Acquisitions Anonymous - #1 for business buying, selling and operating - Would You Buy These Struggling Chicken Restaurants?

Episode Date: August 18, 2026

In this episode the hosts analyze a four-unit quick service restaurant franchise portfolio and debate whether buying an underperforming chicken/Mexican franchise platform is a smart acquisition or an expensive operational headache.Business Listing – https://go.franzy.com/resale/qsr-4-unit-southeast-01Welcome to Acquisitions Anonymous – the #1 podcast for small business M&A. Every week, we break down businesses for sale and talk about buying, operating, and growing them.Looking to build a professional website in minutes? Try Wix: https://wix.pxf.io/c/6898629/3115214/25616?trafcat=templateHubSpot is the backbone for how businesses scale without chaos. Try them out here: https://go.try-hubspot.com/OeG9VrSubscribe for more episodes: https://www.youtube.com/@AcquisitionsAnonymousPodcast?sub_confirmation=1Subscribe to our Newsletter: https://www.acquanon.com/newsletterSponsors:Quiet Light BrokerageThinking about selling your e-commerce or SaaS business? Quiet Light Brokerage specializes in helping founders maximize value with experienced former operators—not just brokers—and offers a free, no-obligation business valuation. Learn more at: https://quietlight.comBedrock Quality of EarningsBefore buying a business, make sure the numbers are real. Bedrock provides buyer-focused Quality of Earnings reports using experienced financial professionals and AI-powered analysis to help uncover surprises before closing. Learn more at: https://bedrockqoe.comWhat happens when you find a franchise portfolio that's growing—but still underperforming its own brand averages? In this episode, the hosts evaluate a live four-unit quick service restaurant (QSR) portfolio consisting of chicken and Mexican food franchises in the Southeast.The business generates approximately $4.2M in trailing twelve-month revenue and $676K in adjusted EBITDA, but the opportunity isn't as straightforward as it appears. The hosts dig into franchise economics, average unit volumes (AUVs), dual-brand restaurant conversions, SBA financing, franchise transfer restrictions, and whether operational improvements can realistically unlock significant upside.The discussion goes well beyond valuation. The panel debates whether these restaurants are simply poorly operated, located in weak markets, or attached to an aging franchise brand that may never reach system averages. Along the way they explore AI drive-thru ordering, franchise legal structures, pricing flexibility, restaurant labor, and why experienced multi-unit operators may view this acquisition very differently than first-time buyers.Key Highlights:- Four-unit QSR portfolio with $4.2M revenue and $676K adjusted EBITDA- One dual-brand chicken/Mexican location could potentially be converted into a standalone Mexican concept with franchisor incentives- Discussion of AUV (Average Unit Volume), franchise due diligence, and identifying operational versus location issues- SBA financing considerations, including funding acquisition costs, working capital, and restaurant conversion expenses- Deep dive into AI ordering, pricing strategy, franchise economics, and why experienced operators often outperform first-time ownersSubscribe to  weekly our Newsletter and get curated deals in your inboxAdvertise with us by clicking hereDo you love Acquanon and want to see our smiling faces? Subscribe to our Youtube channel.Do you enjoy our content? Rate our show!Follow us on Twitter @acquanon Learnings about small business acquisitions and operations.For inquiries or suggestions, email us at [e-mail]

Hello, everyone, and welcome back to Acquisitions Anonymous. This is the internet's number one podcast on buying, selling, and operating small businesses. And this was a great episode. We are joined by my close personal friend, Alex Smersniak from Franzy. And we break down a portfolio of four quick service restaurants that are for sale, that are franchisees. They are unnamed, but you will figure it out pretty quick. They sell chicken and Mexican food, and some of them are co-located. in the same building, which has some interesting dynamics.

So we really dove into how do you diligence quick service restaurant franchisees, and Alex has forgotten more about franchising than I have ever known. So there's a really, really deep technical kind of franchisees insider take on what it takes to buy Quick Service Restaurant franchisees. So without further ado, I hope you enjoy this episode of Acquisitions Anonymous. We'll say, Acquisitions Anonymous. Hello, another episode of Acquisitions,

We don't have 100% beers anymore. And thumbs downing on just the plus inventory line. Hey, everyone, it's Bill. And I want to talk to you about Quiet Light brokerage. I was so psyched when Quiet Light agreed to sponsor the podcast because I am a customer. I have used Quiet Light to sell three businesses. And if I were selling an e-commerce or a SaaS business, I really would not consider anyone else.

Like I said, I went back to them three times. I worked with three different brokers at Quietlight. had a great experience all three times. Even on one occasion, they found a buyer for a business that I just didn't know it was even going to be possible to sell. So they have pulled rabbits out of their hats several times for me. They've been in the e-commerce and SaaS business brokering game a very, very long time. They really know what they're doing. They have great reach with both buyers and sellers.

And the other thing I really love about Quietlight is all the brokers there are former operators. So you can't just show up and go, hey, I'm a lifetime business broker. I want to work at Quietlight. You have to be a former operator. So they all know what it's like to be in the operator chair. So if you go to Quietlight.com, they have free business valuation calls, which they'll do with you. No obligation. Just tell you what they think about your business, what they think it would be worth.

And then what you might need to do to kind of get it ready for market. Those guys over there are great, great SOPs, great systems. I just felt like I was in really good hands all three times with Quiet Light. So if you're interested in selling your business, especially in e-commerce or SaaS, hop on over to quietlight.com fill out their onboarding forum for a free valuation call, and you can tell them Bill or Acquisitions Anonymous sent you. All right. Welcome back to Acquisitions Anonymous. It's going to be a good one because you guys have four hosts today. It's Heather Ann Mills and me, Bill, and Alex Smersniak from Franzy. How you doing, Alex?

