After 2024’s depressed deal environment, restaurant owners and investors were ready for action in 2025, and outlooks were especially promising for quick service restaurants (QSRs)^[1]. Based on a review of transaction details provided by the Alvarez & Marsal Global Insight Center, US restaurant transactions completed during the first and second quarters of 2025 were slightly down from the prior year, with 34 completed transactions versus 38 during the same period in 2024. Prospective investors and business owners have been continually assessing the evolving tariff policy landscape and how inflation uncertainty could impact food/ingredient pricing and wage rates. However, investors have remained confident M&A markets will pick up in periods to come as pent-up demand is anticipated to materialize—and recent headlines are starting to suggest that this is occurring.^[2]

As dealmakers begin preparing for M&A deals through the remainder of the calendar year, one basic but vital exercise can greatly influence valuations of a company and establish future earnings of restaurants and multi-unit concepts: pro forma calculations—specifically, those that relate to closed, new, remodeled, acquired, or divested locations. When analyzed appropriately, buyers and sellers can ascertain pro forma EBITDA impacts of a mature portfolio and better understand the company’s expected go-forward earnings.

Below are pro forma considerations that can influence restaurant valuations.

Pre-Opening Expenses

Prior to assessing restaurant maturity, investors should consider, and potentially remove, the impact of pre-opening expenses. For companies continually expanding their restaurant count, pre-opening expenditures—costs incurred at a new location prior to revenue generation—are likely prevalent. Pre-opening costs usually include pre-opening rent, initial marketing, and employee costs due to training, onboarding, and other reasons.

For businesses continuously expanding, such as chains, these costs might seem to be recurring; however, in assessing adjusted earnings metrics for transactional purposes, these pre-opening expenses are typically excluded from the company’s earnings. This is done to avoid burdening historical EBITDA with one-time costs that are not expected in future years and are characteristic of an expanded restaurant count.

Current Restaurant Maturation

An important component in assessing overall profitability includes adjusting EBITDA for new restaurants. In its simplest form, using the reported financial results as a proxy to extrapolate the past is a starting point. However, investors should also assess the maturity concept for recently opened restaurants.

Using four-wall EBITDA figures—meaning inclusive of the financial transactions that occur within the four walls of a single property and excluding regional or corporate costs as well as the pre-opening expenses previously discussed—investors can measure location-level operating profitability. This should then be used as a starting point to measure which restaurant units have reached a mature earnings state, and which ones have yet to mature.

In assessing restaurant maturity, investors should consider the following:

• Average time to reach maturity: Restaurants have varying maturation periods to reach steady state earnings and the time to reach maturity should be considered based on historical financial details along with industry comps.
• Geography: Geographical considerations should be evaluated to determine applicable cohorts in comparable store modeling purposes. Certain factors such as population density, socioeconomic factors, regional preferences, or walkability may cause differences in maturation timelines and potential of the cohort. Cannibalization can also play an adverse role when too many units are opened in a certain area.
• Vintage/cohort: As concepts evolve and management teams fine tune their store roll-out playbook, some vintages can perform better than others, which should be considered.
• Brand awareness: Other restaurants could experience lower profitability initially because brand awareness is still developing during a restaurant’s initial stages.
• “Honeymoon Period”: In some cases, the local excitement of a new restaurant opening can cause a temporary increase in initial earnings, which also should be considered.

Once a level of maturity is established based on the considerations above, EBITDA is adjusted for recently opened restaurants that have not yet reached maturity but are on a clear path to doing so.

For franchisors, a similar approach should be used to calculate future royalty income as franchisee stores mature.

Future Restaurant Openings

Although more subjective in nature, future restaurant openings may also be considered in valuation. Investors should consider the forecasted sales, costs, and profitability of future openings, as well as the actual status and feasibility of these new locations. Comparing previous forecasts to the actual results of previously opened stores will give investors an understanding of management’s ability to accurately forecast profitability.

For example, restaurants that expect to open in the near term are likely to have already executed lease agreements and invested substantial capital expenditures that should warrant consideration in modeling post-transaction profitability. However, investors should also consider the likelihood that restaurant openings may be abandoned prior to revenue generation based on historical rates.

This is highly subjective within the context of each location and should be evaluated on a case-by-case basis.

For franchisors, this often includes future royalties associated with signed franchise agreements with firm opening dates in the near term.

Remodeled Restaurants

For certain restaurant brands, restaurant remodeling occurs frequently, often on a rolling basis as companies seek to upgrade physical locations to create more customer traffic and better customer experiences. However, changes to earnings following substantial remodeling or, in some cases, demolish and rebuild efforts, should also be considered when evaluating pro forma performance. Investors should analyze operating performance both pre- and post-remodeling to determine whether substantial earnings impacts should be considered in modeling restaurant performance. The financial impacts of temporary closures should also be removed in the analysis.

Restaurant M&A

As with any industry, recently acquired or divested restaurants should be considered in assessing pro forma results. Investors seek to value the business as if the current, or go-forward, restaurant count has been in place throughout the entirety of the valuation lookback period

For franchisors, this includes acquisitions or territory wins by any franchise partners and applicable royalties, marketing funds, and variable costs.

Closed Restaurants

The financial results of closed restaurants, whether in the past or scheduled, should be removed from EBITDA. For franchisors, royalty income from closed locations should also be removed.

Back-Office Expenses During Expansion

Finally, investors in companies with an expansion strategy or those seeking to build out a larger geographic presence must consider the effect of increases in variable or step changes in fixed selling, general, and administrative (SG&A) expenses.

As restaurants expand, so does the need to attract, train, and retain additional employees, such as regional or area managers. Expansion also results in increased costs from growing administrative or executive functions. Operating over a larger geography requires additional costs and higher overhead expenses. To maintain a balanced view, these increased costs should be factored in when determining the pro forma profitability of growing restaurants.

Final Thoughts From A&M’s Restaurant Transactions Practice

Each portfolio and cohort of restaurants will be different. Some mature quickly while others do not. Some QSRs have a more commoditized maturation period, while upscale concepts may take longer to mature because of the higher ticket prices and less frequent traffic from targeted customers.

In all cases, understanding the impact of pro forma concepts will allow buyers and sellers to obtain a comparable view of the historical and expected go-forward business under their ownership.

Why A&M?

Alvarez & Marsal’s Restaurant Transactions Practice combines operational expertise, technological knowledge and transaction experience. We conduct due diligence in the industry thousands of times per year.

[1] “State of the Restaurant Industry 2025,” National Restaurant Association, February 5, 2025.

[2] Ibid.