A person exits a cava restaurant chain location in Pasadena, California on February 6, 2023.
Mario Tama | Getty Images News | Getty Images
As Cava makes its public debut on Thursday, other restaurant companies will be watching closely as they decide whether to follow in the Mediterranean restaurant chain’s footsteps.
The past 18 months have been the slowest IPO market since the financial crisis. Few US companies have gone public, wary of a volatile market rocked by the war in Ukraine, inflation, rising interest rates and fears of a recession.
Of the 44 IPOs that have priced shares this year, only 20 involved US-based companies. This is according to data from Renaissance Capital, which tracks IPOs and the performance of newly listed company stocks.
Cava’s IPO could help ease that drought, as a handful of restaurants are watching how the chain fares while considering whether to enter the public market themselves. The surge in cava shares by more than 100% from Thursday’s peak could bode well for other restaurants.
“A successful IPO for Cava should open the door to more restaurant IPOs,” said Matt Kennedy, senior strategist at Renaissance Capital. “It will show that investors are interested in this space and companies can get some valuation in the public markets.”
On Wednesday night, Cava priced its IPO at $22 per share, valuing the company at $2.5 billion. The company initially attempted to price its common stock offering at $17-$19 per share, which would have given it a valuation of $2.12 billion, before increasing the range to $19-$20 per share .
The company trades on the New York Stock Exchange under the ticker symbol CAVA.
The company’s decision to raise its price range and the stock’s subsequent surge in early trading could bode well for other restaurants considering an IPO.
This bodes well for the restaurant businesses that are in the starting blocks public. Brazilian steakhouse Fogo de Chão and Korean grill chain Gen Restaurant Group have both filed the regulatory filings in confidence, while both Panera Bread and Fat brands Twin Peaks has announced its intention to conduct an IPO in the near future.
“No one wants to be the first to go public, so I think we tend to have companies in the same sector going public in batches,” Kennedy said.
But the IPO window can close much faster than it opens, according to Kennedy. Sudden volatility in the market can scare away investors and private companies trying to lure them.
Even if the window remains open for future restaurant IPOs, these companies may not see the same investor interest as Cava, which posted 28% same-store sales growth in the first quarter. Though still unprofitable, the Mediterranean chain is trimming losses and appears closer to reporting a higher net profit than competitor Sweetgreen, which went public in November 2021.
“[Cava] “Rightfully so, it came before most because it’s a quality name,” said Kevin McCarthy, managing director of Neuberger Berman.
Comments are closed.