Mitigate Risk, Maximize Value

A penny saved is a penny earned. But one penny saved on diligence jeopardizes the 99 others that needn’t have been put at risk at all.

The most successful investments begin with a bullet-proof thesis that considers both likely risk and potential value. Competition for deals is heating up, especially in foodservice where valuation multiplies can sit at 10x EBITDA and higher. This intensity might motivate some dealmakers to take an expedited path to closing, but a diligence process that surfaces red flags and identifies value-accretive actions is more necessary than ever.

The sophisticated nature of most restaurant and hotel food and beverage operations, which combine all the challenges of the retail sector with the complexities of manufacturing, logistics, and increasingly, technology, makes properly assessing investment targets more difficult — and more essential.  

Without specialized knowledge of how consumers and the market are moving, a general due diligence assessment may remain focused solely on the top and bottom lines, rather than surfacing the factors that really drive performance.

We help our clients chart and quantify a path to closing through data-driven insights that situate the business within the market, competitive set, and consumer landscape. Evaluating key performance and operating metrics against industry benchmarks, we provide comparisons with both direct and indirect competitors in order to arrive at an unbiased assessment of the target’s current and future value. We turn raw data and intuition into themes, stories, and actionable insights so that investment committees can make informed and confident decisions.

restaurant due diligence

Why Our Clients Choose Us

Aaron Allen & Associates works exclusively in the foodservice industry, helping restaurant and hotel operations, foodservice tech companies, and supporting investors find, size, and seize opportunities to maximize value. Our deep knowledge of this sector enables us to go beyond financial analyses and projections, uncovering the factors that will have the greatest impact on the success of the deal.

We’re not theorists; we’re practitioners. Our team has worked across all functional areas of major foodservice operations, from kitchens and host stands to marketing departments and supply chain logistics. We know how foodservice works, providing clients with invaluable insights into a target operation’s current state and future potential.

A spreadsheet only goes so far in capturing how well a foodservice business is run. We leverage our industry expertise during site visits, where we can evaluate day-to-day operations in order to surface potential obstacles to value creation and find opportunities to build greater efficiency and profit into the system.

Our past and present clients span all six inhabited continents, giving us unparalleled experience in varied market conditions. We fuse this global exposure with local expertise, highlighting all the challenges and possibilities that come from a cross-border deal. Our regional knowledge also lends our clients the cultural sensitivities sometimes necessary to successfully complete complex cross-border transactions.

We believe that every aspect of a foodservice operation — from the menu, service, and brand down to the POS systems, training procedures, and labor models — contributes to its market share and longevity. This holistic approach to the business means our clients understand the risks and rewards of a deal early in the diligence phase, leading to sure-footed decision making and bullet-proof post-merger integration plans.

“Private equity deals led by partners with prior operational experience, particularly in the restaurant industry, show greater improvement in inspection results than those led by partners with financial or banking resumes.”

—Shai Bernstein, professor of finance, Stanford University

Prior Engagement Highlights

Commercial and Operational Due Diligence, Casual Dining Chain

  • Developed interactive and dynamic what-if calculators for conservative, moderate, and aggressive scenarios
  • Conducted purchasing analysis for a trailing 36-month period to calculate theoretical versus actual food cost
  • Assessed validity of new concept expansion and value-creation potential
  • Identified $180 million in value-accretive opportunities
  • Go-forward recommendation followed by successful transaction

Due Diligence and Post-Merger Integration Support, Domestic QSR

  • Approached target as turnaround opportunity for brand with historical relevance
  • Identified significant EBITDA inflation and discovered unprofitable locations accounting for almost one-third of the system
  • Prioritized CAPEX investments, from drive-thru optimization to remodeling and retrofitting initiatives
  • Highlighted most impactful OPEX investments, including performance measurement and management, QA/QC, and training

Buy-Side Advisory, MENA Restaurant and Bakery

  • Performed deep analysis of Riyadh, Jeddah, Dammam, and Al Qasim markets to map expansion strategy and models
  • Conducted transaction-level data analysis to identify sales and cost patterns for unit- and brand-level variance analysis
  • Led a multilingual, qualitative research study to surface insights from current leadership
  • Developed models and rollout plans for home delivery
  • Identified and quantified value enhancement opportunities for a 3x–5x return over holding period
  • Accurately predicted sales downturn related to ill-advised changes made by target’s management team

Diligence and Portfolio Strategy, Multinational, Multichain Operator

  • Performed transaction-level sales analysis to identify patterns in average check size and trending performance
  • Reviewed purchasing department and supply chain practices to identify areas of risk and opportunity with regard to consolidation and expansion
  • Conducted brand audit to evaluate impact of significant closures
  • Corrected exaggerated margins and expansion projections from sell-side team
  • Identified value enhancement opportunities for a 3x return over the holding period
  • Highlighted potential post-merger management challenges
Most common restaurant commercial due diligence findings

Private Equity firms have been snapping up restaurant chains at an astounding rate in recent years. It makes sense, considering the industry is cash-generative, offering a continual source of new concepts that can be scaled

Read More »
Restaurant Due Diligence

There’s been a lot of investor interest in the restaurant industry as of late, and for good reason: even when economies around the world struggle, consumers continue to dine out. And even though habits might

Read More »
Private Equity Restaurant Investment Preparation

The private equity world is currently a sellers’ market, but this won’t last long. High asset prices, intense competition among bidders, and ongoing geopolitical instability have made deals harder and harder to come by, meaning

Read More »

M&A activity is reaching near-record highs in the U.S. and globally, and the hospitality industry is no exception. Deals in the food and beverage industry grew at a 9.7% CAGR between 2010 and 2017, while

Read More »

Who We Are

Insights

Specializations

Connect

Aaron Allen & Associates is a leading global restaurant industry consultancy, helping clients around the world solve their most complex challenges and achieve their most ambitious aims.

Subscribe

Sign up for our newsletter to get insights delivered directly to your inbox.

Linkedin Twitter Envelope

© All rights reserved. Aaron Allen & Associates.