This post is part of the Reporter’s Notebook blog.
Wall Street apparently didn’t think much of J. Alexander’s IPO plans.
The Nashville-based upscale casual dining chain filed documents to go public last fall and then … nothing. Even as other chains like The Habit Restaurants and Shake Shack Inc. and Wingstop, Bojangles’ and Fogo de Chão all had successful IPOs, J. Alexander’s couldn’t get off the ground.
Last week, the company officially pulled the plug on its IPO. The reason? Investors weren’t offering terms favorable enough for the chain to take that route.
“The company has determined not to pursue the initial public offering because terms currently obtainable in the public marketplace are not sufficiently attractive to the company,” J. Alexander’s CFO, Mark Parkey, wrote in an SEC document filed Thursday.
Instead, J. Alexander’s owner, Fidelity National Financial, will spin the company off with its shareholders. J. Alexander’s filed the notice for the spinoff last week, too, but Fidelity executives have mentioned the spinoff plan for some time.
The inability for J. Alexander’s to get favorable enough terms for an IPO is a sign that, as hot as the market for restaurants is on Wall Street, it’s not hot for everybody.
Restaurant chains have been getting outsized valuations in IPOs in the past couple of years. Restaurants that go public have had average first-day pops of 64 percent the past two years.
Investors have greeted fast-casual chains with more open arms than they have casual dining concepts. But they were thrilled to see Fogo go public earlier this month, and chains like Chuy’s have proven that investors are good with high-performing casual dining concepts.
In some respects, J. Alexander’s would seem to have the right formula to attract at least some interest from investors. It’s had 21 straight quarters of positive same-store sales. Estimated unit volumes are near $5.5 million, according to Nation’s Restaurant News data. Restaurant level margins improved to 13.9 percent last year from 11.4 percent.
Yet J. Alexander’s has been down this road before. Fidelity took the company private in 2012 —after investors pushed the J. Alexander’s board to raise the price.
Investors are less excited about companies that make their second appearance on the public markets than they are about new, emerging chains.
And J. Alexander’s isn’t growing. The company has 29 locations. It also operates 10 Stoney River Steakhouse locations, which were given to J. Alexander’s after Fidelity acquired them along with O’Charley’s back in 2012.
In addition, the number of J. Alexander’s locations is apparently about to shrink: According to SEC documents, J. Alexander’s plans to transform as many as 15 of those 29 locations into a new concept, called Redlands Grill — a concept with farm-to-table ingredients and a seasonal menu.
The transition, according to SEC documents, will happen by the end of the year.