Good. I am doing fantastic. Awesome. If you're on YouTube, you have to go on YouTube and check out Alex's recording studio because it always makes me feel like so small because he's got a cool neon. It's like perfect camera. This has the automatic shade behind him now. But Alex, you look like you're in Tron, you know? I know. We get feedback. Like, are you going for the Bond villain vibe or what, what are you trying to do here? So I'm still figuring that out this year. I like it. It's cool. Well, Alex,

just so people are like, why the heck are you here? What is, what's Fransy? What do you guys do? Yep. So think of Fransy. is the Zillow for buying and selling franchise businesses. So same thing that Zillow did for the MLS and just making data more accessible. Franzy has done for the 4,000 plus franchise opportunities that exist in the United States. And that's everything from QSRs and restaurants all the way to health and wellness and fitness and childhood development. We've got every brand and all the data associated with it that you can imagine. Awesome. So when I want to know something about franchises,

I call my buddy Alex. And we, in fact, didn't go to school together, but went to the same school and became Wake Forest buddies right after college, which is how Alex thought I'd go way back. All right, but Alex, Alex brought us a cool franchise deal today. So I put it on the screen. Go on YouTube, if you guys will listen on audio.

It is much more fun on YouTube. This is a four-unit QSR portfolio, quick service restaurant. So think like drive-through you know, that type of thing. QSR is just a fancy way of saying drive-pins. Yes. Not necessarily, right?

It doesn't have to have a drive-through. Like, Moses is QSR, but no drive-through. Okay, so order the counter or drive-thru. It's basically, can you get your food in less than three minutes, four minutes or so? So a lot of that, like, speedy system that the McDonald's, you know, brothers initially invented way back, if you've seen the movie, the founder, they kind of invented the idea of QSR, which everything's so pre-pre. and prepared that you can get food from the counter to walking out in less than a few minutes,

basically. Okay, so not necessarily drive-thru, but it includes drive-thrus. No, that's right. There does include drive-thrus? These do include drive-thrus. So these four units do have drive-thrus, which is a huge value add because of convenience and people being able to go through quickly. And then the next model evolution would be fast casual, and that's more of a Panera-Bred.

really pioneered that in the 90s where you still get the food pretty quickly, but you're sitting down and there's silverware and there's, you know, Wi-Fi and it's just a lot different of an in-store experience than a QSR would be. Okay. Okay. So do you, I'm going to read these. Alex, do you know what these are and you've blinded them for us? I do because the seller wants to be a little bit discreet and not super open about what the brands are where they are because they want quality. B. Fyfied buyers talking to them versus tons of random people trying to sell themselves, sell them stuff for other outreach. Okay, so we will try not to guess too hard. It's pretty easy to figure out. It's like the trick we did at EY when I worked there where it's like, oh, it's a top five bank that's based in Charlotte. And you can, you'll probably figure it out as we go, but we can't directly say it. Yeah. Okay. So let me, so the thing at the top here says franzi verified resale, which means that these, these are operating.

franchises that are being sold as going concerned. Correct. Yep. We've seen the numbers. We've verified everything that's listed here. This is a real deal that if people listening wanted to go and pursue, we could help make that connection, help underwrite the deal, represent, you know, buyers, help you with financing, etc.

Okay. So this is a live deal. It is a four-unit QSR portfolio with dual brand location. So that means kind of two restaurants, one box. Yep. So of the four, three are chick-a-old. concepts and one is a hybrid chicken and Mexican food restaurant. So again, if you start thinking through the possibility, there's only a few, if not just one. Okay. So I'll mention one that it is definitely

not, which is like the Baskin-Robbins Dunkin' Donut combo, if you guys have seen that. It's like the same type of thing all in one box. Correct. So this is in the Southeast United States, multiple metropolitan markets. It says with a dual brand conversion option. four drive-through units, one of the units is dual brand, three are chicken only. So you guys think about what kind of parent franchisor has a chicken concept and a Mexican concept. You know, that narrows it down pretty, pretty tight. The revenue in the TTM revenue is 4.2 million. Adjusted post-GNA, EBITDA is $676,000.

Isn't all EBITDA post-G? This is a new metric. What is adjusted post-GNA EBITDA? So I've become a little bit of a hawk on some of these things. Because I mean, my background's in finance similar to bills. And I've seen all sorts of tricks that companies do publicly traded versus franchise versus not. And this has been new for me recently. And it's mostly in multi-unit, mostly food operations.

And all they're saying is, hey, this is the EBITDA after we consider corporate expenses. Like the accountant that does the books for all four of these locations, we've netted that out. because some people will show EBITDA just of the four locations. And there's kind of hidden expenses at the corporate level where you've got, you know, accounting and maybe recruiting sits up there and they strip it out of the P&L of the individual locations. And so this is effectively saying this is the cash flow after every single expense besides including all the corporate overhead. Correct. This is actually what you're saying. Yeah. They just add post DNA because some people will say, oh, these four stores, EBITDA,

they're just combining the EBITDA of those four locations and not actually stripping out the GNA from the parent to the corporate overhead that they have for recruiting, accounting, things like that. Okay. So this is EBITDA at the whole co level, including all. Correct. Yeah. Okay.

So $675,000 on $4.2 million, which is a 16% margin. They have experienced 10% same store sales growth and 10% transaction growth, which means that the growth is not coming. from price. It is actually more people through the door. Correct. Right. So four drive-thru, like we said, three are single brand and one is dual brand. They have 50 employees with tenured management in place. It says that there's some conversion upside. So I assume this would be adding the Mexican concept to the three chicken only concepts says 350K store level EBITDA and aggregate, right? Not each.

