As restaurant shares soar, IPOs become an option again
On Tuesday, Krispy Kreme announced that she had filed private documents with federal regulators to make them public. It was a bit of a surprise, but maybe it shouldn’t have been. Two other chains, Dutch Bros Coffee and Torchy’s Tacos, are believed to be considering an initial public offering.
There’s bound to be more, and for good reason: Reviews are booming again.
Median restaurant stock is up 24.5% so far in 2020, according to a Catering company analysis of data from the Sentieo financial information site. By comparison, the S&P 500 Index is up 13% this year. Since the end of 2019, the median stock of restaurants has increased by nearly 39%.
There are many reasons for such a performance – namely, that restaurant sales are booming, with some expectation that demand may stay for some time. Additionally, publicly traded restaurants have improved their cost control, reduced menu items, and found other efficiencies, all of which contribute to their profitability. And they all suddenly understood the technology.
Nothing attracts companies to the public markets as much as strong stock market performance, especially among industry peers.
Private equity firms and other investors looking for an exit want to get the most out of their investment, while overcoming potential objections from management who usually don’t like being public. When the stock prices of other restaurants take off, the stock markets seem like a better bet for these investors to get the highest possible valuation at that exit.
And, when stock prices start to soar, as they are now, institutional investors who bid on these IPOs begin to look more favorably on the prospect of having other companies to invest in. This opens up the market to more companies. Restaurants are hot right now, so it’s only natural that restaurant IPOs are alluring.
It should be noted that we are talking about the traditional IPO market. There are at least a half-dozen blank check companies with publicly raised cash, potentially considering restaurant chains to go public through the backdoor. These Special Purpose Acquisition Companies, or SPACs, would like one of the aforementioned chains to consider an IPO, and that is always possible with the right deal.
But overall, corporate sponsors looking to tap the stock markets tend to prefer the attention that comes with a traditional IPO – not to mention the possibility of a higher valuation that can come from a offer well done.
Krispy Kreme is an interesting candidate. It’s a household name, and its numbers have been surprisingly high – its sales of US systems increased 4.5% last year, and global sales increased nearly 60% since 2015, the year before the privatization of the investment company JAB Holding. This is particularly impressive given a 12% drop in international sales last year due to the pandemic, according to data from Catering company sister company Technomic.
This is the type of result that could generate a return on JAB’s initial $ 1.65 billion investment.
It should also be noted, however, that this is the second IPO of a company owned by JAB. Last year, JAB opened JDE Peet’s in Europe, after merging its US Peet business with European group Jacobs Douwe Egberts.
Two IPOs in two years would suggest other companies owned by JAB could also be potential candidates for a new IPO, at least once the numbers look good enough to satisfy investors. JAB had been a machine of acquisitions for the past decade, buying just about every chain that even thought about breakfast, including Panera Bread, Caribou Coffee, Einstein Bros Bagels, and Bruegger’s.
He had been viewed as a long and conservative investor, but it appears that JAB could opportunistically go public with some of its holdings.
Either way, the market is there for them, at least for now.