* Deals will test investor appetite for small chains, familiar names
* Burger King, Carl's Jr parent CKE and Chuy's headline deals
* Private equity firms returning investments to public trade
By Lisa Baertlein and Olivia Oran
June 12 Several restaurant stock offerings are being prepped for the market and experts are betting that investors will have more of an appetite for specialty regional chains than for some familiar national hamburger brands.
Companies seeking to sell shares include growth names like Tex-Mex restaurant owner Chuy's Holdings, which has been waiting for the IPO market to pick up steam. Burger King and Carl's Jr parent CKE Inc, which are seeking a return to public trading, are also on the docket.
"Restaurant chains that will do well in the public markets are those with a distinct product, are known for their outrageous portion sizes, have reasonable prices, and fast growth," said Scott Sweet, managing partner at IPO Boutique, an initial public offering research firm.
Sweet said Chuy's, a regional chain that plans to nearly triple in size by the end of 2016, best fits that bill.
The restaurant industry has been on the upswing as a stabilizing economy makes it easier for diners to splurge on meals away from home and moderating food costs take stress off operators. This has opened the window for deals after a long drought in restaurant IPOs.
Experts say growth prospects differ and predict a mixed reception for the expected deals, which also include steak house operators Del Frisco's Restaurant Group, an upscale chain, and Bloomin' Brands, the owner of the more mainstream Outback chain.
Nevertheless, they said Joe's Crab Shack parent Ignite Restaurant Group's May IPO was a good sign for the industry because it showed investors will bank on well-positioned growth names.
Ignite owns 122 Joe's Crab Shacks and 16 Brick House Taverns around the country and expects to open 11 restaurants this year.
It took almost a year for Ignite's IPO to come to market, but its shares are up almost 30 percent from the offering price of $14, despite debt woes in Europe and tepid U.S. job growth.
Growth-seeking investors have sent the restaurant sector - as measured by a basket of restaurant stocks, including large companies like McDonald's and smaller names like Kona Grill - up about 20 percent in the last year.
While retailers have seen their opportunities to add new stores stunted by competition from online operators like Amazon.com, the restaurant sector still has room to expand, said Morningstar analyst R.J. Hottovy.
"Five to 10 percent unit growth annually - that's enough to get the market excited" about a small restaurant chain, he said.
Del Frisco's and Chuy's offer that, at least according to growth targets listed in their regulatory filings.
Chuy's, which first announced its IPO plans in August 2011, plans to expand its restaurant count from about 30 at the beginning of this year to around 85 at the end of 2016. Its restaurants, which are clustered in Texas and scattered around the Southeast, serve enchiladas, burritos and tacos.
Del Frisco's has about 30 restaurants. It shelved prior IPO plans in late 2008 when the U.S. economy was melting down, but now believes it can open three to five restaurants annually.
THE DUNKIN' EFFECT
Last summer's successful initial public offering of Dunkin' Donuts and Baskin-Robbins parent Dunkin' Brands Inc, proved that investors are willing to put a premium on popular brands with near-term growth plans.
Dunkin' Brands expects to open as many as 650 new units this year, an increase of about 4 percent. Its shares are up nearly 80 percent from its offer price of $19 in July, 2011.
Restaurant deals strong enough to make it to market could help boost an overall U.S. IPO market that has seen lackluster returns, most notably Facebook's disappointing debut.
The average first-day pop for IPOs across all industries is around 16 percent, versus 41 percent for offerings in the consumer sector that includes restaurants, according to IPO research firm Renaissance Securities.
Europe and Facebook have "tempered some of the IPO enthusiasm, but I think that is going to work itself out here pretty quickly," said Rahul Aggarwal, managing director of Los Angeles-based Brentwood Associates. That firm's restaurant holdings include K-Mac Holdings, one of the largest Taco Bell franchisees in the country, and the Veggie Grill, a small chain.
Two of the highest profile names coming to the market, Burger King and CKE, could face more daunting prospects.
Burger King, which went private in October 2010 with its $3.26 billion sale to 3G Capital Management LLC, is scheduled to close its merger with a publicly held shell company this month. When the deal closes, its shares will begin trading.
CKE, was taken private roughly two years ago by Apollo Management in a nearly $700 million deal. In mid-May it announced plans to go public again.
Critics of those deals say the companies are coming back to market long before the traditional holding period private equity owners have used to cut costs and rebuild the businesses.
Both companies lag fast-food market leader McDonald's and are feeling the heat from popular upstarts like Five Guys Burgers & Fries, prompting some experts to wonder if the intense pressure that helped send them into the arms of private-equity investors two years ago is any less of a worry now.
Burger King's new investor Justice Holdings, co-founded by hedge fund veteran Bill Ackman, expects Burger King's core profits in 2012 to be almost double those in 2010. The third-largest U.S. hamburger chain by sales has announced plans to expand internationally, but has not provided specifics.
CKE, which has more than 3,200 restaurants around the world, has announced plans to add hundreds of units in the United States and abroad this decade.
Bob Goldin, an executive vice president at food service consulting firm Technomic, said Burger King and CKE could be "a hard sell" to investors because they are up against leading companies like McDonald's and Starbucks Corp, which each have big expansion plans and pay dividends.