Valuation of a Subway Franchise

Desipte our firm selling over 50 Subway Franchise stores, there are still issues a Business Valuer must face to try and determine where the subject store fits in the whole spectum. Whilst very similar, no two Franchise stores are the same, different staff, different leases, different area etc etc. Adding to the complexity is the fact that this subject store was located in a regional town.

I was engaged during a period where the market was showing that they were prepared to pay an increasing multiple (or decreasing capitalisation rate) of the PEBITDA (Proprietors Earnings Before Interest Taxation and Amortisation), for Subway stores in the metro area. Would this same trend occur for regional stores?

I concluded that financial institutions lending against this franchise would have unlikely caught on to the increase in demand for Subway Franchises, and adjusted their lending policies accordingly. Thus a potential buyer would still be restricted in their financing ability. Because of this I decided not to forecast future capitisation rates rather I calculated my answer by averaging the difference in capitalisation rates between Subway stores recently sold in Metro areas vs Subway stores recently sold in regional areas.