On the Margin
Four chains that could go public

Four chains that could go public

This post is part of the On the Margin blog.

A slowdown in the IPO market this year apparently isn’t affecting the restaurant industry.

There have been 131 IPOs in the U.S. this year, according to data from the IPO research firm Renaissance Capital — down 31.4 percent from last year. Those offerings raised $22.3 billion, down 45.2 percent.

The restaurant industry typically only has a handful of offerings every year, making it risky to extrapolate trends. Yet there were four restaurant industry offerings in 2015, roughly on par with recent years.

And there are indications that more companies are lining up to take their chances at the equity markets.

Public investors have certainly put money into restaurants. The four restaurant company IPOs in 2015 — Fogo de Chao, Wingstop, Bojangles' and Shake Shack — averaged first-day increases of 58.25 percent. Remove Shake Shack, however, and that falls to 38 percent.

That’s much less than the 70-percent pops that restaurant IPOs averaged in 2013 and 2014. But it’s still much higher than the 16-percent average increase for all offerings in 2015, according to Renaissance.

The prices have pulled back in most cases, but they're still trading at strong valuations. So private-equity groups are getting higher returns from an IPO than they would selling to another investor or a strategic buyer.

That makes the public markets awfully tempting, even after a recent bout of market volatility and an unforgiving investor community that has pounded chains that disappoint, like Noodles & Co., Potbelly, Del Frisco’s and El Pollo Loco.

Who could go public? Here are four companies that could go, at least based on recent reports, as well as plenty of rumor and speculation. Some of these could go quickly. Others might have to wait until they get a few more locations under their belts. Some, of course, might not go at all:

Jimmy John’s. The fast-growing Illinois-based sandwich chain is reportedly considering an IPO. Jimmy John’s has private equity investors that are looking for an exit. And while the company’s colorful founder Jimmy John Liautaud has said in the past that he wouldn’t go public, that kind of pressure could force the issue.

Café Rio. The Salt Lake City-based burrito chain is another one that has been reported to be considering an offering. And then in March it hired Steve Vaughan to be CFO. Vaughan is an experienced, public company CFO, having had that position with Sonic Drive-Ins. That has intensified speculation that it might be getting ready for an IPO.

Arby’s. This is pure speculation on my part, but an Arby’s IPO would make sense. Arby’s has made a stunning turnaround. Sales are surging and it’s adding units and remodeling locations. While its owner, Roark Capital, tends to keep its acquisitions, it has had a recent taste of a successful public equity exit in Wingstop. Arby's had been public before, and market comebacks are common.

MOD Pizza. Rumors abound that the Bellevue, Wash.-based concept would be the first fast-casual pizza chain to have an IPO (Rave Restaurant Group was already public when it created Pie Five). It is growing quickly, with plans to be at 100 units by the end of the year. Habit Restaurants had about 100 locations when it went public. Yet MOD might not be quite ready yet.

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

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