So that's for this. So it's actually the opposite. of what you said. So the conversion, this is interesting. A lot of these, you know, the Baskin Robbins, you know, Dunkin things that you've seen, et cetera, this was an experiment about, you know, 15 to 20 years ago that just didn't go very well. They thought, oh, we can share kitchens, we can share buildings, it'll be amazing, go to one place and customers can have this wild menu of two completely different things. And it just hasn't worked out the way that they thought it would. And so this hybrid wants to decouple actually because the standalone Mexican restaurant does a million dollars more in revenue per location as a standalone

than it does as one of these hybrids. So they're actually saying, hey, there's some upside on EBITDA if you took out the chicken concept from the hybrid that exists today. So just delete the chicken concept, thus leaving you with three pure chickens and one pure Mexican instead of three pure chickens and one hybrid. The one I'm thinking about that was always like this was like A&W. There was like an A&W with like Carl's Jr. or something, right? That brings me back. Yes, A&W did have these with someone else. Yeah. It was like, I can't remember. I think I've seen some others. There's like an IHop combo one I've seen. Well, and there's new ones now where they're trying to do, I think it's IHop with Applebee's because. Yeah. And this hybrid could, you know, has potential to work

because you don't think of breakfast when you think of Applebee's and you don't think of half off apps at night when you think of IHOP. You can actually use the shared space and kitchen effectively versus you know a taco concept and a chicken concept. You're not...

They're going to sell the same meals. Yeah. You're competing against each other. Yeah. So it's just you don't really get the benefit actually. It makes everything confusing and hard for the team and the customer and it just backfired on groups that tried to do this. Right. You just have a menu that's twice as big in a kitchen that's

twice as busy. You become cheese steak factory. right but the the donuts in the morning and like ice cream in the afternoon Baskin Robbins, Duncan, like better fit. Correct.

Okay, so back to this, this would be you spend 500K to rip out, to renovate your dual location and turn it just into a Mexican slash taco concept. Correct. Right? So it's a stabilized four unit

chicken QSR platform with room to grow revenue on the base and a franchisor paid path to convert one unit into the stronger sister brand. Okay, wait a minute. Franchisor paid? So the franchisor, because they, I mean, they're going to do better, it makes the brands cleaner, separate, et cetera. They're giving incentives to the individual that decides to say, hey, let's go ahead and convert this dual concept into a Mexican restaurant only. And so they're going to give breaks like, you know, I think they waive the royalty for marketing in the first year for this location, which is about 2.5% on, you know, call it 1.7 million.

That's the 20% less than the average AUV for this Mexican concept. So there's, it's about 70 to 90K in incentives that you could get if you convert. So instead of paying half a million dollars to convert, you're looking at like 400 to 425 to convert. Okay. So they don't pay for all of it, but they're going to help you. Yep. Okay. So it says turnkey platform, 4.2 in revenue and 675 of, you. but da, as we said, 50 staff, one tenured management team. It says operating at 20% below the

brand's own published median AUV. Standard growth levers, pricing, kiosks, local marketing remodels are still undeployed. What is the brand's own published median AUV? Yep. So I've got the FDD in front of me here and let me. Sorry, what's that mean? Just define aUV for me. Yep, AUV is average unit volume. This is a very kind of popular standard metric in franchising. They just want to understand what is the average revenue of the standard unit in this system. And so in this case, they're saying... So what they're trying to say here is that these units are under-optimized. Maybe the pricing is wrong. They don't have self-serve kiosks. They're not doing marketing or maybe they look a little beat or dated. Correct. And if you were to do some of these levers and just get to the average performance

of the chicken or the Mexican concept, sales go up 20%. Exactly. So if they're, you know, if they're 20% below, there's room to add about another 250K in revenue per unit. And that's another 30 to 40% flow through or 3 to 400K in EBITDA. Okay, so I'm a buyer, and this is my job would be skeptical. But anytime a seller is like,

hey, we suck at everything. And if you don't suck at everything, like everything will be great. You know, that's always very hard for me to swallow as a buyer because it's like, hey, you're a better chicken Mexican operator than me, right? Except. Why didn't you do all these things?

Except, Bill, and I was thinking the same thing. It actually, like, that's because we're not existing franchisees in this chain. If this gets read by an existing franchisee in this chain, they're like, wow, yeah, you guys suck. We do a lot better. We're 20% over AUV, and we know how to do that. But Mills or Al or somebody, how can I tell, like, what if these are just garbage locations. Like, as many units have to be below the chain wide AUV as are above at the chain wide AUV. How do I tease out whether like, hey, it needs a coat of paint and some kiosk and I'll get

to AUV or that these are in just on the wrong corners and they are always in the bottom of cohort. I'm curious what Alex has to say about this. I have a suspicion too. Yeah, to Mills's point, existing operators have all sorts of playbooks on, well, hey, I've got a team in the area and I can just plug them in and share some of the overhead and the kind of management costs. And it's different calculus for them. If you're net new looking at this and getting into QSR for the first time, you've got to try to use tools like Buxton or Placer or some of these kind of site selection

real estate tools to help you identify. How many cars are coming by a day? Is there foot traffic? What does competition look like in this area? I would, you know, if I were looking at this for the first time, I would start to see, is this a customer problem? There's just not enough demand or it's too competitive of an area? or go to these stores, talk to the seller, and start to see, wow, they have none of the self-serve kiosk,

like, boom, there's all this labor that they've added, and maybe their margins are less as a result of it, and I'd want to verify that. Maybe the stores are unkept. There's trash everywhere. The actual middle management layer is not that great. Some of these things could be true, and there's a lot of aging operators right now. Like Wendy's, as an example, the average franchisee is about 64 or 65 years old. It's way older than I thought, and it's like 20 to 30% of them don't have a succession plan.

