IPO Markets Looking Better for Local Companies

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Has the local IPO market finally turned the corner?

After 15 months that saw only four L.A.-area companies go public, two local companies were about to go to the markets last week: Glendale online legal services company LegalZoom.com Inc. and Carpinteria fast-food giant CKE Inc., parent of Carl’s Jr. and Hardee’s restaurants.

And more may be in the pipeline, including a possible public offering from Los Angeles film studio MGM Inc. sometime later this year.

“For the last couple years, investors have been very wary of losing money in the markets,” said Bryant Riley, chairman of B. Riley & Co., a Los Angeles investment bank. “Now, with the market performing a little better, investors are looking for good quality IPOs to invest in.”

Los Angeles also is benefiting because investors have been most bullish on two industries: technology and restaurants, two areas of local strength. Each has seen several IPOs in recent months, which explains why LegalZoom and CKE are hoping to ride the wave of investor enthusiasm.

“Technology and fast food – that’s what investors are most interested in right now,” said John Fitzgibbon, publisher and owner of IPOScoop.com, an IPO newsletter in Rahway, N.J. “If you’re not in those industries, then IPOs are not going to happen.”

Indeed, local IPOs in other industries have remained scarce. For example, Century City aircraft leasing giant International Lease Finance Corp. filed for an IPO last summer, but with market volatility and tough times for the airline industry, the company declined to pull the trigger. ILFC is expected to have a market cap of $8 billion to $10 billion if it does go to market, placing it in the top 10 largest local public companies.

Return to market

CKE is planning its return to the public markets this Friday. The fast-food giant founded by Carl Karcher in the 1940s had long been publicly traded before New York private-equity firm Apollo Management took the company private two years ago in a deal worth an estimated $700 million.

Last week, CKE announced that the offering of 13.3 million shares would be priced between $14 and $16 a share, which would raise about $200 million. Some of the proceeds would go to pay off $82 million in bond debt, much of which was incurred through the buyout.

The offering of 13.3 million shares will allow Apollo affiliate Apollo CKE Holdings LP to dispose of 6.67 million of its own holdings in the company. CKE plans to trade on the New York Stock Exchange under the ticker CK.

CKE has 3,243 franchised or company-operated restaurants in 42 states and 25 foreign countries. In its fiscal year ending on Jan. 31, CKE’s revenue fell 3.9 percent to $1.28 billion, while the company reported a loss of $19.3 million.

Still, the company is hoping to capitalize on a burst of investor enthusiasm for fast-food restaurant chains. In recent years, the chains had waged bitter price wars for recession-pinched customers, driving down profits. But Nick Setyan, an analyst with Wedbush Securities in Los Angeles, said the price wars started easing late last year, allowing the chains to realize more profits.

“This has opened up a window for fast food chain restaurants to enter the public markets,” Setyan said.

Rival Burger King Worldwide Inc., which, like CKE, was taken private, returned to the market in June, while Chuy’s Holdings, an Austin, Texas operator of a Tex-Mex chain, debuted with its IPO last month. And Bloomin’ Brands Inc., the Tampa, Fla. parent company of Outback Steakhouse , announced the pricing of its IPO on July 25.

Meanwhile, LegalZoom, the online legal services company co-founded 11 years ago by O.J. Simpson defense attorney Robert Shapiro, was expected to go to market Aug. 3.

The company, backed by Polaris Venture Partners, among others, provides living wills, divorce papers, real estate leases and other legal documents to consumers and small businesses. Last year, it reported a profit of $12.1 million, compared with a loss of $4 million in 2010. Revenue rose 29 percent to $156 million.

LegalZoom, which set its debut share price at $10 to $12, was expected to raise about $88 million. LegalZoom would be listed on the New York Stock Exchange under the symbol LGZ.

Facebook debacle

Riley said the rush of offerings indicates the market has recovered from Facebook’s IPO, which saw shares fall from the start of trading over concerns about the company’s revenue model. Facebook shares were trading under $20 last week, just above half the initial pricing.

Riley said investors are hungry for more IPOs, as long as the equity markets remain fairly stable or improve slightly. He said it’s even possible that ILFC may finally pull the trigger on its long-delayed IPO.

But IPO tracker Fitzgibbon said the window for more IPOs may close again after this month. “After Labor Day, we’re likely to see increased market uncertainty as the election nears,” he said. “And that’s not a good environment for IPOs.”

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Howard Fine
Howard Fine is a 23-year veteran of the Los Angeles Business Journal. He covers stories pertaining to healthcare, biomedicine, energy, engineering, construction, and infrastructure. He has won several awards, including Best Body of Work for a single reporter from the Alliance of Area Business Publishers and Distinguished Journalist of the Year from the Society of Professional Journalists.

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