Black Rock Coffee Bar went public in September and raised nearly $300 million. Its price soared immediately, though it has come back down to earth since then.
Does that mean the IPO market is back? Not necessarily. First off, the federal government shutdown has put a halt to any offering, at least for now. In addition, the restaurant industry is facing some existential questions, about the state of the consumer, demand for fast-food restaurants and other assorted economic challenges.
In other words: The market is only so open. “It’s thawing,” Damon Chandik, who leads restaurant investment banking at Piper Sandler, said at the Restaurant Finance and Development Conference this week. “It’s not thawed.”
The restaurant IPO market has long been something of a puzzle. Restaurant companies often go public in large bursts interspersed by long droughts with few or zero IPOs. A lot of companies lined up to go public in 2021, and a few went, in Krispy Kreme, First Watch, Portillo’s, Sweetgreen and Dutch Bros.
But several companies hoping to go public were locked out when the stock market plunged after the Federal Reserve started raising interest rates later that year over inflation and valuations for restaurant companies changed. Two companies went public in 2023, in Cava and Gen Korean BBQ, and then one this year in Black Rock.
Several other restaurant companies are believed to be hoping for a public offering, with some having privately filed. “One every other year is not a great way to make a living,” John Tibe, managing director with Jefferies, said at the conference. “So I think we’d like to see more.”
Restaurants certainly have their challenges. Sales have been weak this year, and traffic has been in decline for more than two years. Investors have also punished many recent IPOs. Krispy Kreme, Portillo’s and Sweetgreen are all trading well below their offering prices.
All that can discourage new IPOs because sponsors are looking for strong valuations when they take companies public.
Companies hoping to go public are expected to be of a certain caliber. Public investors heavily scrutinize any company that goes public and often pick apart any perceived faults. Aaron Weisbrod, head of restaurant investments at J.P. Morgan Investment Banking, suggested that the market for restaurant offerings isn’t closed, just picky.
“I don’t know if the market ever really went away for restaurant IPOs,” Weisbrod said at the conference. “I think the standards that have to be met to have a successful IPO are hard, and there is a high point.”
Companies, he added, are expected to have some consistency of performance, some potential for growth and be in a market with growing consumer demand. “It’s an incredibly high bar,” Weisbrod said.
The Black Rock IPO proves that good companies that meet those high bars can go public in any market. Black Rock is a beverage concept. Drive-thru beverage concepts in particular are growing rapidly. Dutch Bros, the drive-thru drink chain, was easily the most successful of 2021. There remains plenty of investor demand for beverages.
“The one thing I always say is, if you’ve got a great business model that is working, you can go public anywhere,” Chandik said.
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