So that's a lot of Wendy's, hundreds of them that are going to come up for sale here soon because people just don't want to run it anymore, but they don't have a real plan to sell it. And this could be the same case for these concepts here. Interesting. Okay. So you do have to be a little bit of a professional to walk in and go. It's not that these are being held back by, you know, it's not a lot of a little bit of a professional. It's not a location.

The locations are fine, but I can operate and there's a ceiling there. And you're going to do that with, like, traffic numbers or, you know, like little car traffic or it would mean household income in the area, like those types of things. Yeah, you want to start benchmark because you can see, you know, you can go look for top performing stores in a system and see what does traffic look like? What do comps look like as far as, you know, complementary businesses in the area that seem to lead to a location doing better than others in the system? And so I would start to look for like a mosaic type of layer like that that I could put on these addresses and start to do some of that homework on. Is this just a location problem or is this a how they're run problem?

I think the other big one is brand, right? Where like are you in a dying brand or are you in a dynamic and growing brand? And that could be part of it too, Bill, as you look at it and go, well, no wonder like this is a sinking ship. And in a sinking ship, some people fall off the boat faster, you know, and some people can hold on for dear life longer. Yeah. I've shared this story a bunch of times on the podcast, but I had friends in QSR who were buying, they got up over 30 units of a specific brand. And they would buy one-off locations from like a dentist who was like, how hard could it be to run a Mo's? And they're like, well, it's actually really freaking hard.

And especially you can't do it part-time. and they found all these little things as operators, like down to my favorite story is they specifically had clear trash bags, not black trash bags. And they're like, in restaurants you never have black trash bags because people steal stuff. And they walk out with a trash bag full of chips to take to their friends and like, ask how we learn that,

you know? But they're like, the dentist had black trash bags and his food margins were lower, stuff like that. Interesting. I think that's a good point too on the brand. I mean, there's three of these, four of them technically are chicken, and chickens becoming increasingly competitive with raising canes and filet

and just these premium kind of chicken concepts. And if you're one of the legacy chicken brands, you know, you've got a lot of reinventing to do and is the parent doing that well, are they not? The thing here that I think is a positive is both at the transaction level and at the revenue level, they've grown 10%. So, you know, why is that? Is it because this is one of those chicken brands that's, popular and growing or has reinvented themselves or is this the Mexican concept carrying everything

else and that's what's truly growing because it's the leading Mexican brand in QSR and that that's why you know I'd want to dig into that further to see where is that growth coming from and what's causing it so I actually have a piece of data on kind of the chicken growth of chicken so this is a piece of data I will put it on the YouTube but it is the share of I'm going to crib this shamelessly from my ex account. This is pizza's share

of limited service restaurant sales from 2019 to 2025 versus chicken. In 2019, chicken was 10.5% of limited service restaurant sales, which I think is the exact segment we're talking about here. Chicken went from 10.5 to 13.5. While pizza went from 12 to 10.5, or 12.5 to 10

and a half, and Mexican went from nine and a half to ten and a half. So Mexican is on the upswing, chicken is crushing it, and pizza is getting murder. Where's chilis on this, Michael? It's off the scale. Yeah, it's fascinating. Part of why this has happened is the cost per calorie of chicken has gotten better and better every single year because of like the way we've bred chickens and how they're all, you know, they're so fat now they can't even reproduce. Meanwhile, at the other end of the spectrum, like, seafood is getting murdered because it's basically like there's no way to make it less manual labor and require less diesel to bring in seafood.

So, like, chicken is the absolute best, and that's why you're seeing the massive growth is coming in these chicken restaurants, raising canes, chick-fil-ights, because chicken just decimates pork, decimates beef. Taco Bell, I've started on seafood. It's just crazy. The other thing that's crazy, I don't know if you guys knew this, but in order to subsidize milk production and dairy production in the U.S.,

the United States actually has a strategic cheese reserve. It's like they have a strategic petroleum reserve, but in Missouri, we can't know where it is, man. That's a security concern. Billions of pounds of cheese. I was telling my son about it. He's like, do they publish where it is? I was like, nobody gives you shit about cheese, son?

It's in Missouri. It's fine. Nobody's going to steal it. I had no idea. Cheese is massively subsidized. Okay. So back to this concept here. It's growing 10% same store sales.

Do we know, Alex, if this is like each of the four locations are growing 10% same store sales and 10% transactions? Or is like the, you know, is this split by, is this portfolio wide? How is this calculated, do you know? This is portfolio wide. I know the seller's willing to share that information. I don't have it in front of me now, though. Okay. So we're going to assume this is kind of blended.

Yeah, it's blended. Okay. Okay. So let's see if there's any other metrics here that are worth talking about. The dual brand conversion unit is doing $1.7 million in sales and $350k of store-level EBITDA, which is, again, before corporate over-red, right? They think it costs half a million bucks to convert. it and it goes from what, 350 to 7?

