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Does Einstein Noah’s IPO mean public markets are back?

Does Einstein Noah’s IPO mean public markets are back?

My TiVo pulled a Moe Howard this morning, but it was really my fault.

“Nothing on Nova?” I barked. “Not a word on The Discovery Channel? Not so much as a mention by Lou Dobbs? You must be missing something, you overpriced silverware drawer.”

It coolly retrieved a show about a lost tribe of bagpipers being found in Seattle, and a three-part series on the howling snow gecko. But it couldn’t find a second of airtime on the true scientific anomaly of recent weeks: the filing for a restaurant stock offering. That was about when it seemed to grab my hair, and the whole machine fell on my foot. I half-expected a Curly noise to muffle the shame of missing such a rarity.

Because, as any industry watcher knows, what started as a flurry of private-equity deals some 18 months ago lately has shifted from a veritable blizzard into a bad Buffalo winter. And just when you figure the size and number of the deals have hit some sort of barrier, another candidate is plunked on the sales block like a prize 4-H project at a county fair. While the shareholders of OSI Restaurant Partners were still considering the $3.2 billion they’d collect in a proposed buyout of the Outback Steakhouse parent, the boards of Applebee’s International and Wendy’s International decided to hammer “For Sale” signs onto the front lawns of their respective charges.

Keep this to yourself, but some of us initially figured those were the cues for the fat lady to start limbering up the pipes.

Financial analysts in particular seemed unconvinced that equity firms would pursue restaurant prey of that size and price, given the levels at which the stocks were trading. Some sort of share repurchases? Probably. But out-and-out buyouts? Not at that scale. Applebee’s, after all, pegged its value in a securities filing at $4.7 billion.

Yet word filtered out that private-equity firms were all but taking numbers, just like in a butcher shop, to give such prime choices a poke and a sniff.

Applebee’s said it fielded several acquisition offers, despite a financial state that left it with a 65-percent decline in profits for its first quarter.

Meanwhile, Wendy’s stock price soared because of a rumor that a private-equity suitor was about to bid $50 per share for the resurging burger brand, which would have valued it at about $4.8 billion. The key point is that investors believed, however briefly, that such a high-flying deal was feasible.

What they might have noted, and perhaps we doubters underplayed, was the big-ticket action elsewhere, and sometimes even within foodservice. Kohlberg Kravis Roberts, no stranger to the trade, teamed up with Clayton, Dubilier & Rice to stack up $7.1 billion for the restaurant-chain distributor U.S. Foodservice. That was a few weeks after KKR offered $29 billion for the financial services concern First Data Corp., and a few weeks before a consortium of private-equity firms, including many familiar to the restaurant industry, were reportedly looking to buy the Alltel Corp. phone company for $25 billion to $30 billion.

Compared with those premium targets, restaurant companies look like private equity’s Super Value Menu. Or as an executive of one firm said to me only half in jest at a recent industry meeting, “McDonald’s might be—might be —too big, but that’s about it.”

Yet, even with all that private money available, the parent of the Einstein Bros., Noah’s and Manhattan bagel chains has decided to go against the tide and issue stock on the public markets for up to $125 million.

New World Restaurant Group, currently traded on the Pink Sheets, will recast itself as the Nasdaq-listed Einstein Noah Restaurant Group Inc., the first restaurant company to go public since Burger King franchisee Carrols Holdings Corp. issued $210 million in its stock offering last year.

The key question, of course, is what it means. Even as the field watches more private-equity money chase deals, some observers warn that the wave may be cresting.

They theorize that private-equity companies will look at all the concerns needing to sell their holdings and take their profits, and wonder if the market can absorb it all at the prices needed to generate expected returns.

Or are we merely seeing a fluke, an indication that the public market will be the boutique financing option, so to speak, that private-equity once was?

We may know very soon. Which is why I have to give the TiVo another pep talk.

Read Peter Romeo daily in Nation’s Restaurant News’ blogs, www.nrnfoodserviceblog.com. He can be reached at [email protected].

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