YouSaid · the spoken record

Matt Perelman

lines on the record: 72
first: 2024-10-15
most recent: 2024-10-15
sittings or episodes: 1
sources: podcast

Every line below is reproduced as it was said and linked to the record it came from. Nothing here is summarised or generated. Directory · Search · Corrections

“And we always joke it's tough to make less than five times your money in Microsoft Excel in a roll up. I don't think it's ever happened. But in reality, particularly through cycles, again, we look at everything through cycles and think about that. It's really tough to make money and roll-ups over time. We plan to do this for the next 50 years.”
2024-10-15 · Invest Like the Best · Matt Perelman & Alex Sloane - The Art of Franchise Investing - [Invest Like the Best, EP.393] · IDENTIFIED FROM THE TRANSCRIPT · source
“With comps that have gone up every single year for 12 years, that's really driving that flywheel. As we think about our business, Patrick, sort of, we think about, you ask, why is that you're referring to Taco Bell? But why did we miss it, something that I come back to a lot? I think when we got started, we were certainly guilty of value traps and buying things because they were cheap and cheap for a reason. And so we talked a little bit about our burrking investment, which again, happy to spend more time on. But it's funny, our second investment was not a good investment. We lost money on it. And it was in some ways were the best thing that ever happened to us. We call it tuition today. We did a consolidation of an auto services franchisee. Our view was it's very low cash flow multiples that we're buying. And for let's go after it. And it ended up being a terrible deal. That was really eye-opening for us and said, huh, first of all, roll-ups are really hard. And if you look over time, roll-ups are not a great place to invest. The zero rate world, notwithstanding, go back before that. It's a tough place to make money consistently.”
2024-10-15 · Invest Like the Best · Matt Perelman & Alex Sloane - The Art of Franchise Investing - [Invest Like the Best, EP.393] · IDENTIFIED FROM THE TRANSCRIPT · source
“Two things. They have better marketing than most. Think about the various Taco Bell iterations of commercial and marketing that you can think of all the way from the Chihuahua up to Pete Davidson recently. And they have a really compelling operating model. Their food is reheated. And so whatever they don't sell that day, they're able to reheat and sell following day, which we can all debate how delicious that is or not. It does dry. By the way, it tastes amazing. It seems to work. marketing drives a higher top line. Their food cost model drives higher swirl EBITDA margin that allows for more money to be reinvested in the boxes so they look better and the top line drives more advertising dollars which forces more people to come in human beings Luis and America are very Pavlovian if there are more Taco Bell commercials on TV this month than the same month the prior year there's probably going to be more people who show up to Taco Bell and”
2024-10-15 · Invest Like the Best · Matt Perelman & Alex Sloane - The Art of Franchise Investing - [Invest Like the Best, EP.393] · IDENTIFIED FROM THE TRANSCRIPT · source
“We've looked at countless and countless taco bell deals over the last 11 years. Taco Bell is the darling of the franchisee investment universe. It only comes positively, meaning same-store sales always seem to grow. It is higher of a margins than the competitors typically. New units are created at really attractive cash and cash returns. The remodels always seem to work. It just seems to go up and to the right. And we can certainly be too cheap for our own good. And we've just looked at those businesses for the last eleven years and said seven times. That's crazy. Eight times that's crazy. Who's paying these prices? And we've missed every tacoball deal. And we probably would have made money on every single one of them had we invested. I think we're probably hopefully better at this today than we were 11 years ago when we started this at my dorm room kitchen table. But that's something that we've consistently missed and we're probably missing.”
2024-10-15 · Invest Like the Best · Matt Perelman & Alex Sloane - The Art of Franchise Investing - [Invest Like the Best, EP.393] · IDENTIFIED FROM THE TRANSCRIPT · source
“Meaning the better labor you have, the better your customer experience, which means that they come back more often, which drives sales growth, which means you have more margin, which means you can hire better team members, which leads to customer satisfaction and thus your sales grow. And so it is a virtuous cycle. The other thing that I think is important to touch on is we invest in simple businesses. We're investing in multi-unit businesses throughout the country. They're not particularly difficult to understand. The nice thing about that is if you show our team at Garnet Station the top line of a multi-unit business, the rent structure of the multi-unit business, and what the resultant margin is, we can tell pretty quickly good, bad, or ugly, and how we would go about improving it. Sometimes we can't improve it. It's too good. Because these are simple businesses, and we've seen thousands and thousands of them over the last 11 years, with sales, rent, and the output, we have a pretty good sense of where the opportunity is.”
