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Why the restaurant IPO market is poised to heat up again

Market volatility has had a chilling effect on offerings this year. But things are starting to settle down, and at least seven chains are waiting to pounce, said Damon Chandik of Piper Sandler.
Fogo de Chao exterior
Fogo de Chao is among the restaurant chains planning an IPO. / Photograph courtesy of Fogo de Chao

2021 was a big year for restaurant IPOs. Five companies—Krispy Kreme, Dutch Bros, Portillo’s, First Watch and Sweetgreen—went public last year, and several more, including Panera Brands and MOD Pizza, were reportedly planning to do so.

2022 has been a different story. Restaurant IPO activity has gone silent amid a turbulent stock market. But there are other underlying trends that should help create a more favorable environment for IPOs once things settle down, said Damon Chandik, head of restaurant investment banking for Piper Sandler, during the Restaurant Leadership Conference on Tuesday.

“The one thing that IPOs need is a stable environment,” he said. And U.S. financial markets have not been very stable lately. Inflation, rising interest rates and geopolitical tensions resulted in a “fairly broad market reset” in the fourth quarter of 2021, Chandik said, with markets down 10% to 15% overall. 

Wild market swings make it difficult for companies to set an IPO price, which is determined relative to other stocks’ prices. “That’s really hard to do when you have 5% to 7% swings intraday,” Chandik said. 

Restaurant companies planning to go public are likely waiting out the choppiness before diving in. The Chicago Board Options Exchange’s Volatility Index, or VIX, which measures expected market volatility, was as high as 36 in early March. It has since come down to close to 20, which Chandik said is his firm’s target for launching an IPO.

“We’re clearly starting to see that environment turn more favorable,” he said. “We’re currently seeing the volatility move down.” Piper Sandler is working with seven restaurant companies in various stages of IPO registration, he said.

Another thing playing into restaurants’ favor is that several public restaurant companies have been taken private in recent years, increasing demand for industry stocks. Del Taco, Habit Burger, Del Frisco’s and Zoes Kitchen have all exited the market via acquisitions.

And, Chandik said, consumer demand remains strong as well, despite ongoing menu price increases.

The restaurants that went public last year also helped clear a path for others once the market rights itself, he said. 

First Watch had initially planned to file for its IPO in March 2020 before pulling back due to the pandemic. There is an art to getting the timing right, said CEO Chris Tomasso during the same panel. When it’s quiet, “You’re not sure if the market’s ready for you,” he said. 

On the other hand, a quiet market can also be an opportunity.

“We were watching the lack of restaurants going public,” said Dutch Bros CEO Joth Ricci of his chain’s decision to pursue an IPO. That, combined with the company’s strong performance and other factors, encouraged the chain to make its move in August.

All five companies that went public last year had successful initial offerings, but their stocks have stumbled since. As of Thursday, they were all trading well below their 52-week highs. But that’s more a reflection of the market itself than the companies’ actual performance.

“Really strong companies have set the precedent,” Chandik said. “We just need the market.”

Other companies said to have interest in a public offering are Fogo de Chao, Torchy’s Tacos, California Pizza Kitchen, P.F. Chang’s and Cooper’s Hawk.

The Restaurant Leadership Conference is presented by Winsight Media, the parent company of Restaurant Business. Click here for more takeaways from the annual event.

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