On the Margin
The IPO market grinds to a halt

The IPO market grinds to a halt

This post is part of the On the Margin blog.

Restaurant companies planning a public offering as a way to generate financing or seek an exit for their owners should probably start looking for other alternatives.

Not a single U.S. company went public in January, according to the Wall Street Journal, which is the first time that happened since September of 2011.

January is typically a weak month for IPOs, according to the IPO research firm Renaissance Capital, but it noted that the market is coming off its weakest December since 2008.

The IPO market in the restaurant industry had been clearly slowing in 2015. No restaurant company has gone public since Fidelity National Financial spun off J. Alexander’s in September and no company has had a traditional IPO since Fogo de Chao Inc. in June.

Meanwhile, Jimmy John’s scrapped plans for its own offering just as it was about to present its plans to investors, and Habit Restaurants Inc. delayed a secondary offering.

Much of the blame for the halted IPO market has been put on the volatile stock market in recent weeks. Stocks were hammered in the first two weeks of the year amid global economic concerns and abnormally low oil prices. Volatility is bad for the IPO market.

But the restaurant market has also been done in by the weakness of many recently public growth chains on Wall Street. A third of the nine restaurant companies that have gone public in the past two years are trading below their offering price and a fourth is barely treading above its price.

Good companies can go public in any market, of course. But many executives will shy away from the public markets if they’re not providing the returns they want. Why go through all the hassle of being a public company if they’re not?

That could make it difficult for companies to raise money or exit investments. That might make chains available that had previously been able to go public. And lower overall stock prices could make more companies candidates for a take-private deal. And valuations companies receive on the market could come down in the process.

Contact Jonathan Maze at [email protected]
Follow him on Twitter at @jonathanmaze

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