In a Sale vs. IPO case, an IPO is a win for Café Rio

By : Rob Cartwright

Investors just love restaurant IPOs. A rumor of one is usually enough to whet their appetites. And if you don’t know why all you have to do is take a look at past IPOs from the industry. About four years ago, four food-related firms put their feet in the public arena. The companies, which for some reason mostly traded on the New York Stock Exchange, made lasting impressions’ on investors’ minds. Why? Because by the end of the first day of trading, all four company stocks averaged an estimated 60% rise in share price. That is way higher than the best-share-price-raises-on-day-one for tech companies, which stands somewhere near 40%.

Food industry IPO are not uncommon. Just the other day fresh food company Dole industry announced that it would be going public soon. However, for restaurant chains, an IPO is rare. Notice how all the restaurant stocks mentioned up there took place years ago?

Recently, rumors started circulating again that KarpReilly LLC-owned Café Rio was looking into an IPO. The report was published by the investment analytics firm Seeking Alpha. According to the analysts, Café Rio is considering two options to fund its expansion in the food market. One option is that KarpReilly sells the company. The other is that the food industry magnate takes its restaurant chain public.

You may know café Rio from cafes that the chain runs in the US alone. The Salt Lake City-based firm runs more than 100 fast casual restaurants in mainland USA and is renowned for its world-class burritos. KarpReilly wants the Café Rio brand to expand. For that, it needs cash. Cash that could come from a sale or an IPO. So what makes an IPO the better bet?

The first thing that makes an IPO so much better for the Mexican-based parent company is that the market is receptive to restaurant firm IPOs. If there is anything investors have learned from the past, it’s that you can’t go wrong with such a business. So long as people eat, you’ll never be out of business. Additionally, the 2015 debut of another division of KarpReilly, Habit Burgers, was successful and investors might consider this performance a benchmark for Café Rio’s shares’ performance.

At the moment Café Rio also has a strong valuation, putting it on the same level as its peers. The valuation is another good sign for investors if you factor in that the company has a little direct competition to start with. If the café Rio owner decides to go for an IPO, they can enjoy all the benefits that come with a strong launch into the public trading market.

The company would gain more recognition from an IPO than a sale. More people would know about the Café Rio brand through an issuance compared to a sale. KarpReilly, which owns a majority stake in the US-based firm, would rake in millions in IPO proceeds if investor interest is any indication. These and more are some of the reasons to hope that you’ll be seeing a Café Rio IPO soon.