Two More Reheats Heading To The IPO Market

By Stephen D. Simpson, CFA | August 07, 2012 AAA

Everything old is new again, and apparently everything taken private comes back to the public market sooner or later. Following in the shoes of Burger King Worldwide (NYSE:BKW), investors will soon see shares publicly trading again for CKE Restaurants (Hardee's/Carl's Jr parent) and Bloomin' Brands (Outback Steakhouse/Carrabba's/Bonefish Grill parent). While more investing options are generally a good thing for investors, it's worth asking what is inspiring restaurant owners to head to the public markets.

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CKE's Brief Spell as a Private Company
CKE Restaurants had been public for quite a stretch (almost 30 years), before a go-private battle between two investor groups ultimately saw Apollo emerge as the victor with a nearly $700 million bid in 2010. With over 3,260 restaurants, this is the fifth-largest hamburger chain in the country.

Quite a bit smaller than McDonald's (NYSE:MCD), Burger King and Wendy's (Nasdaq:WEN), CKE has tried to differentiate its brands with unabashedly male-oriented product promotion (the Monster Thickburger) and menu options like chili dogs that are not commonly available at rival chains. CKE is also trying to roll out its Tex-Mex concept Green/Red Burrito, in many cases co-locating/co-branding with existing Carl's Jr and Hardee's stores.

CKE is looking to raise over $200 million and will trade with the symbol "CK."

SEE: IPO Basics: Introduction

Bloomin' Brands Blooms Again
The company underlying Bloomin' Brands, formerly known as OSI Restaurant Partners, has been off the public scene for a little while longer. OSI was taken private back in 2007 in a $3.2 billion deal that included the company's founders as well as Bain Capital and Catterton Partners.

Bloomin' Brands is mostly known for Outback Steakhouse, Carrabba's and Bonefish Grill, and the company owns almost 1,250 restaurants. The company is also developing emerging concepts Roy's (Asian fusion) and Fleming's Prime Steakhouse (a formal steak/wine-oriented concept).

The company is looking to raise about $300 million, and Bain will still hold a controlling interest after the IPO. The ticker symbol will be "BLMN."

SEE: How An IPO Is Valued

Is This a Sign of Oncoming Trouble?
In addition to the initial public offering (IPO) of Chuy's (Nasdaq:CHUY), we've seen Burger King go back to the public market and now these two other IPOs in relatively close succession. Cynical investors may want to ask what this spate of IPOs means about the restaurant industry.

It's hard to say that the restaurant space is on fire right now. Sonic (Nasdaq:SONC), Jack In The Box (Nasdaq:JACK) and Panera (Nasdaq:PNRA) have been strong of late, but most other stocks are well off their highs, including recent underperformers like Chipotle (NYSE:CMG), Buffalo Wild Wings (Nasdaq:BWLD), Red Robin (Nasdaq:RRGB) and even McDonald's. Instead, it is possible that the owners of these companies realize that conditions are worsening in the market and the IPO window may be about to close.

SEE: "Healthifying" The Fast Food Market

The Bottom Line
Raising money when you have to (as opposed to when you want to) is not ideal, but it's a fact of life for private equity groups. Neither CKE nor Bloomin' really seem to fit the recent successful model of focusing on value pricing, even if Bloomin' is a couple of years into a strategic shift at Outback and Carrabba's that has seen more of a focus on improving traffic through a wider spread of menu pricing options. Nevertheless, I expect these IPOs to generate a reasonable amount of attention.

All of that said, I'd approach these reheats with a little bit of caution. I think the long-term trends for restaurants are still favorable, but the recent comp store slowdowns at many of the younger and faster-growing chains has me a little concerned. Valuations are actually running relatively high in this sector and investors should do thorough due diligence to make sure they don't saddle themselves with over-priced assets going into what may prove to be an industry slowdown.

At the time of writing, Stephen D. Simpson did not own shares in any of the companies mentioned in this article.

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