2024-10-15 · Invest Like the Best · Matt Perelman & Alex Sloane - The Art of Franchise Investing - [Invest Like the Best, EP.393] · IDENTIFIED FROM THE TRANSCRIPT · source
“Have detailed notes from all of them on how they manage their business. We try to take a nugget from every single one of them. The best one sort of early on was a Taco Bell franchisee who would literally do labor by 15 minute increments. And you'd think based on the weather and all the factors that Matt mentioned, you'd think that means they're reducing labor. It actually typically means adding labor, which is actually really important point. You can think about it. Labor is the most important part of these businesses. They're people businesses. And getting labor right is the key not only to the middle of the P&L, but it really is the key to top line. Get satisfaction, net promoter score, intent to return. And in any one of our markets, our consumer typically is our team member. And the customers are typically family members of the team's cousins of the team's teachers of the teams, nephews of the teams. So you have to factor that in to how you treat your people. And just to put a finer point on that, it's a virtuous cycle.”
2024-10-15 · Invest Like the Best · Matt Perelman & Alex Sloane - The Art of Franchise Investing - [Invest Like the Best, EP.393] · IDENTIFIED FROM THE TRANSCRIPT · source
“Is the local high school football team playing tonight? If they are, I'm probably going to need more people. And it usually results in us adding Labor at the peak hours to drive throughput. And so you get rid of the veto vote of people walking in saying this is too busy. I don't want to stay here and taking away labor at the shoulder hours because the shoulder hours are smaller both in time and dollar size than the peak hours. We're overall adding weber dollars, but the margin goes up because it does drive the top line and there's meaningful operating leverage to that. That's a huge part of equation for us. On that point, it may sound niche talking about franchising, but franchising is a massive part of the US economy, silver trillion dollar part of the U.S. economy, but it's also a very small world. We've spent the last 10, 11 years at every franchise conference meeting every franchisee, every franchise war out there. And we've traveled to meet all of the multi-unit franchisee operators over these years. And we make a point we ask the same questions.”
2024-10-15 · Invest Like the Best · Matt Perelman & Alex Sloane - The Art of Franchise Investing - [Invest Like the Best, EP.393] · IDENTIFIED FROM THE TRANSCRIPT · source
“To help manage these businesses in a multi unit way. And franchisors help make that tech and the standard operating procedures available to their franchisees. But depending on the system, the franchisees don't always listen. A lot of operators will base Weber just based on what their anticipated dollar sales is. And they said, so last Tuesday, I did 10,000 sales this Tuesday. I think I'll do 10,000 of sales. And so I need X amount of people. If you actually double click on that and you can do this pretty easily with technology, we're less focused on the dollar of sales. We're more focused on the number of transactions because transactions is what drives labor, obviously not sales. If you take price by 10%, you don't need 10% more labor. And then also there's factors that go into a labor matrix that are impossible to do by hand, but with technology, you can do that pretty easily in terms of what's the weather, what are the traffic patterns. Is there road construction? It's as localized as”
2024-10-15 · Invest Like the Best · Matt Perelman & Alex Sloane - The Art of Franchise Investing - [Invest Like the Best, EP.393] · IDENTIFIED FROM THE TRANSCRIPT · source
“Location and brand strength. So within different systems, you'll see dramatically different average unit volumes. And even within one system, you'll see dramatically different average unit volumes. Alex and I have taken the view that it's a lot easier through technology to change the variance in the middle of the P&L than it is the top line. Yeah, it's really hard to take a million half sales per box unit and make it two million. But if that million and a half dollar box is generating eleven percent, and we can see that the food cost variance and the labor matrix is off by 300 base points, we feel really good that through technology and the fact that we've done this with over 3,000 locations over the last decade, you can really, I don't want to say easily, but with high confidence, narrow that gap over up three to six month period. You might be surprised about the variant. You might think it would be tighter bands than it is in the middle of the P&L, in part because franchising is a huge tam. There's been so much capital that's flooded into the tech.”
2024-10-15 · Invest Like the Best · Matt Perelman & Alex Sloane - The Art of Franchise Investing - [Invest Like the Best, EP.393] · IDENTIFIED FROM THE TRANSCRIPT · source
“Bolt Don and from the franchisor's perspective, they're probably thinking about that as an ad back and the overall improvement in royalty, which trades at a far higher multiple or lower cap rate than whatever we're buying the franchisee at typically. That's value-enhancing for them over the long run. How much of variance is there at the unit level across some of these systems? If I looked at today, the very best performing Burger Kings versus the very worst or whatever it doesn't need to be Burger King can be anything. Seems like variants of the unit. Obviously, the franchisor wants that variance to be super low because then financing's easier and performance is better and more people want to be a franchisee and on and on. So I'm sure that franchisors are always incentivized to drive down variants at the unit level. But you guys have probably seen more data on this than anyone alive. What have you learned about unit variance performance variance within a given system? From the top line, it varies a lot. And a lot of that is based on.”
