Dunkin’ Brands Group Inc., the operator of Dunkin’ Donuts coffee shops, surged during the first day of trading after its $422.8 million initial public offering.
The shares rose $8.85, or 47 percent, to $27.85 at 4 p.m. New York time in Nasdaq Stock Market composite trading, after earlier gaining as much as 56 percent.
The doughnut seller, with 6,800 U.S. locations, enticed investors with plans to more than double its U.S. store count in 20 years after outpacing McDonald’s Corp. (MCD)’s revenue growth last year. Recently, the Canton, Massachusetts-based chain has sought to draw customers in the afternoon with snack foods including pepperoni-stuffed breadsticks.
“We have room to move across the whole country,” Chief Executive Officer Nigel Travis said in a telephone interview today. “We have, in the West, a number of customers who try our brand -- they like the taste of our coffee, they like our speed.”
The stock was priced higher than the top end of the marketed range, with 22.3 million shares selling at $19 each yesterday after being offered for $16 to $18, Dunkin’ said in a statement.
“Investors are just excited about a new, hot IPO that they think has room to grow its unit count,” Peter Saleh, an analyst at Telsey Advisory Group in New York, said today in an interview. “There are probably a lot of people who are investing in this name for the long-term growth and the free cash it generates.”
Dunkin’ planned to use proceeds from the IPO to repay debt accumulated under the ownership of private-equity firms Bain Capital LLC, Carlyle Group and Thomas H. Lee Partners LP, according to its regulatory filing. The firms paid about $2.43 billion for the company in a 2006 leveraged buyout.
In a letter to investors at the end of March, Carlyle marked its investment at 1.55 times what it bought the stake for, putting the enterprise value of the company at $3.5 billion, including $1.8 billion in long-term debt. All three firms planned to sell shares in the IPO, each cutting their stake to 26 percent from about 32 percent, according to the prospectus.
The biggest U.S. IPOs this year have been brought by private-equity firms. HCA Holdings Inc., the hospital chain partly owned by KKR & Co. and Bain, raised $4.4 billion in March in the biggest-ever private equity-backed IPO, according to London-based Preqin Ltd. Kinder Morgan Inc., the energy-pipeline company whose owners include Carlyle, raised $3.3 billion in its February IPO.
ADS Tactical Inc. and Union Agriculture Group Corp. shelved their IPOs today as uncertainty over a government plan to raise the U.S. debt limit has sent the Standard & Poor’s 500 Index down for three straight days. The companies were among 12 aiming to tap the U.S. IPO market this week, Bloomberg data showed.
At the IPO price, Dunkin’s market capitalization is about $2.4 billion. Completion of the IPO would leave the company with about $1.48 billion of long-term net debt and $56.6 million of cash, according to the IPO prospectus, giving it an enterprise value of about $3.82 billion. That’s about 57 percent higher than the private-equity firms paid when they bought Dunkin’ from Pernod Ricard SA.
The $2.4 billion market cap values Dunkin’ at about 4.1 times trailing 12-month sales, compared with 2.7 times for Starbucks Corp. (SBUX) based on its closing share price yesterday.
In the U.S., where most of its stores are in New England and New York, Dunkin’ plans to open as many as 250 new locations per year in 2011 and 2012, with a goal of 15,000. The chain has about 9,800 global locations. Dunkin’ also franchises about 6,500 Baskin-Robbins ice cream shops globally, its filing showed.
The company was founded when Bill Rosenberg opened his first restaurant in the 1940s, which was later renamed Dunkin’ Donuts. Revenue at Dunkin’ last year jumped 7.3 percent, compared with 5.8 percent at McDonald’s, the world’s biggest restaurant chain, which serves the McCafe line of coffees.
JPMorgan Chase & Co. (JPM), Barclays Plc (BARC), Morgan Stanley (MS), Bank of America Corp. (BAC) and Goldman Sachs Group Inc. (GS) led the Dunkin’ offering. Underwriters have an option to buy an additional 3.3 million shares within 30 days.
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