Rod FNB Valuation

Here we evaluate restaurants, cafés and other food joints whether as a single eatery or as a chain of outlets.
F&B businesses are often valued as a multiple of the revenue they generate. For chains, special adjustments are made depending on whether outlets are new or have reached a steady state.

The Coca Cola Company, The world’s biggest consumer brand famous for its aerated beverage and also producing various packaged drinks like bottled water and juices.

Coke acquired Costa Coffee, world’s second largest chain of coffee cafes with over 3,800 own and franchised stores worldwide for $5.1 bn.

Strategically, the transaction gives Coca-Cola a significant worldwide presence in the larger and relatively less cyclical hot beverages market.

Using the comparable valuation methodology, we compare other renowned F&B brands present globally in a -quick service- restaurant format. We can see that the revenue multiple increases with a higher EBITDA margin.
Yum Brands the owner of Pizza Hut, KFC and other popular brands has an EBITDA margin of 43% almost double the margin of Starbucks and simultaneously the Revenue multiple is also double. whereas the EBITDA multiple is in a steady range of 15 to 17 times across the peer group.

As Costa has a lower margin than the competitor Starbucks, it should have a lower revenue multiple. Assuming a rounded 3-time revenue multiple on Costa’s revenue we achieve a value very close to $5.1 bn.

We can verify this by taking the mean enterprise value to EBITDA multiple of the peer group and applying it to Costa Coffee’s EBITDA. Here we again obtain a value close to the value derived from the revenue multiple.

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