The Recurring Revenue Bump

Darden, the owner of the Olive Garden restaurant chain, announced it was acquiring Ruth’s Chris, the legendary American steakhouse, for $715 million, implying a valuation of around one times 2021’s annual revenue, or about ten times their adjusted EBITDA for 2022.

Not bad for a giant company, but Ruth’s Chris’s value was likely hindered by its lack of recurring revenue.

Comparing Ruth’s Chris to another traditional business with recurring revenue demonstrates the power of automatic customers. For instance, Waste Management, a private garbage collection company that disposes of trash for clients through long-term contracts, trades at over three times its annual revenue.

Two companies in traditional industries, have nothing to do with software, yet one trades at one times revenue while the other fetches three.

Recurring Revenue: Not Just for Software Companies Anymore

Many people consider recurring revenue to be exclusive to software companies, but traditional businesses can also reap the benefits of creating recurring income streams. For example, let’s look at Gamal Codner, the founder of Fresh Heritage, a line of men’s grooming products that began with beard oil for softening facial hair prior to shaving.