By Corrie Driebusch
Thanks to hearty investor appetite, Shake Shack Inc.'s initial
public offering priced well above expectations, netting the burger
chain a valuation of $745.5 million.
The restaurant chain, which calls itself a "modern day
'roadside' burger stand", priced its initial public offering at $21
apiece late Thursday.
The deal raised $105 million by selling 5 million shares of the
chain, which catapulted onto the dining scene 14 years ago as a hot
dog cart in a Manhattan park. That total doesn't count a so-called
overallotment option, which gives underwriters the opportunity to
sell additional shares under certain circumstances.
There was strong demand for shares of Shake Shack, according to
money managers. Reflecting that demand, the company earlier this
week increased its price range on to $17 to $19 a share earlier
from its original range of $14 to $16 per share.
Investors and analysts said the appeal of Shake Shack's shares
lie mainly in the chain's growth prospects. Shares of so-called
fast-casual restaurants have been gobbled up by investors in recent
IPOs, in part on a bet that consumers will be spending more money
eating out as falling gas prices leaves more money in consumers'
pockets after filling up their car's gas tanks.
Among the most recent fast-casual restaurants to go public,
burger chain Habit Restaurants Inc., priced above expectations at
$18 per share and then soared 120% in its first day of trading.
Habit's shares have fallen back, but remains 83% from its IPO
price.
Shake Shack officially opened in 2004 and now operates 63
restaurants, with 31 company-operated restaurants--including seven
in Manhattan--and five domestic licensed Shake Shacks in the U.S.
The rest are internationally licensed, including 20 in the Middle
East, according to its prospectus.
Though its current footprint is fairly small, its growth plans
are big.
It plans to open at least 10 new domestic company-operated
restaurants each year, beginning in fiscal 2015, for the
foreseeable future, and expects to grow to at least 450 domestic
Shake Shacks.
Troy Huff, a senior research analyst who covers consumer sectors
for Nuveen Asset Management's small cap core and growth teams, said
he was seriously considering the Shake Shack IPO, even though he
acknowledged the growth pl`wans can be viewed as lofty, since every
Shake Shack is unique in its design and requires prime real
estate.
Investors, though "understand this is a very young company," Mr.
Huff said.
Instead, the focus of many fund managers is on the average sales
per Shake Shack, the margin profiles the different locations, and
the development pipeline.
Shake Shack is set to start trading on the New York Stock
Exchange on Friday under the symbol "SHAK". The deal is being led
by J.P. Morgan and Morgan Stanley.
Write to Corrie Driebusch at corrie.driebusch@wsj.com
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