Dunkin Brands: A Deep Dive Into the Highly Anticipated IPO
Five years after having been the object of a leveraged buyout from private equity groups, Dunkin’ Brands Group, the company that operates popular Dunkin’ Donuts and Baskin Robbins stores, is slated to return to the hands of public owners. In tomorrow’s highly anticipated initial public offering, the company will look to raise more than $400 million through sale of shares when it lists on the Nasdaq (NASDAQ:NDAQ), trading under the ticker symbol (DNKN). Dunkin’ will sell 22.3 million shares, currently priced at $16-18 per share, giving the company a market value of $2.15 billion, or 3.6 times trailing 12-month sales.
Bloomberg reports that the company will look to offer its shares at a premium to competitor Starbucks (NASDAQ:SBUX), which it has worked into IPO pricing. Dunkin’ management has more ambitious plans to follow its forthcoming public offering, as the company will look to double its store locations over the next twenty years, increasing its presence in many areas currently represented by competitor’s McDonald’s (NYSE:MCD) and Starbucks, but lacking in Dunkin’ Brands stores. One such region is the Western U.S., where the company operates less than 2% of its total stores.
Analyst Jack Russo said of Dunkin’s expansive ambition, “[There’s] a ton more opportunity to grow…They’ve got a really good brand name, they’ve got a really good store presence in the Northeast. The question is going to be, can they bring this to the rest of the country?”
Coffee sales continue to drive revenue growth at Dunkin’ and its competitors, last year for instance the company increased revenues by 7.3%, while McDonald’s upped its own intake by 5.3% in stores that sold McCafes. “The coffee segment has been one of the fastest growing,” says RBC Capital’s Larry Miller, “Everybody is putting on a better cup of coffee because it has been a growth business.” Specialty coffee maker Green Mountain Coffee Roasters (NASDAQ:GMCR), a sub-competitor for Dunkin’, has seen income rise 101% this year. Although coffee sales have been strong, Dunkin’s balance sheets remain a murkier creature.
While Dunkin’s revenues grew 9% in the first quarter this year, same store sales growth was just under 3%, and the business reported a net loss due to rising interest costs on its liabilities. Debt is still a major burden on Dunkin’ Brands income statements, as current owners Bain Capital, Carlyle Group, and Thomas H. Lee Partners used debt financing to fund the majority of their $2.4 billion dollar buyout in 2006. Most of the cash proceeds from the IPO will be directed towards paying off a portion of that outstanding debt.
Another big question is how well Dunkin’ Brands will fare in an IPO market that is crazed for tech stocks, but doesn’t seem to have much love for more traditional bread and butter businesses. Web 2.0 brand names LinkedIn (NYSE:LNKD), Yandex (NASDAQ:YNDX), Pandora (NYSE:P), and Zillow (NASDAQ:Z) have all issued successful IPOs this year, though there are sparse example of non tech companies that have performed comparably in 2011. Some good news for Dunkin’ is that it will not be alone in gauging the market’s demand for IPOs outside of Silicon Valley, as 10 other companies, including oil drilling company C&J Energy Services and military contractor ADS Tactical, will offer shares to public investors as well this week.