a different acquisition than a single-unit operator. Here is the diligence framework I use, and the traps I avoid.
I do not buy single-unit restaurants. The economics are too dependent on one location, one general manager, and one set of regulars. But independent multi-unit chains of five locations or more, with a proven concept, are a real category I want to be in. The diligence is different from a single-unit deal in ways that matter.
The unit economics question, by location
A chain with five units does not have one P&L. It has five P&Ls, and the variation between them tells you almost everything about the operating maturity of the business. I want to see four-wall EBITDA by location, ideally normalized for differences in lease cost and labor market.
If the strongest unit is doing two times the four-wall EBITDA of the weakest, the question is what is different. Is it location quality, manager quality, or operating system quality? The answer determines whether the underperforming units are fixable, replaceable, or a permanent drag.
The general manager bench
A multi-unit chain stands or falls on the GM bench. I want to know the tenure and track record of every unit GM, who hired and trained them, what the promotion path looks like, and whether the chain has lost any GMs to competitors in the last twelve months.
A chain that has zero GM-level attrition over two years is operating well. A chain losing GMs every other quarter is hiding a culture problem the financials will not show until it is too late.
The supply chain question
A five-unit chain that buys ingredients independently for each location is leaving margin on the table. A five-unit chain that has consolidated purchasing, established preferred supplier relationships, and standardized recipes is a different business. The question is which version exists today, and whether the operator we are buying with has the discipline to keep it that way.
The lease portfolio
Restaurant leases are the second-biggest cost after labor. I want a full read of every lease: term remaining, escalation schedule, renewal options, and any landlord change-of-control clauses that get triggered by a sale. A lease portfolio with three units expiring in the next twenty-four months is a renegotiation problem I am inheriting, not a stable foundation.
What I am ultimately buying
The concept matters, but the operating system matters more. A great concept run by a mediocre operator is worth less than a decent concept run by a disciplined one.
I would rather buy a chain whose unit economics work because the operator made them work, than a chain whose unit economics work because the concept got lucky.
Written by Ramy Stephanos, SFAdvisor - Acquire.