Two burger companies are betting that investors will salivate over their initial public offerings.
Los Angeles-based FAT (Fresh. Authentic. Tasty.) Brands Inc., a global franchising business and the parent of the "better burger" Fatburger casual dining chain, has filed a Regulation A+ initial public offering. The company will list on the NASDAQ under the ticker FAT, and hopes to raise $24 million.
Another quality-burger purveyor, Bobby's Burger Palace, the eponymous creation of celebrity chef Bobby Flay, will also offer a Regulation A+ initial public offering, seeking to raise about $15 million. The company will be listed as "FLAY" on the New York Stock Exchange.
Both Fatburger and Bobby's Burger Palace are small outfits: Fatburger has 162 locations worldwide, while Bobby's Burger Palace, founded in 2008, has just 18 locations. Both plan to use the proceeds from the IPO to expand. Flay hopes to use earnings from the IPO to expand domestically and nationally, while FAT Brands Inc. hopes to purchase the Ponderosa and Bonanza Steakhouse chains to add to its portfolio of restaurants.
Fatburger and Bobby's Burger Palace are part of the niche quality burger market, which elevates the traditional American staple and appeals to discerning consumers by providing high-quality natural ingredients, cooking meals fresh to order, and emphasizing customer satisfaction. The market is small, with some 41 better-burger brands contributing just $2.7 billion of the $76.9 billion revenue generated by burger restaurants in the U.S. overall, but they have had an outsize influence.
But the restaurant industry is generally crowded, and the burger market in particular can be cutthroat. It is difficult for chains to differentiate themselves from competitors like Smashburger, Habit Burger
Indeed, there is some evidence that the better-burger boom has gone bust. Habit Burger had an IPO in 2014, and Shake Shack had one in 2015. Both initially performed well, but weathered subsequent drops.
These IPOs had an advantage that Flay and FAT Brands lack: big, solid institutions underwrote them. JPMorgan Chase & Co.
Further, unlike Shake Shack and Habit Burger, both Flay and FAT Brands will use Regulation A+ offerings. Regulation A+ is a designation that was created in 2015 by the JOBS Act, which was meant to ease the challenge of raising money for small businesses. Under a Regulation A+ offering, the company can offer shares to the general public, not just accredited institutions. Regulation A+ offerings can be a good opportunity for small businesses, but it can be challenging and expensive to market to enough investors to raise capital.
In an interview on CNBC, Bobby Flay seemed confident that there is no volatility in the burger market, and that gourmet burgers are the "the future," citing the success of Shake Shack compared with more traditional fast food like McDonald's, which has struggled to keep up with dining trends. FAT Brands CEO Andy Wiederhorn seemed slightly more cautious, acknowledging that the casual dining sector overall is going to be "full of opportunity...and full of trouble."
