Introduction
To a customer, a franchised burger restaurant and a company-owned one look the same. To an investor, they are different businesses. A franchisor earns royalties on other people's restaurants, spends little capital and converts most of its earnings into cash. An operator runs the restaurants itself, carries their leases and must keep spending to build, remodel and maintain them. The two models earn different multiples, and the first job in valuing any restaurant company is to work out which one, or which mix, you are looking at.
Growth matters as much as the model. In the fairness analysis prepared for the 2026 sale of European Wax Center, a franchisor of waxing salons, to an affiliate of General Atlantic, Moelis split franchise companies by growth: lower-growth franchisors such as Wendy's, Papa John's and Dine Brands traded at a median of about 8.0x estimated 2026 adjusted earnings before interest, taxes, depreciation and amortization (EBITDA), while higher-growth franchisors such as Yum! Brands, Domino's and Wingstop traded at a median of about 15.2x, according to the company's preliminary proxy statement. This article explains why those gaps exist and how bankers value operators, franchisors and mixed systems.
What Investors Pay For
The general methods for valuing retail and consumer companies, including rent-adjusted multiples and unit economics, are set out in the Valuation guide's retail and consumer valuation primer. Restaurant valuation applies them to four questions:
- Durability: how stable earnings are through a downturn, food inflation or a wage increase
- Growth: how fast systemwide sales and the restaurant count can grow, and for how long
- Capital intensity: how much of each dollar of EBITDA must be reinvested to sustain and grow the business
- Lease burden: how much rent the company is committed to, which behaves like debt
Franchisors score well on durability and capital intensity, because royalties are a share of sales rather than profit and the franchisees fund the restaurants. Operators score well on growth when their restaurants earn strong returns and they can open many more. The multiple a company earns reflects its mix of these traits, not a label.
| Franchisor | Operator | |
|---|---|---|
| Main valuation metric | EV/EBITDA, free cash flow yield | Lease-adjusted EV/EBITDAR, EV/EBITDA |
| Earnings sensitivity | Sales-driven, little cost exposure | Exposed to food, labor and rent |
| Capital spending | Minimal | Building, remodeling and maintaining restaurants |
| Typical leverage | High, often securitized | Moderate, plus lease obligations |
| Key value driver | Systemwide sales and franchisee health | Unit growth runway and new-unit returns |
Valuing Franchisors
A franchisor is valued mainly on EV/EBITDA, with close attention to how much of that EBITDA becomes free cash flow. Because a pure franchisor builds nothing, its capital spending is small and its cash conversion high.
- Free Cash Flow Conversion
The share of a company's EBITDA that turns into free cash flow after capital spending, and often after taxes and working capital. Asset-light franchisors convert a far higher share of EBITDA into cash than operators that build and maintain their own restaurants, which is one reason they command higher multiples.
The drivers of a franchisor's value are the drivers of its royalty stream: systemwide sales growth, split between same-store sales and net new restaurants; the royalty rate and other fees; and the health of franchisees, whose returns decide whether they keep opening units. The Moelis analysis shows how strongly growth separates franchisors: the same model earned a median near 8x when growth was slow and roughly double that when it was fast. Precedent deals showed the same pattern, with a median of about 9.8x trailing EBITDA for lower-growth franchise acquisitions since 2016 against about 14.3x for higher-growth ones. The franchise economics behind those numbers are covered in the franchise model: royalties, franchisees and refranchising.
Franchisors can also carry more debt relative to EBITDA than operators, often through whole-business securitization, which raises equity returns but means the enterprise value is spread across a larger debt layer. Bankers therefore compare franchisors on enterprise value multiples, not equity multiples, so that leverage differences do not distort the comparison.
Valuing Operators: EBITDA vs EBITDAR
Operators are harder to compare because their rent varies and their property ownership differs. One chain may own its buildings and report high EBITDA with no rent; another may lease every site and report lower EBITDA after rent. Comparing them on EV/EBITDA treats the leasing company's rent as an operating cost while ignoring the owning company's property, which distorts the result.
The usual fix is to compare them on earnings before interest, taxes, depreciation, amortization and rent (EBITDAR), against an enterprise value that includes the capitalized value of leases.
The 8x rent multiple is a long-standing rule of thumb rather than a precise measure; under current accounting, bankers can instead use the lease liabilities reported on the balance sheet. Either way, the point is the same: compare operators on a basis that treats owned and leased restaurants alike.
Unit growth runways
For a growing operator, much of the value lies in restaurants that have not yet opened. Bankers model the unit growth runway: how many more restaurants the concept can support, how quickly the company can open them and what each new unit earns on its investment.
- Net Unit Growth
The percentage increase in a restaurant system's total number of restaurants over a period, after subtracting closures from openings. Net unit growth, combined with same-store sales, drives growth in systemwide sales and is a core input in valuing growing restaurant brands.
A concept with years of white space and strong new-unit returns can justify a high multiple even with heavy capital spending, because each dollar invested earns well above its cost of capital. When new units start earning less than older ones, the runway shortens and the multiple falls, often before total earnings stop growing. How new-unit returns and payback are measured is covered in four-wall EBITDA, new-unit returns and payback.
Sum-of-the-Parts for Mixed Systems
Many restaurant companies run a mix of franchised and company-operated restaurants, and some own real estate that they lease to franchisees. A single blended multiple can hide the value of each piece, so bankers often use a sum-of-the-parts valuation, valuing each part on the multiple that suits it.
Property is the piece most often overlooked. A franchisor that owns the land under many of its franchisees' restaurants is partly a landlord, and its rent income can be valued like a net-lease portfolio. McDonald's, whose franchised revenues of about $16.5 billion in 2025 included rent as well as royalties, according to its full-year results, is the leading example of a restaurant company whose real estate is a large part of its value.
What Bankers Check Before Settling on a Multiple
Restaurant multiples move with a handful of factors, and bankers test each before choosing a range, since two companies with the same EBITDA can deserve very different values once these are taken into account:
- Franchise mix and how it is likely to change through refranchising or buybacks
- Same-store sales split into traffic and check, and their trend over several years
- Net unit growth, the development pipeline and new-unit returns against older units
- Capital intensity: maintenance and growth capital spending as a share of EBITDA
- Lease and debt burden, measured on a lease-adjusted basis
- Peer group, chosen by model and growth rather than by cuisine
How precedent deals inform these ranges is covered in consumer precedent transactions and brand premiums, and how restaurant economics work underneath the multiples in how restaurant companies make money, segment by segment. For a coverage banker, the lesson is that a restaurant company's multiple is earned piece by piece: royalties, restaurants and property each carry their own value, and the art is presenting a client so that investors see all three.