Didn't we say there was a huge amount of incremental EBITDA here? 350K of store level EBDA. So that means another 350K. So it goes, so a Mexican only concept. No, that's all pro forma, Bill. That's pro forma statement. Yeah, so sorry. The 350 is for the standalone Mexican concept,

which we estimated is about a 20% uptick from what these hybrids are doing. Does that mean this hybrid is break-even, right? Because it says incremental 350 further up the teaser, and then it says the pro forma will do 350. So does that mean the hybrid is suck and win so much that it's a break-even? That's kind of what I thought too. No, so incremental, sorry, we were saying incremental up to 350 from, we guess an average of, what is it, 670 divided by 4,

it was like 160, 170, or, so per location because we don't we have the blended numbers we don't have the per unit uh numbers we're doing our best guess to back into it okay so you you probably can double the ebadov that one location from about 175 to about 350 costs you about 500k to do so so there's a 25% IRA roughly on your conversion cost is probably a way to think about yeah um so now i have a question for heather because if I'm going to buy this thing, I'm probably going to want to use some leverage to do it. So my first question is, can I get an SBA loan to buy these puppies? And second of all, if I do,

can I go ahead and finance that store conversion into my acquisition loan? Or do I have to get a separate debt piece for that? Yeah, you could get an SBA loan to buy this. Yes. This is the kind of industry where banks want to know that you have some kind of restaurant experience, fast food, or otherwise. they would tend to want to see that. Now, if the franchisor is not going to pay for all of the conversion and you need some extra dollars for the conversion or even maybe the downtime, you could build that into your SBA loan. So you could do a projection and show them,

this is my plan, we're going to shut that store down for however many months, what the drag-on earnings is going to be during that time. So you'd probably need to borrow some working capital for that period, plus whatever part of the hard costs that the franchisor is not going to cover. But you could, yes, you could get a lender to buy into that. It probably makes for a little more complicated loan because they look at this 676 and say,

oh, yeah, it's not going to be, that's not going to be the cash flow for the first year. It's going to have to dip for the first year, which honestly almost every acquisition does do that, but the banks don't factor it in the way they would have to, actually factor it in here because the store would close. So they'll probably look at it more like this is a $500,000 EBITDA business for purposes of leverage, at least at least here.

Yeah, they would like to look at it that way. Yep. Okay. Alex, how common is it like in QSR? Four, is this like a, this is smaller, but it seems like way more common that people either have one or they have like 40, right? Yeah. I mean, I think you've got, for QSR specifically, a lot of

them now require you to do a minimum of three to five. And there's a brand called Seven Brew. It's this newer coffee concept. I spoke to them recently and they're not allowing new franchisees in unless they're going to develop 50 plus locations. And so you've got 50, 50, 5,0. And so like, they're only doing it to these, you know, kind of big boy and big grill groups that probably have private equity behind them or our large, sophisticated multi-unit operators already have, you know, 50 Marcos pizzas and 30 Dave's hot chickens. And they're just, adding this to diversify their existing portfolio. But there's still a ton of legacy, ones and twosies, the dentist that you mentioned earlier, that own two Bojangles or three

Jersey mics. And there's certainly groups that are going around and rolling these up right now. And increasingly, private equity is becoming more and more and more active within franchising because it gives so much structure for a roll-up model because you're buying into a system that has guardrails and structures and many targets to go out and try to acquire. So today's video is actually sponsored by a company I started called Bedrock Quality of Earnings. And Bedrock is a service for business buyers. If you're going out to buy a business, one thing you don't want are surprises. There are tons of stories out there of people who buy businesses. They get into them in three months later, they realize the numbers that the seller told them,

well, they weren't true. In a situation where people are often buying businesses and signing personal guarantees, meaning they're really on the hook to return that money to a bank or anybody they borrow it from, that could be a disaster. So Bedrock is a quality of earnings firm. There are people you hire that go in and look at the sellers books to make sure what you're being told is actually true. And there's lots of quality of earnings firms out there. What makes Bedrock different is it's the only one that has three things. Number one, a CEO, a guy who comes to us from a big four firm and has been doing quality of earnings reports, well, basically for a long time, his whole career, basically. Bedrock is also backed by people you trust and know, including me. You know where to find me if you're unhappy with their service.

And number three, Bedrock uses the latest technology, AI, and all that different kind of stuff, to make sure you get the best results at the best price. So if you're interested, book a call with the CEO Will. You can go to bedrock QOE.com or check out the link in the comments below or the one on the screen. Thanks. It's a really interesting choice by a franchisor. Burger King got into this trap where they did the same thing that Sevenbreu did, where you go sign up with these big multi-unit operators who do 50, 100, 200,000 or a thousand locations.

And that can help you grow really fast. These people are super professional. They're very corporate. But if the stuff hits the fan, you don't have much recourse compared to, say, at McDonald's, where the average one is one, three, four, five, six McDonald's or Chick-fil-A at the end of the extreme where it's just one. And you know that if things hit the fan, like that owner-operator can go in there around the cash register and their life is on the line.

These corporate guys that happened at Burger King will go bankrupt 150, 250,000 a thousand units at a time and you as a franchisor or suddenly in big trouble. So it's an interesting choice by Seven Brew to do that because it's one great for scale very rapidly. And I assume that their multi-unit operators will not agree to cross-collateralize or, you know, to basically give you protections

as a franchisor. Yeah. Yeah, I don't, that's not happening. These guys are professionals and it's in such, a lot of time they're at a big scale. Like a personal guarantee doesn't matter, right? Somebody has $10 million in that worse and they're part of one of these corporations two and a thousand. I'm like, we're just going to personally guarantee it. Like, there's none of that recourse

there that would matter. If you're going to close your dual location concept for, it was probably six-month conversion, I would think, minimum construction-wise, do you basically just lose all of your employees and you start from scratch and you got to rehire everybody and new grand

opening and all that stuff and retrain everybody? Or can you keep people on? Like, how does that happen in practice? Effectively, if you have a portfolio like this, I mean, there's some ability to carry labor over under store other stores and other shifts and the reality is is the turnover in QSR and you know labor models like this is that you're keeping someone eight to 10 months and so even though you are going to be closed for six months you would have probably turned over most of that labor force not at the management of the GM level typically but you know your front

line your fry cooks your cashiers et cetera it's so transient there's so much turnover we dealt with at the Laundra Lab franchise that we built. And it's the same type of thing. You have turnover that's sub-12 months. And I imagine in this case you're going to turn over most of that front line base, but keep your managers and have them help support the other locations in the interim because finding them and training good management is very tricky. Okay.

