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Vol. X,  Issue 34

Come and Get It:

Food-Related IPOs Aim to Satisfy Investors' Appetites

8/20/12 – In an otherwise turbulent year for new issues, a surprisingly steady segment of the IPO market has been restaurants and other food-related industries. The recent offering by Bloomin’ Brands, owner of Outback Steakhouse and Carraba’s Italian Grill, brings the 2012 IPO total for retail eating places (SIC 5812) to four. That compares to just one in 2011 and 2008, two in 2010, and none in 2009. If CKE, the parent company of the Hardee’s and Carl’s Jr. fast-food chains, completes its planned offering in 2012, it will be the busiest year for SIC 5812 deals since 1998.

2012 has seen an IPO by Annie’s, a natural and organic food producer, and two new issues by grocery stores (Roundy’s Parent Company in February and Natural Grocers by Vitamin Cottage in late July). Food-related companies generally have been well received by investors. Annie’s has more than doubled its share value since its March 27^th debut. The four restaurant companies have not matched Annie’s aftermarket performance, but as a group they have posted a respectable 14% gain through August 17^th. Roundy’s Parent is off 10% while Natural Grocers is up 23.8%, resulting in a net gain of 11.6% for the two SIC 5411 companies.

Investors interested in food industries also are considering recent registrant WhiteWave Foods. The Dallas-based company is a subsidiary of Dean Foods, which will maintain voting control of WhiteWave following the IPO. WhiteWave makes Horizon Organic milk and dairy products, as well as Silk brand soy milk. The company also makes International Delights and LAND O LAKES coffee creamers. The August 7^th registrant is expected to make its public market debut in the fourth quarter.

Other SIC Codes – Despite the steady diet of retail eatery IPOs, the restaurant industry finds itself tied for sixth in a ranking of the busiest SIC Codes of 2012. The ranks are dominated by the industries that perennially produce the most IPOs, such as Prepackaged Software (SIC 7372) and Pharmaceutical Preparations (SIC 2834). There have been more software industry deals this year than in any other segment, accounting for 12.1% of the market. The 12 IPOs are already three more prepackaged software new issues than seen in all of 2011. 

Pharmaceutical preparations deals led the market in 2010 with 12 (a 7.1% market share), but fell to fourth last year with eight IPOs. The industry has recorded eight new issues already this year, placing it second in the year-to-date ranking. In two of the past five years (including 2012), Blank Checks (SIC 6770) have claimed the top spot. Sixteen blank checks companies went public in the U.S. last year, and 17 went public in 2008, tallies good enough to secure number one ranking in those years. The industry accounted for one-third of all U.S. IPOs in 2008, but only five blank checks companies have completed IPOs so far in 2012, placing the industry in a tie for third with SICs 1311 (Crude Petroleum & Natural Gas) and 6798 (Real Estate Investment Trusts).

Last year the oil and gas sector finished second with 13 IPOs. In addition to the five SIC 1311 deals already completed in 2012, six more oil and gas companies have registered this year, so the industry’s total is likely to climb in the second half. In 2009, REITs dominated the IPO market, and that industry has remained in the top five for IPO performance ever since. REITs nearly claimed the top spot in the rankings two years in a row, but the 11 IPOs in 2010 were one short of the leading industry, Pharmaceutical Preparations.

No industry sector has made it into the top five in all of the years from 2007 to present. Prepackaged Software, REITs and Pharmaceutical Preparations made the rankings in four of the five years. 

Top Five IPO SIC Codes

2008—Present

(*Through August 17, 2012)

IPO Vital Signs Subscribers see,

#324. SIC Codes

Banks Behind the Industries – It is common for investment banks to handle multiple deals within the same industry, but so far that has not been the case for the restaurant industry in 2012. There have been four different first lead managers for the four SIC 5812 IPOs this year. Taking into consideration the other food-related IPOs, Credit Suisse emerges as the lead manager of choice so far in 2012. The underwriter has led three food industry IPOs—Ignite Restaurant Group, Annie’s and Roundy’s Parent. The other food retailers have enlisted BofA Merrill Lynch (Bloomin’ Brands), Jefferies (Chuy’s Holdings) and Deutsche Bank (Del Frisco’s Restaurant Group). Morgan Stanley has been selected as first lead manager of IPO-hopeful CKE’s pending deal.

While some investment banks specialize in certain industries, most of them work on high-tech offerings. Since computer software and services deals are leading the IPO rankings so far, the industry is responsible for much of the business of the busiest IPO underwriters. Morgan Stanley has worked on eight computer software/services deals this year, and Deutsche Bank has worked on seven. Citi, JPMorgan and Goldman Sachs have also been busy with SIC 7372 IPOs, each leading five IPOs in that segment through mid-August.

The success of energy IPOs last year was good for Wells Fargo Van Kasper, which worked on 10 deals in that sector in 2011. That represents the strongest industry-lead manager link in the IPO market in the past five years. Energy deals were also a significant part of the 2011 IPO business of Raymond James (eight deals), Citi (seven deals) and Morgan Stanley (seven deals). Morgan Stanley also benefitted from the strength of the real estate industry, with six IPOs in that industry in 2010 and three in 2009.

The strongest link between an industry and an investment bank in 2012 is Morgan Stanley’s connection to the computer software segment (eight IPOs). Morgan Stanley also led the most IPOs in one industry in 2010 with eight offerings in the Semiconductor and Electronic Components sector. 

Top Lead Managers by Industry Sector

2008—Present

(*Through August 17, 2012)

IPO Vital Signs Subscribers see,

#106. IPO Lead Managers

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