Restaurants sit at the bottom of our industry multiple table: a benchmark band of 3.0x – 5.0x adjusted EBITDA at a $3–5M-EBITDA control sale. That is the lowest band of the nineteen sectors we track, and the reasons are structural rather than a comment on any individual operator.
But the band understates the spread. Restaurants have the widest gap between a well-built group and a badly-built one of anything on the list, and two mechanics — lease obligations and the franchise agreement — decide more of the outcome than the multiple itself. Both are covered below, because both are routinely mishandled in the first conversation with a buyer.
Why restaurants price below the market
Three things, none of which are fixable by running the business better:
- Capital expenditure never stops. Every location is a depreciating physical asset on a refresh cycle. A buyer underwriting your EBITDA is also underwriting the remodel schedule behind it, and maintenance capex in this sector consumes a meaningfully larger share of EBITDA than in an asset-light services business.
- Lease obligations transfer with the business. A ten-year lease is a ten-year liability the buyer inherits, and it does not go away if a location underperforms. This is the single biggest source of confusion in restaurant valuation and has its own section below.
- Concept risk is genuinely hard to diligence. Nobody — buyer or seller — can prove from a data room whether a concept has five more good years or fifteen. Buyers price that uncertainty, and they price it conservatively.
The spread inside the band
What you actually own matters more here than in almost any other sector:
| What you own | How it prices |
|---|---|
| Single unit, owner-operated | A multiple of seller’s discretionary earnings, not EBITDA — a different market with individual buyers |
| Small multi-unit, owner still in the stores | Bottom of the band, discounted further for owner dependence |
| Multi-unit, manager-run, clean financials | Top of the band and above it — this is the profile institutional buyers want |
| Franchisee group in a strong brand, 10+ units | Prices as a platform, but the franchisor holds real control over whether the sale happens at all |
Published data puts manager-run multi-unit groups as high as 7x — above the top of our band before any size adjustment. That is not a contradiction: our band is a baseline for the sector, and a group with management depth and diversified locations is a materially different asset from the sector average. Restaurant M&A covers what separates the two and what a private equity roll-up actually asks of you.
The lease trap: EBITDA against EBITDAR
This is where restaurant owners lose money, and it is arithmetic rather than negotiation.
Under ASC 842, operating leases sit on the balance sheet as a liability. Buyers and their advisors then have two internally consistent ways to price you, and the crucial rule is that the earnings metric and the enterprise value must be on the same basis — as Stout puts it, the numerator and denominator of the multiple equation must be presented on the same basis:
- EBITDA (rent already deducted) pairs with net enterprise value — lease liabilities are not separately subtracted.
- EBITDAR (rent added back) pairs with gross enterprise value — lease liabilities are subtracted to reach equity.
Work it on a twelve-unit group with $4M of adjusted EBITDA after $3M of annual rent, carrying $18M of operating lease liabilities:
- On the EBITDA basis: 4.5x × $4M = $18M net enterprise value.
- On the EBITDAR basis: EBITDAR is $7M, gross enterprise value is $18M + $18M = $36M, so the multiple is 5.14x EBITDAR.
Both describe the same deal. The seller who hears “5.1x” and compares it favourably to a peer’s “4.5x” is comparing two different measurements of an identical price. The seller who takes an EBITDAR multiple and forgets to subtract the $18M has overstated their own company by the entire lease balance.
Before you respond to any restaurant valuation, establish which basis it is on. It is a one-sentence question and it is worth more than any amount of negotiating.
What the franchise agreement does to your sale
If you are a franchisee, a buyer is not the only party who has to say yes. The franchise agreement governs the sale, and its terms are disclosed in Item 17 of the Franchise Disclosure Document — the table the FTC’s Franchise Rule requires to be headed THE FRANCHISE RELATIONSHIP (16 CFR 436.5). Three provisions there set the ceiling on your outcome:
- Transfer approval. Most systems require the franchisor to approve the buyer, against the franchisor’s own financial and operating criteria. A buyer who cannot clear those criteria cannot buy you, however good their offer is. That narrows your buyer pool before the process starts.
- Right of first refusal. Many systems let the franchisor step in and buy on the same terms a third party has offered. This is not necessarily bad — it is a real bid — but it changes how a competitive process behaves, and sophisticated buyers know it.
- Remodel and upgrade obligations. Transfer or renewal commonly triggers a required refresh to current brand standards. That is a capital commitment the buyer will price, and it comes out of your number rather than theirs.
Read Item 17 of your own FDD before you talk to anyone. Owners are routinely surprised by provisions they signed years earlier.
What moves you inside the band
The general drivers from the multiples reference apply, but they land differently here:
- Manager depth is the whole game. A group where every location runs without the owner prices near the top of the band; one where the owner is the general manager of three stores is being valued as a job. This is the largest single lever most restaurant owners still control.
- Unit-level consistency beats the average. Buyers underwrite the weakest quartile of your locations, not the mean. Two groups with identical blended EBITDA price differently if one has three loss-making stores inside it.
- Remaining lease term. Short remaining terms on your best locations are a genuine risk to the buyer’s underwriting, and they will discount for it. Long terms on weak locations are a liability. Neither is quick to fix.
- Concept and daypart concentration. A single concept in a single market is priced as one bet.
Frequently asked questions
What EBITDA multiple do restaurants sell for?
Our benchmark band is 3.0x to 5.0x adjusted EBITDA for a control sale at $3–5M of earnings, with manager-run multi-unit groups pricing at the top of that band and above it, and single-unit owner-operated restaurants priced on seller’s discretionary earnings instead. Size adjusts the band substantially in both directions.
Why do restaurants have lower multiples than other industries?
Continuous capital expenditure per location, long lease obligations that transfer to the buyer, and concept risk that cannot be diligenced away. None of the three is a reflection on how well a particular group is run, which is why operational excellence moves you within the band rather than out of it.
Does the franchisor have to approve the sale of my franchise?
In most systems, yes. Item 17 of the Franchise Disclosure Document discloses the transfer approval terms, any right of first refusal, and any remodel obligation triggered by transfer or renewal. Those provisions limit who can buy you and what they will pay.
Should I use EBITDA or EBITDAR when valuing my restaurant group?
Either, as long as the enterprise value matches it. EBITDA pairs with net enterprise value and no separate lease deduction; EBITDAR pairs with gross enterprise value and the lease liability subtracted to reach equity. Mixing them overstates the business by the size of the lease balance.
Do multi-unit groups really sell for more per dollar of earnings?
Yes, for two reasons that compound: a larger group earns the size premium that applies across every industry, and a manager-run structure removes the owner-dependence discount. A group that has both is a different asset class from one that has neither.
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