Cava’s IPO Potential to Influence Other Restaurants’ Public Offerings

As Cava makes its public debut on Thursday, other restaurant companies will closely observe its performance before deciding whether to follow suit.

The past 18 months have witnessed the slowest initial public offering market since the financial crisis. Amidst concerns of a volatile market due to factors such as the war in Ukraine, inflation, rising interest rates, and recession fears, few U.S. companies have gone for IPOs.

Out of the 44 IPOs that priced shares this year, only 20 were U.S.-based companies, as per Renaissance Capital, a firm that tracks IPOs and the performance of newly public company stocks.

Cava’s IPO could potentially break this dry spell, with several restaurant chains eyeing its performance as they contemplate going public themselves. The significant spike of over 100% in Cava’s share value at its peak on Thursday could be an encouraging sign for other restaurants.

“A successful IPO by Cava has the potential to pave the way for more restaurant IPOs,” stated Matt Kennedy, senior strategist at Renaissance Capital. “It will demonstrate investor interest in the sector, and companies can achieve favorable valuations in the public markets.”

On Wednesday evening, Cava set its IPO price at $22 per share, valuing the company at $2.5 billion. Initially, the company aimed for a price range of $17 to $19 per share, which would have valued it at $2.12 billion, but later increased the range to $19 to $20 per share.

The company will be listed on the New York Stock Exchange under the ticker symbol CAVA.

The decision to raise the price range and the subsequent surge in the stock’s value during early trading can be encouraging for other restaurant chains considering IPOs.

This bodes well for restaurant companies waiting in the wings to go public. Brazilian steakhouse Fogo de Chão and Korean barbecue chain Gen Restaurant Group have both confidentially filed regulatory paperwork, while Panera Bread and Fat Brands’ Twin Peaks have expressed their intent to issue an IPO in the near future.

“Nobody wants to be the first one to go public, which is why I think we tend to see companies in the same sector go public in batches,” explained Kennedy.

However, Kennedy emphasized that the window for going public can close much faster than it opens. Sudden market volatility can alarm investors and the private companies aiming to attract them.

Even if the window remains open for future restaurant IPOs, these companies may not garner the same level of investor interest as Cava. Cava, despite still being unprofitable, has reported a 28% growth in same-store sales during the first quarter. It is narrowing its losses and appears closer to achieving more net income than its rival Sweetgreen, which went public in November 2021.

“[Cava] rightly went public earlier than most because it’s a high-quality name,” stated Kevin McCarthy, managing director at Neuberger Berman.