A slew of restaurant chains have made their initial public offerings in the past few decades. For some, the move has paid off. But for others, the future is a little more murky. Case in point: Chipotle, which received several downgrades from Wall Street analysts in July after reports of customers falling sick from eating at one of its restaurants. The news came as the chain is in the midst of attempting to recover from other outbreaks of food-borne illness that stem from 2015.
Below, we round up the restaurant Initial Public Offerings (IPOs) of the past few decades, with an emphasis on the most recent stock exchange dining debuts and who’s rumored to go next.
Investors have a lot of faith in restaurants, as evidenced by the sheer number of chains that have gone public in the past twenty years. Still, those that have hit the market most recently are struggling to counter the efforts of chains that went public decades ago. Sixteen percent of the current restaurant market capitalization can be attributed to companies that went public in 2010 or later, and 24% of the current market cap in restaurants corresponds to companies who launched IPOs after the year 2000. By comparison, McDonald’s and Starbucks, which together account for about 57% of all restaurant market cap, went public in 1978 and 1992, respectively.
Since the year 2000, we’ve seen a slew of high-profile IPOs, from Domino’s to Dunkin’. Much of it, though, has occurred in spurts. There was a span of nearly two years (2008-2010), for instance, in which only one restaurant made its initial public offering, which can be largely attributed to the recession.
Between 2011 and 2015, though, the tables had turned, with dozens of big names (Dave & Buster’s, Potbelly’s, Bojangle’s, etc.) cropping up on stock exchanges in what some analysts dubbed “the restaurant IPO craze.”
There wasn’t a restaurant IPO last year and, so far, we haven’t seen one in 2017. IPOs in general saw a downtick in 2016, so the fact that no restaurant chains went public was hardly surprising (106 companies went public on US exchanges in 2016, down from 164 in 2015). But that doesn’t mean 2016-2017 has been a bad span for capital markets. On the contrary, we’ve seen plenty of activity on the Private Equity side, with angel investors, PE funds and seed capital making their way into restaurant chains large and small. We’ll likely see a bounce-back in the number of restaurant IPOs soon enough, with the sector continuing to grow on the back of consumer and investor demand.
The most recent restaurant IPOs occurred in 2015, as illustrated below, and offer a variety of restaurant industry segments (fast-casual, fine dining, QSR) and menu types (chicken, steakhouse, burger).
Shake Shack (NYSE: SHAK) more than doubled its IPO price in its 2015 debut though, as we’ve noted before, it and others in the Better Burger segment have been wildly overvalued in the past. Shack’s IPO debuted around the same time as better-burger rival, Habit Burger (HABT in November 2014 and SHAK in January 2015). Smash Burger was rumored to be mulling an IPO, too, but those rumors were eventually put to rest by the company itself, which said it hoped to “double its number of locations” before going public. The chains typify the fast-casual trend that has taken over the restaurant industry over the last decade, though the burger segment has shown some signs of flagging.
Fogo de Chao
The Brazilian steakhouse chain (NASDAQ: FOGO) priced its IPO at $20 on its debut, well above its expected price range. In the two years since, though, it’s struggled to regain that footing (a story seen often among many other full-service operators). As of July 2017, stocks hovered around $13.
Wingstop’s stock (NASDAQ: WING) has popped in recent weeks, particularly after the chain showed strong growth in its first-quarter 2017 earnings report.The Dallas-based wing chain saw revenues increase 20.4% to $26.6 million, as total restaurant count increased 18.1% to 1,031 between May 2016 and May 2017. The revenue figure beat estimates at $24 million. As nearly all of Wingstop’s restaurants are franchised, the chain is less affected by same-store sales growth as some of its peers.
Upon its 2015 debut, North Carolina based fried chicken chain Bojangle’s (NASDAQ: BOJA) saw shares begin trading at $26.55, a hefty increase over its initial plan to offer shares between $15 and $17.
Bobby’s Burger Palace
In July, celebrity chef Bobby Flay announced he would take his fast-casual burger chain public in a mini-IPO. Bobby’s Burger Palace is expected to launch a Regulation A+ initial public offering, through which it seeks to raise some $15 million. The chain’s 17 locations compete with the likes of Shake Shack and Five Guys, though investors hope Flay’s star power will be enough to differentiate it from the pack. The company will be listed as “FLAY” at the New York Stock Exchange.
Chuck E. Cheese’s
The place “where a can be a kid” had encountered a few rough patches in recent years. In 2014, Chuck E. Cheese’s was acquired by Apollo Global Management, an alternative investment manager, in a PE deal worth $1.3 billion. Apollo’s turnaround plan — which included more sophisticated menu offerings and free Wi-Fi — made a mark, with revenues rising 11% to between 2014 and 2015. Revenue growth began to slump in 2016 and, in January 2017, reports indicated that Apollo had begun preparations for an IPO. The offering is expected to value the US restaurant chain at more than $1 billion, including debt.
In August 2017, FAT Brands — whose portfolio of brands includes Fatburger, Buffalo’s Cafe, Buffalo’s Express and other acquisitions under contract — announced its intention to file a Regulation A+ IPO. In a press release, the company said it seeks to raise up to $20 million in its IPO. FAT Brands franchises more than 200 restaurants across six states and 18 countries worldwide. It plans to list on a National Securities Exchange as “FAT.” TriPoint Global Equities will act as the lead managing selling agent for the offering.
Some of the best performers since their initial public offerings (IPOs) were Popeye’s, Domino’s, and Chipotle. Back in February, shares of Popeye’s spiked some 19% upon news that Burger King and Tim Horton’s owner Restaurant Brands International would acquire the company in a deal valued at $1.8 billion.
On the other end of the spectrum, Noodles & Co. and Potbelly haven’t lived up to expectations, with EV/EBITDA ratios falling for both. In terms of market capitalization, Buffalo Wild Wings saw an increase of 976% due to a huge hike in share prices (the stock price multiplied by roughly 12x between the chain’s 2003 IPO and 2016).
Of the four restaurant chains to go public in 2015, WING is the only to see a positive stock performance since its IPO, despite being well below the S&P 500. FOGO had the worst performance of the four, with a stock price decline of 48% since its IPO in 2015. SHAK had the highest volatility, at about four times the market benchmark (S&P 500) and almost twice as high as WING, which had the lowest variability of the four. Still, all of the restaurants to go public in 2015 had a higher variability than the market benchmark.
The restaurant and foodservice industry touts plenty of opportunity. The challenge for private equity firms looking to invest in a chain or restaurant company is, often, a lack of knowledge about the industry itself — an understanding of the trends and factors impacting restaurant chains around the world and what will shape them throughout the holding period.
Having consulted with a number of PE firms in the past, we offer a solid understanding of all of the above, and are adept at communicating with industry targets, speaking their lingo, and understanding both back-of-house and front-of-house operational implications on the financial performance of the business.
For those looking for help protecting, enhancing, and unlocking value throughout every phase of the investment lifecycle, we offer several service geared toward Private Equity firms, including: Deal Origination, Commercial Due Diligence and Operational Due Diligence, Operational Support and Value Creation Throughout the Holding Period, and Maximizing Value at Exit.
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Aaron Allen & Associates is a leading global restaurant industry consultancy specializing in growth strategy, marketing, branding, and commercial due diligence for emerging restaurant chains and prestigious private equity firms. We work alongside senior executives of some of the world’s most successful foodservice and hospitality companies to visualize, plan and implement innovative ideas for leapfrogging the competition. Collectively, our clients post more than $100 billion, span all 6 inhabited continents and 100+ countries, with locations totaling tens of thousands.