Burger chain Habit Restaurants Inc. (HABT) has reportedly priced its initial public offering (“IPO”) of 5 million shares of its Class A common stock at $18.00 per share, higher than the expected range of $14.00 to $16.00 per share. valuing the company at about $454.5 million. With the current offering price, the company has been able to raise $90 million, per media reports. The company intends to use the proceeds to pay off its debt totalling $13.6 million as of Sep 30.
Like all other IPOs, only a part of the company’s stock will be made available to the public. This food chain has also granted underwriters a 30-day option to purchase up to an additional 750,000 shares of its Class A common stock at the initial public offering price, less the underwriting discount, to cover over-allotments, if any. The shares are expected to begin trading on Nov 20, 2014 at the NASDAQ Global Market under the ticker symbol “HABT”. Subject to customary closing conditions, the public offering is expected to close on Nov 25, 2014.
Habit, which is effectively controlled by private equity firm KarpReilly, has posted sales growth of more than 40% over the past three years and reported $120.4 million in sales in 2013. The chain operates 98 units across 10 markets in four states, up from 26 units in 2009. The company is expected to generate revenues mainly from its company-owned restaurants. However, it also launched a franchising program in 2013.
An IPO allows fast growing private companies to raise the capital they need to accelerate growth and achieve market leadership. In fact, it has become a trend in the current competitive industry. With this IPO, Habit that offers charburgers, sandwiches and milk shakes will join other food chains like Zoe’s Kitchen, Inc. (ZOES – Snapshot Report) and El Pollo Loco Holdings, Inc. (LOCO – Snapshot Report) that began trading earlier this year. Another fast-food restaurant chain Shake Shack is also reportedly set to jump the bandwagon.
Fast-casual burger chains that specialize in making their food using fresh ingredients have witnessed increasing popularity in the recent years compared to traditional fast-food burger chains. However, rising food costs are a major concern for the restaurant industry (especially beef costs), which are dampening profits. With beef being one of the ingredients for Habit Restaurants, we believe that the company should focus on offering better quality burgers in order to maintain traffic. This could help it to offset the impact of rising food costs to some extent. Some other companies that are expected to bear the brunt of rising beef costs are Bloomin’ Brands, Inc. (BLMN – Snapshot Report) and Ruth’s Hospitality Group Inc. (RUTH – Snapshot Report).
