According to the most recent S&P Global Market Intelligence data, the number of M&A deals is at its lowest level since the beginning of 2020, primarily due to high interest rates and other financial challenges. This downward trend can be seen in the Quick Service Restaurant (QSR) industry, as for the past two years, it has experienced a notable decline in any M&A related activity.
But as we look ahead to 2025, QSR restaurant acquisitions are expected to rise, fueled by more than post-pandemic economic recovery. Pent-up demand and supply, the strategic implementation of technology, and the need for inorganic growth all play a fundamental role in this positive outlook. In this article, we’ll explore why deal activity is predicted to increase and how you can get the most out of buying or selling a QSR business in the upcoming year.
There are several reasons why franchisees and M&A experts are optimistic that deal activity will pick up slightly during the upcoming years. Here are some of the most prominent:
Despite a recent lull in deal activity, the underlying desire for growth and expansion remains strong. Earlier this year, PwC found that 60% of CEOs plan to make at least one acquisition in the next three years in their 27th Annual Global CEO Survey. The longer deals haven’t flowed, the more pressure buyers feel to get transactions done. Over the next year, we could see the valuation gap between what buyers want to spend and what sellers want to gain for their businesses begin to thin, especially as signs of stability in the market materialize. Additionally, supply has been building up as more sellers, specifically within the Baby Boomer demographic, are ready to retire or have taken their business as far as they’d like.
There’s no doubt that the latest developments in artificial intelligence (AI) are a main driver of increasing M&A deals. From their research, PwC also found that 70% of business leaders expect to use acquisition to accelerate adoption of new technology. QSR franchise businesses with AI or other technological innovations already implemented are likely to be valued higher and sought out for acquisition more frequently than those that do not. This can be as minimal as self-ordering kiosks or as advanced as generative AI drive through lanes.
Uncertainty surrounding when the Federal Reserve will cut interest rates and rising inflation have established an environment of low economic growth. In response, many franchisee owners are starting to pivot to inorganic growth strategies like M&A to overcome stagnant organic growth and achieve more specific expansion goals. Both small and large deals are taking over headlines this year, involving concepts such as Jersey Mike’s, Burger King, and MOD Pizza.
Although M&A activity is expected to rise, there is still some doubt concerning the timing of it.
“I don’t expect a surge in the near term as interest rates are still significantly higher than they were three years ago, banks being more cautious about lending to restaurants, and some buyers sitting on the sidelines during uncertain election cycles,” says Bruce Hostetler, Underwriting Director at First Franchise Capital. “Compared to pre-Covid, buyers need to be prepared to come in with more equity and sellers may need to provide a level of seller financing to get the multiple they desire.”
If you’re looking to buy or sell a franchise business any time soon, it’s important you’re more than well prepared and perform your due diligence.
As a buyer, the following guidelines can help you prepare to purchase a QSR franchise business.
And as a seller, here are some tips to help you prepare for selling.
While the outlook for restaurant franchise M&A activity in 2025 is more positive, success will largely depend on how well you prepare, plan, and adapt. Whether you're looking to expand your portfolio or considering an exit strategy, now is the time to start positioning yourself for the opportunities that lie ahead. By staying informed, leveraging expert advice, and maintaining a proactive approach, you can maximize your chances of coming across a desirable deal or the perfect buyer!
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