One small VC-backed steakhouse chain is taking on the meaty matter of entering the public market in a time of increasing competition throughout the restaurant industry.
Upscale New York-based steakhouse chain Smith & Wollensky Restaurant Group (Proposed NNM:SWRG) filed for an initial public offering March 23 with hopes of raising $57.5 million to help finance future expansion efforts. The company plans to offer five million shares at an estimated offering price of $8.50 to $11.50 per share.
This is far lower than the current trading prices of some of Smith & Wollensky’s peers in the industry. Mortons Restaurant Group (NYSE: MRG) closed trading last Thursday at at $20.07. Fellow competing steakhouse, Rare Hospitality International (NNM:RARE) closed at $24.19.
Smith & Wollensky, however, is a smaller chain with larger restaurants. Each of its 14 shops – nine of which are owned by the company, and manages the rest – seat between 290 to 675. Besides reducing debt, the company hopes to use proceeds from the IPO to open three to four restaurants per year beginning in 2002.
“There’s some things the money could do for them,” said Mark Hewes, vice president of corporate finance at C.E. Unterberg, Towbin, the lead underwriter of the deal. “The management team has been managing restaurants for a number of years, and they’re looking to leverage their experience to open new units in selected markets that have similar characteristics as the ones Smith & Wollensky’s are currently in.”
McDonald Investments and Morgan Keegan are co-managing the deal.
“I noticed they had some non-mainstream investment bankers,” said Michael Smith, a restaurant analyst at Fahnestock & Co., noting that Smith & Wollensky has the potential to perform very well in the public market.
“In restaurant stocks, as long as they perform well and they don’t trip up, they maintain a decent valuation,” he said. “Small ones that have a blip in their record that’s not expected become orphans and basically don’t get any valuation whatsoever. As long as they do well, I suppose they can hold their offering price and maybe go up, and if they don’t, they won’t.”
For the fiscal year 2000, the chain reported a net loss of $4.9 million off of $81.4 million worth of sales. In 1999, sales of $69.8 million and a net loss of $2.6 million were reported.
The first Smith & Wollensky restaurant opened in New York in
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