To gauge what 2015 may bring, I’d like to explore the surge in IPOs, acquisitions and private-equity investments in restaurants. A closer look at the chains making financial news shows us where investors think industry growth will occur.
At least in the short run, those who bought into restaurants’ initial public offerings in 2014 have bet well; stock prices have risen sharply, far beyond the usual pattern for new offerings. Zoës Kitchen has seen its stock double since its April IPO; shares sold for $15 then and are above $30 now. El Pollo Loco priced its July IPO at $15 a share; the stock is now trading around $24. Dave & Buster’s first sold its stock in October for $16 a share; it’s now at $30. The Habit Burger Grill priced its November IPO at $18 a share; currently, shares are above $30. Papa Murphy’s Pizza is up a less spectacular (but still way above market average) 9% from its May IPO, when the stock sold for $11 per share.
With the success of these newly public LSRs, it’s no wonder that potential investors are hungrily eyeing the impending 2015 IPOs of two more contenders in the “better burger” sector: Smashburger and Shake Shack. Following on the wings of El Pollo Loco are other chicken brands planning IPOs: Wingstop and Bojangles’ Chicken & Biscuits. Burrito specialist Café Rio also may make its stock-market debut. Additionally, casual-dining concept J. Alexander’s has filed for an initial offering.
Public stock offerings aren’t the only story here. Votes of confidence in specific chains have also come from the ultimate financial insiders: private-equity investors. Carlson sold TGI Fridays to Sentinel Capital Partners and TriArtisan Capital Partners; Darden Restaurants sold Red Lobster to Golden Gate Capital; Einstein Noah Restaurant Group was sold to Germany-based JAB Holding. Apollo Global Management acquired Chuck E. Cheese’s parent CEC Holdings, then added Peter Piper Pizza to its portfolio. Lee Equity Partners, majority owner of Papa Murphy’s, invested in Carlsbad, CA-based Project Pie, a player in the rapidly growing fast-casual pizza market. The biggest deal of the year, Burger King’s $11.5 billion acquisition of Tim Hortons, was enabled by $6.75 billion in loan financing from Burger King majority shareholder 3G Capital plus $3 billion in preferred equity financing from Berkshire Hathaway.
AS I SEE IT, the reason for so many recent and upcoming IPOs and private-equity deals is simple: investors see real money to be made in the restaurant industry in coming years. They think they know which sectors, menu clusters and chains are likely to grow. Money is talking loud and clear, and we in the industry should be listening closely.
Note: This content originally appeared in the January 2015 issue of Technomic’s Foodservice Digest newsletter.