So you will lose them, but it kind of just built it. Yeah, yeah. I was surprised by the total number of employees here being 50 across four locations because I've heard of, you know, Dave's Hot Chicken or McDonald's, each location having 30 to 50 employees because they're 24, you know, McDonald's is 24-7 and you've got three shifts to cover and a lot of people in that kitchen doing a lot of work. I've heard Chick-fil-A operators say they have 200 employees at one Chick-fil-A. Look, I think the answer is Mills, and maybe you guys talked about it before I showed up

late. Thank you, host of the day. But like, did you guys talk about how low the revenue is per location for these. It's like a million dollars for a fast-food restaurant. Like, even like, you know, like put that in perspective, McDonald's is like at four, four and a half now. Like, Chick-fil-A is up at like seven or eight million. There's reasons for that. But like, I don't know, what was the read on why these locations don't do very much sales? Like a million-dollar restaurant is not a lot of money. Is that on the button for these concepts, Alex? Well, it seems like it would be because you said these stores are only 20% below the average unit volume for these chains. Yeah. So I think a goes back to what I think Mills brought up about the brand. Is this a declining brand, a growing

brand? And that's where I think there's some insight here of this might be one of the weaker chicken concepts. But the Mexican food restaurant is top of its peer group and some of the higher revenues per location. But compared to other QSR concepts, still lower, to Michael's point, is raising canes, McDonald's, Chick-fil-A, they're doing four plus million dollars in A.E. UV per location, whereas even the Mexican concept here is two-ish million per location, but much smaller footprint, lower fixed costs than those other comparable restaurants. So I don't think this is a reason to do the deal, but as a sweetener, you know, tell me if I'm off base here, Alex, right? Like this nation's leading Mexican concept, right, they're probably not

taken single unit franchisees. You can't just call them up and get in on this thing, right? But if I buy this business, you know, now I'm in the system and I have one operating Mexican concept. So, you know, could I then start, now I'm prequalified if I want to buy more or open more. So could a buyer come in and kind of say, my growth thing is these three chicken ones are lame. I'm not going to open any more chicken ones, but kind of. operating these lower margin kind of of blah chicken ones. Like I'm not going to lose my butt.

You know, they're probably still going to limp along. I'll get my money back in three or four years, if that's the multiple I pay. But now I'm in the taco Mexican chain and rock and roll. There are people that would do that. And a lot of our advice to folks that we, you know, work with help find the right brands and think through this decision is a lot of this is you need to get into the game.

Now, that doesn't mean, you know, invest like it's the Wild West and don't be thoughtful about it, but a lot of the times, if you're in the good old boys or girls club and have access to deals now that are happening on email chains and text chains, and you're part of that conversation, you get access to deals that aren't hitting public sites

like Biz Buy, Sell, or, you know, franzi in many cases as well. There's these deals that, and systems that you can get into that are hard. So some people might do that for this. This is a callout that the seller has is that there is no territory, you know, availability for the Mexican brand in the Southeast at this point.

And you're, you know, you're just wanting to get in to get those reps in again and get exposure to the brand so that you can start to grow on top of it via acquisition. Is it, and so if there's no territories available for this brand, you have to grow to be acquisition, right? Like they're not greenfielding new of these Mexican concepts. So you get in the game with this one and then you immediately are looking at every portfolio of the Mexican concept that comes up and hoping that you're a differentiated bitter against everybody else in that process. Yeah, and you might dump the three chicken concepts

because there are some revivals happening, like, you know, to be determined if it works out or not, but Buffalo Wild Wings, you know, started out with this massive, you know, bar format. And I think it's a TV for every, you know, 10 seats they have, they have to have a TV, you know, massive, massive locations. But now they're doing this concept called Buffalo Wild Wings Go, where it is just a hole in the wall, essentially, you know, thousand square feet. Or it's mostly for a door. Or dash orders, delivery orders, and it's just their wings, and they're pumping it out. But the buildout cost is a fifth of what it would be to build one of the traditional Buffalo Wild Wings. And so, again, to be determined, do they compete with the other chicken concepts?

There's so many of them, as Michael mentioned. And I think same thing here with this chicken concept. Are they going to reinvent themselves? Can they continue to compete? And do you hang on to those three and see what happens there and ride some of that upside if it happens? Or do you buy this, dump those three chicken concepts and say, hey, now I'm in the Mexican concept that I've been wanting to get into in this region and going to start trying to grow inorganically via acquisition. So could I do that? Could I buy this?

Do the convert. Then I've got three and one. And then try to unload the three chicken concepts. And now I just own one Mexican concept. And I'm a small time single unit franchisee in this area. Like is the master franchise or we're going to let me do that? Yeah. In most cases, they will.

