Why no public party for franchise stocks so far?
Those of you paying attention know the stock market has been booming this year. All of the major indexes are up around 15 percent. And franchise stocks have performed even better, up 26 percent. So why aren’t other franchise companies joining in the party with IPOs?
Strong stock markets usually yield more initial public offerings as financial sponsors try to pick the best times to exit. And this year is no different. According to the Wall Street Journal, there’ve been 64 IPOs (through mid-May) and they’ve raised $16.8 billion. Financial companies, gold companies, health companies have all taken advantage. Yet no franchises have filed for an initial offering this year, and no restaurant companies.
One caveat: Some companies may well have filed and we just don’t know it yet, as new federal rules allow smaller companies to file privately until three weeks before an IPO roadshow. Still, given the state of the market, one would think more companies would jump at the chance to raise the cash.
Among restaurant chains, investors are bidding up potential growth concepts. Pizza Inn has seen its stock triple in recent years based entirely on the potential of its fast-casual concept, Pie Five.
There are plenty of reasons why companies may not go public, including cost and loss of control. And the franchise business model doesn’t generate the need for companies to raise cash unless the owners are looking to exit. So high-growth family-owned chains like Jimmy John’s, Five Guys and Culver’s can pass.
For now, many may simply be gun-shy, because last year several restaurant chains filed for offerings but then pulled out.