Shake Shack Inc. priced shares Tuesday for its upcoming initial public offering at $14 to $16, an amount that would give the New York City-based burger chain a valuation of more than $500 million before trading even begins.
If the company’s stock trades at the top of that range, Shake Shack would raise $80 million in its IPO and have a valuation of $568 million, based on the company’s SEC documents.
Shake Shack’s IPO price could go even higher than that, given the amount of attention being paid to the offering, as well as the chain’s New York home and its predicted unit volumes of $2.8 million to $3.2 million, which is high for a fast-casual chain.
Growth concepts such as Shake Shack have received strong valuations in their initial public offerings in the past few years. Restaurant IPOs have averaged first-day increases of nearly 70 percent the past two years. Excluding the two weakest performers during that time, the average increase was 93 percent. Three growth chains, Noodles & Company, Potbelly Corp. and The Habit Restaurants Inc., have seen their stock prices more than double on their offerings.
Shake Shack appears well on its way toward a valuation north of $1 billion. If its price initially trades at the peak of its offering range and then doubles on its first day, the burger chain — which had just seven locations as recently as 2010 — would have a valuation of more than $1 billion.
Shake Shack has grown since then due to the increasing popularity of better-burger concepts and the chain’s outsized reputation. Restaurateur Danny Meyer’s Union Square Hospitality Group LLC started the concept as a hot dog cart in New York City’s Madison Square Park in 2001. The first location opened in 2004.
The company has since grown to 63 units, 36 of which are in the U.S. and 27 international, with systemwide sales of $140 million in 2013. The company has average unit volumes of $5 million, including $7.4 million in Manhattan, but expects those to ease to $2.8 million to $3.2 million over time.
The company reported $83.8 million in revenue in the first three quarters of 2014, according to SEC documents, a 41-percent increase over the same period a year ago.
Shake Shack will trade on the New York Stock Exchange under the symbol SHAK. After the IPO, the company will be separate from the privately held Union Square Hospitality Group.
In addition to Union Square Hospitality Group, Shake Shack’s sponsors include the private-equity firm Leonard Green & Partners and the hedge fund Select Equity Group.
J.P. Morgan Securities LLC and Morgan Stanley & Co. LLC are acting as joint lead book-running managers for the offering. Barclays Capital Inc., Goldman Sachs & Co., and Jefferies LLC are also acting as book-running managers, while William Blair & Company LLC and Stifel are co-managers.
Contact Jonathan Maze at [email protected].
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