you would have to have a really compelling reason not to. A lot of brands will have a first right of refusal where they can buy it back corporately as well, but typically they can't prohibit you entirely from selling your locations because it is your business unless there's some absolute clearing reason. Heather mentioned they want other restaurant operators to come in, so they do need to approve them,

but if they repeatedly deny someone that has a decent background, honestly, it can get them into a tough situation where they're not allowing their business owners, their franchisees to have liquidity and movement in and out of their business. Okay. And then there's, you know, courts start to say these aren't franchisees,

these are corporate units, and then there's a whole problem. They really want that to have. Same with site selection. This was something we learned where we can't tell someone where to build a location, but we can say no, you know, 50 times effectively. I mean, a brand could kind of start to play that game on,

you know, we can't tell you who has to buy it, but we can say no. certain amount of times, but after a certain point, it does start to put them into a grayish area. Heather, I don't know if you have comments there, if you've seen anything like that, but I typically see a brand want to be supportive if the person's selling is putting a good faith effort in on finding another restaurant operator, someone who will be a good value add to the system. Yeah, I've definitely seen different things from different concepts. I mean, one thing is the SBA actually has a rule for any concept, any franchise or that they have to give enough latitude to the franchisees to actually be

considered business owners. So there are some franchise concepts that are ineligible for SBA loans. They're not on the franchise registry because the SBA has deemed that they don't do that. They don't give the franchisee enough control. There's that. And then I've seen, depending on the type of franchise, not necessarily always in restaurant, but a lot of them have very rigorous training programs. And we've had buyers that didn't know for sure if they were going to be approved by the franchisor until close to closing because they have to complete a multi-week on-site training program and sort of pass the test first. So I've seen a wide variety of things, and that's one of them. So, Alex, I saw something else here on to one of the growth levers.

It says market menu pricing. And this seemed weird to me because I was on the impression that a Wopper costs the same kind of, you know, the franchisor tells you what a Wopper or a Big Mac costs. Can you just change the price of a Wopper or a Big Mac or any of these menu items? Do I have that level of pricing flexibility? Yeah, so this is where things get a little interesting because some brands, big, powerful brands, have found loopholes and they have enough lawyers and attorneys to navigate these things. But technically, a franchisor is not allowed to dictate the pricing of the franchisee in a local market. They can put kind of guardrails in and bans within reason. And same with labor. There's a lot going on right now in D.C. where there's potential regulation

coming where is a franchisor or a joint employer, which, as you can imagine, would almost blow the franchise model up entirely because now franchisors have to carry different insurances and have a different level of exposure to liability. And so from that perspective, as far as how much they pay their teams and how they recruit them, et cetera, there's a lot of. There's a lot of lot of things franchisors cannot get involved in and dictate. So in many cases, a franchisor won't tell a franchisee which payroll provider to use or which software around labor to use because they don't want to cross the line of becoming a joint employer. And pricing kind of falls into a similar category of we can't tell you that you have to charge $3 for a sandwich because

you're going to lose money, but we as the franchisor might not care as much because we're making 6% on the revenue off the top. And $3 sandwiches, we move a ton of volume and that would benefit us as a franchisor, but not you as a franchisee. And so there are, again, guardrails and a lot of kind of regulatory oversight on what a franchisor can dictate and demand of their franchisee, but there are, again, loopholes

in ways that, you know, things like the dollar menu and the $5 foot long franchisors have been able to skirt via, you know, they call it a promotion or a marketing thing and not actually pricing. Interesting. So, at one point, at one point, Burger King's franchisees to Utah because

Burger King was making them sell a burger for below cost. It's pretty crazy. Don't buy a Burger King franchise. Or if it's a good deal, go ahead. Whatever. Sorry, Bill. I was starting to add some random facts about franchises. I assume what this means is that the chicken or the chicken or the tacos at these restaurants

are priced below where comparable chicken or tacos are in the same markets. And so you should raise price. And the assumption is that the consumer will eat it, right? right? Would I be, like, let's say these are in the lower income part of town. And, you know, they're performing 20% below the typical unit revenue levels. Maybe it is in not as good a part of town and maybe they've got to be priced a little bit below market. You know, this is the type of thing, you know, we look at, we've looked at almost 600 deals in the show. You know, like, this is the thing that brokers always say, like, oh, well, just raise the prices. But like, you know,

what a moron. The seller's not at market. But like, you know, maybe the seller's not at market because his neighborhood doesn't bear market. Right? And he's got to be like, so it's like chicken or egg a little bit. So, I mean, how do you diligence that? I don't know the answer. So something we did with the laundromats is, I mean, we went in secret shop. We went to, you know, 15 laundromats in a two to three, two to four mile radius and just went and saw what are the prices of 20 pound machines, 40 pound machines, 60 pound machines. And same thing here. I think you'd go to, you know, what are the alternatives for my demographic in this,

you have five minute drive time radius. You don't have to go to every single one, but go get a sample and see, oh, wow, yeah, we are 23% on average across these 10 places I went to below what they're charging for comparable items or a family meal or an individual meal, et cetera, and you can get an answer that way. And then I think some of the other things, too,

when you're thinking about how do we expand the revenue and close that gap, talking to other operators in the system that are maybe doing things differently or new the previous owner, and you might have stories that they could tell that person always waited to raise price or they ran their locations poorly

or they might have some insight that gives you valuable data on diligence before you go to buy it. I think a lot of existing franchisees are willing to share that type of information if you ask thoughtfully and reach out thoughtfully. And then something we're seeing with a lot of this technology and AI now coming off the shelf is in drive-thru,

especially having AI take the orders. It eliminates some labor, but it also upsells 100% of the time and there's all this data around as long as you ask the question, do you want this side or this dessert or to supersize it, et cetera? If you ask 100% of the time,

it increases the chance that someone does it 20% to 30%. Things like that might add up enough to close that gap. And I think it's up to the buyer to have to do all sorts of diligence on car count, local competition and pricing. what other technology and systems are not in place that would increase revenue,

but also optimize my margin in OPEX. You mentioned the AI order takers. Here in Charlotte, where Alex and I are, we have a drive-through chain called Bojangles, which is this southeastern staple. And that is where I noticed at first. Bojangles has gone hardcore on the AI order taker on the drive-thru. And it's actually quite compelling.

It's very natural. And you can tell it's an AI, but it's very good and it's not at like phone tree level annoying. And you're right. Every time it's like, do you want to supersize that? Do you want to add a biscuit?