2024-10-15 · Invest Like the Best · Matt Perelman & Alex Sloane - The Art of Franchise Investing - [Invest Like the Best, EP.393] · IDENTIFIED FROM THE TRANSCRIPT · source
“Business, and you just don't have access to that same level of data. The other interesting thing in the franchise ecosystem that's not true of a typical deal is it's a triparty negotiation. You have buyer, seller, and franchisor. And franchisors can do things to effectuate that transaction that's in everyone's mutual interests without reducing their economics dramatically. If we have 50 units of whatever brand and we're buying 10 units that perhaps need a lot of capital or they're underperforming for whatever reason, the franchisor can offer to reduce the royalty associated with those stores for, let's say, two years. And we're buying up 6% margin business because it needs some TLC and help. And they're going to reduce the royalty by half. So say they're paying four percent before that. Now our cash flow has gone up by a third for two years, which really helps us finance it. And we can redeploy that capital into high returning projects related to that.”
2024-10-15 · Invest Like the Best · Matt Perelman & Alex Sloane - The Art of Franchise Investing - [Invest Like the Best, EP.393] · IDENTIFIED FROM THE TRANSCRIPT · source
“Access effectively to the entire system's PLs over time. So Matt and I, we are very much believe in underwriting businesses through cycles, particularly if you're going to pay a franchise fee to operate someone else's brand. And in the world of franchising, you have so much data. So even we were buying a 23 unit Burworking franchise back in 14, but we were able to access effectively the 7,500 other Burwicking franchisees, P&Ls, and we could look at them historically. And we could also see, Matt talked about the remodel returns on that $8 million remodel liability. Weak a diligence, those remodel dollars were spent and what the returns were across the other 1,000 burricans that had been remodeled at the time. And you could do a cohort analysis to understand what was the trade area, where was the Walmart. What were the demographics? What side of the street? Where is the restaurant on? And you could make a much more educated underwrite about the impact of that remodel dollar versus if you're buying a roof.”
2024-10-15 · Invest Like the Best · Matt Perelman & Alex Sloane - The Art of Franchise Investing - [Invest Like the Best, EP.393] · IDENTIFIED FROM THE TRANSCRIPT · source
“For the first few years that we were doing remodels and investing in the brand, those were north of 30% unlevered returns. And then because of how big these brands are and how long they've been around for it, you can actually get really attractive financing. And then the point Alex raised about franchisors can give franchisees things that the franchisees really value that's no skin off the franchisor's back in almost every franchisee deal we've ever done, we've been able to negotiate for the brand's right of first refusal, meaning if you own a unit in a particular system in a particular state, it has to go through us before it can trade to a third party. And that's hyper valuable to us for all the obvious reasons. But from the franchise perspective, they aren't buying stores that at least historically they don't want to operate stores. And so that's a way to really incentivize us to boy capital in the system without taking away any economics from them. Coming back to your initial question, Matrick, the other nice thing about doing franchise consolidations is you have”
2024-10-15 · Invest Like the Best · Matt Perelman & Alex Sloane - The Art of Franchise Investing - [Invest Like the Best, EP.393] · IDENTIFIED FROM THE TRANSCRIPT · source
“Ret But there were things that you could negotiate with the franchise. That perhaps. Structural protections and downside protections that the brand can give you, that these franchisees work can help you with to help on the downside for us to be willing to take the risk of investing that capital and remodeling building new stores. And historically, there had been a real need for private equity and institutional capital, both a need at the franchisor level and a desire for private equity firms because of how high returning the capital was. For example, when we first invested in the Burricking business, twenty three stores with an eight million dollar remodel slash CapEx obligation. Sounds like a huge number. But that $8 million was some of the highest returning capital we've ever deployed. And I think a lot of franchisees then, and it's probably true now, just stared down the barrel of the absolute size of needed investment potential investment, and it scares them off or when you actually double click and even before getting into how you can finance it even more effectively, even on an unlevered basis, those returns are dramatic.”
