The study we have all been waiting for is finally published and available for review! The original research is titled Determinants Impacting Resale Premium Disparity when Selling a Small Business: A predictive Non-Linear Approach. By Dr. John Hayes, Dr. David Smith and Dr. Mary Kay Copeland.
Some of you may remember that last May I wrote - ‘Dr. John Hayes shared with us an abstract of his latest study on franchising. This study is focused on resale valuation of franchised vs non-franchised businesses. The study has completed peer review and is scheduled to be published in the Journal of Economic and Business Studies, Spring 2022.’
Well, finally, the study is ready for publication. Using a data set of over 2,000 resales, the study was able to statistically prove higher resale pricing for franchised vs. non-franchised locations.
At the risk of over simplification - on page 13 of the study shows that the mean franchised business will sell at 3.5x earnings vs the mean non-franchise business will sell for 2x earnings. That is a 75% premium. Page 15 shows that older businesses sell at a higher multiple than newer businesses. Additionally, page 16 shows that restaurants sell at a higher multiple than most other business categories.
Word of warning, academic studies are not ‘light reading’, however, if you take the time to 'study' the study, you will find that it does a good job of analyzing and presenting the data set. There are always more questions to ask but this is, without doubt, one step forward in the process of quantifying the valuation differential.
I would like to thank Dr John Hayes, Dr. David Smith and Dr. Mary Kay Copeland for all the time and effort to pull this information together in this peer reviewed, scholarly article.
Click here to download the entire study.