Roadshows for Skylark’s planned ¥102.4 billion ($987 million) Tokyo initial public offering began on Monday, with the Japanese restaurant chain operator identifying three breweries as anchor investors.
Suntory Beer & Spirits, Kirin Holdings and Asahi Breweries are pledging ¥4.9 billion, ¥4 billion and ¥4.1 billion, respectively, in Skylark at the IPO price, a banker close to the deal told FinanceAsia. All three are subject to six-month lockups.
Private equity firm Bain Capital will offload roughly one third of its stake in Skylark, which operates Japanese family-style restaurants such as Gusto, Steak Gusto, Jonathan’s, Bamiyan and Yume-an, once the company floats its shares.
Some 94% of the shares on offer will be secondary and 6% primary. Bain Capital, which acquired Skylark for $2.1 billion in October 2011, will divest a third of its stake and remain a majority shareholder, the banker said.
Bain currently owns about 186 million shares, or 96% of the restaurant chain operator, and will sell 23.3 million shares to international institutional investors and 45.5 million shares in a domestic tranche.
Japan Industrial Partners, a private equity firm focused on manufacturing, food and distribution services, will also sell its 2% stake in Skylark, the banker said.
Combined, the two private equity firms will sell roughly 66.5 million shares, with an overallotment option boosting the secondary tranche by an additional 7 million shares. The primary shares on offer will total 4.1 million, according to a term sheet.
Nomura, Merrill Lynch Japan, Morgan Stanley and Mizuho Securities are acting as joint global coordinators, with Goldman Sachs and JP Morgan Securities focusing on the international tranche.
Although the indicative price range will be formerly set on September 19, there is an implied price in the Japanese prospectus of Y1,450 per share, which puts its 2014 price to earnings ratio at 29.28 times.
Comparables
Barring a few chain operators in Japan, there are not many close listed comparables to Skylark, bankers said.
Still, potential investors can view Zensho, the operator of the Sukiya beef bowl restaurant chain, as a peer. Shares in Zensho are down 13% so far this year up to September 1.
In anticipation of a spike in labour costs, Tokyo-based Zensho revised down its earnings forecast for the fiscal year ending March 2015 from a projected net profit of ¥4.1 billion to a net loss of ¥1.3 billion.
Large fast food chains such as McDonald’s could also be considered as comparables but only very loosely, the banker added.
2011 acquisition
Bain acquired Skylark in October 2011 for Y160 billion, with the Boston-based private equity firm assuming and refinancing Skylark’s existing debt. It was the largest acquisition in Japan by a foreign investment firm since the global financial crisis in 2008.
Nomura’s private equity unit originally invested in Skylark in 2006 through a management buyout with UK private equity firm CVC Capital Partners, delisting the company from Tokyo.
Bain began negotiations to buy Skylark with company management and Nomura in late 2010 but the discussions were postponed after the March 2011 earthquake and tsunami, as well as an outbreak of dysentery at one of Skylark’s restaurant chains in August.
In January 2013, Skylark named former president of McDonald’s Ralph Alvarez as chairman and representative director.
The Musashino-based restaurant chain operator sought to tap Alvarez’s experience of managing a major US fast food chain as Skylark looked at overseas expansion and focused on improving its domestic business strategy.
Alvarez joined McDonald’s in 1994, after having worked at competitors Burger King Corp and Wendy’s International. He served as president and chief operating officer at McDonald’s from 2006 to 2009 and has served as a director of Dunkin Brands Group and pharmaceutical company Eli Lilly.
Japan IPOs
So far this year, up to September 1, 34 Japanese issuers raised $7.1 billion from IPOs, according to Dealogic data. Japan Display’s $3.1 billion March flotation is the largest this year, with Hitachi Maxell’s $711 million listing, also in March, coming in second.
According to Dealogic, there have been 14 buyouts in Japan so far in 2014, compared with 32 buyouts in all of 2013 and 22 in 2012. The deal value totals $2.3 billion so far this year, compared with $3.5 billion in 2013 and $2.6 billion in 2012.
