A lot of restaurant companies have gone public this year. More are expected to go public in the next few months.
That is increasing expectations for any company looking for a buyer—or so says Eric Lefebvre, the CEO of eager brand acquirer MTY Global, which owns Papa Murphy's, Cold Stone and dozens of other concepts in the U.S. and Canada.
Lefebvre acknowledged on the company’s earnings call Friday that the IPOs are setting higher expectations in any potential sale, at least for bigger brands.
“There’s no question we’re competing with a very hot IPO market,” Lefebvre said, according to a transcript on the financial services site Sentieo. “So, there’s a certain standard that’s set and a certain expectation.”
But, he said, “it applies only to the larger companies.”
Already this year, three larger brands in the U.S. have gone public through the traditional IPO process—Krispy Kreme, Dutch Bros Coffee and First Watch have all made their debuts. Portillo’s is also going public. Sweetgreen has privately filed, and several other brands are believed to be eyeing the markets.
“You’ve seen some IPOs,” Lefebvre said. “There’s going to be more, I’m sure, in the market in the fall and in the winter.”
Valuations often follow guidance set from above. Companies up for sale look at the prices paid to companies on the public markets to gauge their own valuation. Thus, when there are IPOs of companies that fetch large multiples, that can drive prices higher. (There is a similar effect when large strategic buyers take out public companies at high multiples, as with past payments for Popeyes and Panera Bread, for instance.)
MTY has been active in the mergers and acquisitions space for decades, having amassed dozens of brands with more than 6,800 locations largely through deals. It’s more recent, larger deals have been in the U.S., including recent acquisitions of Kahala Brands, owner of Cold Stone and several other concepts, and Papa Murphy’s. More than half of its restaurants are in the U.S.
The higher multiples being set for larger companies could keep MTY from going after the big fish. “MTY has always been disciplined in acquiring companies,” Lefebvre said. “We’re not going to pay multiples of that magnitude.”
But, as he noted, this is only the larger companies. Smaller brands are not fetching those kinds of multiples, or at least they’re not under the influence of the larger-scale IPOs. MTY could return, therefore, to the small brand collection in which it has specialized over the years.
“If you look at smaller targets, I think there the valuations are probably a little more reasonable,” Lefebvre said.
All that said, “deal flow is still relatively slow” at the moment. “We’ll be patient. What we’re seeing in the market, there’s good and bad.”
He expects deal flow to improve “in the near future,” and then the brand collector will begin collecting brands again. The company said it has paid down debt and set itself up to make more deals soon.
“Hopefully, we’ll be there to be able to acquire new companies,” Lefebvre said. “We’re building our treasure chest now. We’ve paid down our debt. We’re comfortable with where we are. It’s just a matter of finding the right targets at the right price, and we’ll be back on the M&A train.”