If you are in an area with a bojangles, I would strongly recommend driving through a bojangles just because it's one of those like the first time you ever ride an Uber, like you're like, oh, this is coming everywhere. This is the future. Do you know if these guys do it? The taco guys or the chicken guys?

So the chicken guys, they have a sister restaurant that I know does it. So I imagine they will be doing it at their other locations soon. I haven't seen it at either one of these concepts recently. And I unfortunately go out and do a ton of secret shopping and dry. So I've been eating a lot of fast food, unfortunately. And I haven't seen it at these two locations yet. But it is wildly compelling the impact it has on revenue just by asking. Again, 20 to 30 percent lift on orders. and ticket size just from asking that question. In a $12 hour, you know, employees not asking that question 100% of the time, if at all. Interesting. So cool. Okay, I think we've been going on for a long, longer than we typically do.

So I hope some listeners are still with us. So I do want to kind of wrap this up. I'm not going to ask you, Alex, to kind of speculate on price, but Gurley, I'll start by asking you to speculate on price. You know, this is 675K of you. but da, you know, what kind of multiple do you think this gets? And you need some CAPEX to flip over the chicken tacos to just tacos. Three times earnings, maybe two and a half. I don't know. I wish I was more optimistic about it. Maybe it's just me talking because I'm not that interested in owning this

business. Seems really hard. Well, I hear what you're saying? Like, this is tough, right? Because it's four locations to make $675 before the flip and then you go down to $500 a year, $50,000. 50,000. a lot of complexity, and that's basically like one chick-fil-A or four of these, right? So I think that's just not going to command the multiple that other concepts are going to command. Plus, you got to, I mean, the way I would think about it is kind of what's the market multiple for these, and then I got to make the seller pay for that conversion. You know, whatever the franchisee is not going to pay for, I got to take that out of enterprise value. I mean, and the guys we sold our coffee business to,

like, you could do more revenue than this per location selling coffee. And that's no food spoilage, none of that kind of that kind of stuff. So that's what I'm kind of basing against. I'm like, well, like, there's just better businesses, better businesses to be in than what appears to be an off-brand chicken. It's like with a Mexican text mix thing thrown in. Seems hard. Yeah. It seems hard to just own this, like, on its own and just have four locations.

and you're dealing with the chicken, you know, brand that is the kind of declining or off trend or whatever, and, you know, your one Mexican brand is really good. I think if you're going to buy this, you've got to get a good price, and you've got to view it as a stepping stone into the system, right? You've got to view it as, you know, maybe I already am in the system,

and this is very much more accretive because it's, Alex said, it's 675 of kind of post-SGNA, all the corporate EBITDA. If you strip out the corporate EBITDA, Maybe your 675 goes to 850 or something. You know what I mean? Like a little higher. So then you've got a lower effective multiple.

So you either got to be adding it on to something or view this as a nucleus of you're going to do five more, I think. I don't think this makes sense as a standalone to me. So anyway, if that sounds like you, you can reach out to a frenzy. They will help you do it. This or, you know, not just chicken and Mexican, but nearly anything on the franchise side. So anything else to add on this one, Alex or Michael? The only thing I would add here is there, some of the guidance that we're getting is a selling price of 2.7 million in that ballpark is a win for the seller. And so I think there's room to negotiate there.

And that's about a 4x multiple on EBITDA. And I'm fully with you, Bill, on how I would approach this personally. Like food kind of just scares me in general because there's so much competition. you have to get the right location and you can't move the box once it's built and the margins are thinner and so I really am in your guys' camp on you have to find the right makeup of things

or look at it as a stepping stone into the system and can you buy the whole piece and then sell off some of the other parts and use the part that fit your strategy or if you're a large existing multi-unit operator already and this is additive and you can spread some of the GNA

and other learnings you have etc. into this otherwise somewhat underperforming portfolio for locations. Yep. Yeah, I think 4X for underperforming portfolio of off-trend chicken QSRs is probably pretty rich. So yeah, I think 4X would be a win

for this seller. Well, cool. Alex, I learn a ton of day, as I always do when you're here. Thank you for joining us. Great job. Can't wait to see on the next one. And if you guys listen to this and you liked learning about franchises from a master, this is not the first episode that Alex has

guest hosted on. There are quite a few if you go to our website, ACQUAnon.com. You could probably search Alex's name or definitely click a little franchising checkbox and learn more about, you know, other franchising deals we've looked at together with Alex or even we did couple, even without Alex before we met Alex, which those are decidedly less insightful. You can listen to those as well. And Alex will be back for more episodes. So if you want to know when he is back, you have to get on our newsletter, acque at UNan.com, and we will email you the new episodes, so you don't have to be glued to your podcast app.

But we would also appreciate it if you're subscribing your podcast app as well, helps our stats. So, Alex, where can people get more of you and Franzy if they want to in between episodes? Yeah, so first and foremost, if you check out Franzy.com, F-R-A-N-Z-Y.com. We've got 4,000 brands worth of data just like this, that you can go bruise and look at at your leisure. No pushy sales tactics or anything.

It's meant for you to educate yourself and learn more about different concepts that are out there. And then I do a ton of content on different folks that have built empires and franchising, different brands that are coming and going, et cetera. And that can be found at Alex from Franzy on every social channel, TikTok, Instagram, X, et cetera. And lastly, we have a podcast called The Exit Plan

where we interview folks that have left corporate to go become franchise owners or have built large portfolios and have exited them to private equity, we share both of those tracks and those stories over there as well. So check it out. Cool. So if you're interested in buying a franchisee or several multi-unit franchisee, Franzy is putting out a ton of really good content.

I think you guys will like it. So with that, thanks for listening to this episode of Acquisitions Anonymous, and we will catch you on the next one.