The Washington Hospitality Association’s Director of Business Development, Ken Wells, sat down with Oliver Kotelnikov of IBA and Robin Dode of the SBA Commercial Lending Division of Banner Bank.
The three discussed:
- An overview of market demand and conditions
- The key factors impacting value
- The buyers for hospitality businesses
- What are buyers looking for in a business opportunity?
You can watch a replay of this webinar on our YouTube channel.
To kick things off, Wells asked if now is a good time to sell a restaurant.
Kotelnikov said that yes, there are opportunities. The buyers are, however, more selective than in the past, mostly recovery from COVID.
“That’s going to be the key item, really, are we on to bigger and better things and have we returned to the historical model of operations,” he said.
Dode said that volume has diminished from 2020 to 2022, but she is still seeing an average of probably eight requests per month. Her volume has slowed this year and she assumes that people are holding right now.
“The bank continues to lend to the industry and for the right buyer, we’re always looking to do a lending transaction,” she said.
Kotelnikov said some of the key factors that are impacting value right now include sales and profitability, or if there was a post-COVID bump temporary or if it is the new normal.
Another factor is staffing, which is a known issue in the hospitality industry. The market will look at key people in managerial roles, the stability of staffing levels and more.
Books and records need to be clear and transparent for the last three or four years.
Dode said interest rates should keep ticking up incrementally. It does, however, appear that market investors are becoming more interested in holding assets that are priced at today’s market prices.
“Over the next 18 months or so, rates will either hold or start coming down a bit,” she said. But she qualified that in that she is not an expert in economic models, but this was based on what she has recently read.
As far as buying a hospitality business, Kotelnikov said there are four different kinds of buyers. There is the owner-operator who is just getting into the industry and has romanticized what it would be like to own a restaurant. He said there are fewer of those right now because the barrier of entry into hospitality has increased.
Another buyer is a career hospitality professional who has worked in other hospitality businesses as a manager but now wants to work for themselves and sell the business when they retire. These buyers are very qualified and are preferred by lenders.
Strategic acquisition buyers have a similar business model and are looking to expand.
The fourth kind of buyer is the private equity buyer who is looking for a larger business and looks at the numbers more than anything else when it comes to buying.
Buyers will look at the risk versus the reward of a business, and current market conditions.
Dode said that long-term employees are a demographic she appreciates lending to. “That actually is my favorite buyer of a business,” she said. “Who knows it better?”
She added that the person running the day-to-day business is typically light on the downpayment side, so sellers tend to be flexible in how they will structure with the bank to help the employee purchase the business.
You can find the whole webinar on our YouTube channel.