initial public offerings (IPOs) trading on American exchanges

Monday, July 11, 2011

Dunkin’ may raise $600m in IPO

NEW YORK - Dunkin’ Brands Group may seek to raise about $600 million in its initial public offering -- more than the $400 million it initially planned in May.

  • Dunkin' IPO should resonate with big-money investors and regular folks
  • The company said it will offer approximately 22.3 million shares on the open market, and it expects investors to pay $16 to $18 per share. The company will also give its underwriters a 30-day window to purchase another 3.3 million shares.
  • If all shares are bought at $18 each, the company would raise about $461 million before expenses.
  • Coffee-chain sector is outpacing gains made by the broader stock market
  • A big part of Dunkin's pitch to investors is that the chain will expand beyond its Northeastern base. Of the 6,772 Dunkin' stores in the US, 55 percent are in New England and New York.
  • The chain is also expanding internationally, with South Korea and the Middle East currently on its radar.
  • Despite the company's growth ambitions, the vast majority of the proceeds from the IPO will go toward paying down debt rather than being plowed into new stores.
  • The company says it has no plans to pay shareholder dividends "for the foreseeable future."
  • The company's current owners, a coterie of three well-known private equity firms, will continue to play a powerful role at the company even after it goes public. Together, Bain Capital Partners, Carlyle Group and Thomas H. Lee Partners will own as much as 78 percent of the public Dunkin' Brands, which will make it nearly impossible for any dissident shareholders to effect substantial changes. The three firms control six of the nine seats on the board of directors.
Indeed, Dunkin' is relying on its franchisees -- who own and run nearly all the stores -- to expand its footprint with limited capital investment from the parent. Almost all the 206 net expansions in the US last year came from existing franchisees opening new locations.

"It is the franchisees who will be paying the price for this strategy," said Irwin Barkan, the author of "Dunk'd: A True Story of How Big Money is Corrupting the Franchising Industry," which tells of his travails as a franchise owner.

The IPO comes as rising commodity costs put pressure on Dunkin franchisees, who are also finding it harder to line up financing from banks to build stores.

"If the growth is coming from existing franchisees, it is going to be slow," said one franchisee, who asked to remain unnamed. "This brand really needs a shared growth strategy."

The Canton, Mass.-based company may complete the offering by the end of July, said the people, who declined to be identified because the information is private. Dunkin’ filed with the Securities and Exchange Commission for a $400 million IPO on May 4.

Dunkin’ follows private equity-backed companies such as HCA Holdings Inc. and Kinder Morgan Inc. in returning to the public market this year after leveraged buyouts. Private equity owners have completed the biggest US IPOs in 2011 as a stock market near a three-year high increased investors’ demand for companies acquired through debt-fueled acquisitions before credit markets started to freeze four years ago.

Michelle King, a spokeswoman for Dunkin’, declined to comment.

Bain Capital LLC, Carlyle Group, and Thomas H. Lee Partners LP paid about $2.43 billion five years ago for Dunkin’, which competes with coffee chains such as Starbucks Corp. and Canada’s Tim Hortons Inc.

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