Does Fogo de Chao Really Need an IPO?

Fogo de Chao, Inc. marks the latest of the proposed initial public offerings that has made it to the point of an indicated price range. The IPO will consist of some 4,411,764 shares of common stock with an estimated price range of $16.00 to $18.00 per share.

If you are not familiar with this chain restaurant concept, Fogo de Chao is a Brazilian steakhouse. More specifically, it is one of those restaurants that is geared almost entirely toward heavy meat eaters. To some diners, it is a meat gorging destination where they just keep bringing you servings of meat until you can’t take anymore.

The company intends to list its shares on the NASDAQ Stock Market under the ticker symbol “FOGO.”

It turns out that the underwriting syndicate is rather large. Jefferies and J.P. Morgan are the joint book-running managers. Others in the syndicate are listed as being Credit Suisse, Deutsche Bank, Piper Jaffray, Wells Fargo, and Macquarie. The company also said that it intends to grant the underwriters an overallotment option to purchase up to an 661,764 additional shares.

Funds affiliated with private equity firm Thomas H. Lee Partners, L.P. own roughly 91.6% of the shares prior to the offering. After the offering they will own roughly 77.6% of the shares. On revenues and income, the company said:

From Fiscal 2013 to Fiscal 2014, revenue grew 19.6% to $262.3 million and our net income increased from a net loss of $0.9 million in Fiscal 2013 to net income of $17.6 million in Fiscal 2014. For the thirteen weeks ended March 29, 2015, revenue was $65.0 million and net income was $4.7 million, increases of 5.9% and 68.9%, respectively, as compared to the thirteen weeks ended March 30, 2014. In addition, from Fiscal 2013 to Fiscal 2014, restaurant contribution grew 23.9% to $85.1 million and Adjusted EBITDA grew 25.7% to $63.3 million, despite our investment of $4.2 million in additional fixed personnel costs during such period to develop key functional areas to support future growth. For the thirteen weeks ended March 29, 2015, restaurant contribution grew 13.6% to $20.5 million and Adjusted EBITDA grew 15.9% to $14.9 million as compared to the thirteen weeks ended March 30, 2014.

Fogo de Chao currently operates 26 restaurants in the United States, 10 in Brazil and one in Mexico. In Fiscal 2014, it generated AUVs of about $8.0 million and a restaurant contribution margin of 32.5%. In Fiscal 2014, the company opened three restaurants, increasing its restaurant base about 10%. In Fiscal 2015, it has opened restaurants in San Juan, Puerto Rico and Rio de Janeiro, Brazil – with its first joint venture restaurant in Mexico City, Mexico.

The initial IPO filing was made back in April for up to $75 million to be sold in common stock. After this offering, there are expected to be 27,253,018 shares, or 27,914,782 shares if the underwriters exercise the overallotment option in full.

Fogo de Chao will be unique for the type of public steakhouse restaurant chain it is in. It may even be a huge hit with the markets if other restaurant chains have been any indication. It still seems safe to wonder just how many public company food chains the market can support.