2024-10-15 · Invest Like the Best · Matt Perelman & Alex Sloane - The Art of Franchise Investing - [Invest Like the Best, EP.393] · IDENTIFIED FROM THE TRANSCRIPT · source
“There because you're going to have In any partnership But the Of the brand. And so we took what at the time. A little bit of a different approach Said, we want to be your And you have a remodel program”
2024-10-15 · Invest Like the Best · Matt Perelman & Alex Sloane - The Art of Franchise Investing - [Invest Like the Best, EP.393] · IDENTIFIED FROM THE TRANSCRIPT · source
“There were sort of That had Consolidations. And so there was Lot of today. Off Market sponsors and even sovereign wealth funds. They love this business. Rewind 10 Wasn't the case. What we realized pretty”
2024-10-15 · Invest Like the Best · Matt Perelman & Alex Sloane - The Art of Franchise Investing - [Invest Like the Best, EP.393] · IDENTIFIED FROM THE TRANSCRIPT · source
“Could be 100% of your earnings at up 35 or 45% flow through or change in EBITDA divided by change in sales. Alex and I have focused on scale as relates to both franchisee roll-ups and overall roll-ups in our view scale more locations, different geographies, and an overall broader exposure to geography and markets, that limits a lot of the Walmart moving or the weather or traffic pattern shifting. And historically, we've gotten paid for that scale and diversity because it does provide a less risky, more stable business.”
2024-10-15 · Invest Like the Best · Matt Perelman & Alex Sloane - The Art of Franchise Investing - [Invest Like the Best, EP.393] · IDENTIFIED FROM THE TRANSCRIPT · source
“There's three costs that matter in these businesses, and those costs are people, the labor line, costs of goods, and rent, those costs are the vast majority of what's driving the overall profitability or not in the P&L, aside from obviously revenue. They're difficult businesses to run. There are people intensive businesses with potentially a fickle consumer, depending on where you are in the cycle, that in large part relies on the brand's advertising strength and the overall brand strength. So I would not necessarily recommend somebody go and buy and operate one single unit because I think one unit is relatively risky. You could have a traffic pattern change or bad weather for a quarter, and that can dramatically affect your results and the equity value. The Walmart could move. Yeah, the Walmart moves a mile away to a different traded area, and now your volume's down 10%. And when these businesses, which are relatively low margin businesses compared to the SaaS software stuff of the world, if you have a 10 or 15% drop in revenue,”
2024-10-15 · Invest Like the Best · Matt Perelman & Alex Sloane - The Art of Franchise Investing - [Invest Like the Best, EP.393] · IDENTIFIED FROM THE TRANSCRIPT · source
“Hard Perhaps the franchisor Sell dollars for 98 cents For the But for the franchise, we're Multiples in these businesses are very, very valuable. So through cycles and”
2024-10-15 · Invest Like the Best · Matt Perelman & Alex Sloane - The Art of Franchise Investing - [Invest Like the Best, EP.393] · IDENTIFIED FROM THE TRANSCRIPT · source
“Because they're taking a royalty, which is tied to the top line. The franchisee cares a lot about driving the bottom line. I think we relatively early on were able to figure out where the different incentives between franchisee and franchise are and how to utilize our skill set, which had been capital structure and team building and that sort of thing to help grow the equity value of these franchisees while keeping the franchise or super happy vis-a-vis investing in high returning remodel projects, new unit development, things that grew their top line. But for us, we're also really healthy ROICs and very attractive capital projects. Matt”
2024-10-15 · Invest Like the Best · Matt Perelman & Alex Sloane - The Art of Franchise Investing - [Invest Like the Best, EP.393] · IDENTIFIED FROM THE TRANSCRIPT · source
“I think it's important to give some of the background of what those businesses look like in terms of the partnership between franchisee and franchisor. So if you look at Burger King, and this is broadly true of any of the big tier one brands, at the store level, you're generating somewhere between a 15 and 20 percent margin before paying the brand the royalty. And that royalty is usually four to five percent. And so that means that after paying them the royalty, you're generating, call it mid to low teens in terms of strovel, EBITDA margin, take away a couple points for GNA, and you're down to high single digit, low double digit EBITDA margin business. That means that at the end of the day, you as the franchisee are effectively getting, call it two-thirds of the profit and the franchiseor is getting a third. It is a real partnership in that regard. And I think a lot of people, at least when we first started investing the space, don't appreciate that. Importantly, there are different incentives, right? The franchisor cares a lot about growing the”
2024-10-15 · Invest Like the Best · Matt Perelman & Alex Sloane - The Art of Franchise Investing - [Invest Like the Best, EP.393] · IDENTIFIED FROM THE TRANSCRIPT · source
“We used to say the meteorites are worth way more than 10 years later, that's not still true, but they are terrific people. It probably looked a lot like my cousin Vinny. We were dulgening our partnership with them, diligencing the business itself.”
2024-10-15 · Invest Like the Best · Matt Perelman & Alex Sloane - The Art of Franchise Investing - [Invest Like the Best, EP.393] · IDENTIFIED FROM THE TRANSCRIPT · source