Papa Murphy's Files For An IPO


Papa Murphy's is bringing its take-and-bake pizza to Wall Street.

The 1,400-unit chain, based in Vancouver, Washington, made public its IPO plans this morning. The company wants to raise $70 million to pay some debt and to make a payment to holders of the company's preferred stock. The private equity group Lee Equity Partners bought the chain in 2010.

Papa Murphy's will trade under the name FRSH.

The chain is only the latest in a stream of restaurant chains that appear to be lining up to go public, amid a runup in valuations even for small, regional concepts, like Potbelly, as investors yearn for growth chains. Noodles & Company, and Chuy's, have each earned strong valuations following their recent IPOs. Thus, more chains are looking to go public now. Zoe's Kitchen filed for an IPO earlier this week. Now Papa Murphy's. Other chains are expected to do the same.

Papa Murphy's is the leader in the take-and-bake business, and is something of a hybrid restaurant and food retailer. The company is mostly franchised, with 95 percent of units owned by operators. It's also something of a throwback—more than half of its franchisees own just a single unit, and 75 percent own one or two locations.

The company has a low investment, about $200,000, and can go into a wide variety of locations thanks to the low demands of its preparation model. The chain noted that a unit can be profitable at remarkably small unit volumes. That makes it similar to sandwich giant Subway.

The company's operators have average weekly sales of $11,099, or about $577,000 a year. The company said that franchisees in general have EBITDA, after royalties and ad fund payments but before the manager's salary is paid, of more than 15 percent.

The company's store count has grown steadily over the years, from 841 units in 2004 to 1,418 now, or about 6 percent a year. System sales have grown a bit faster, 8.2 percent a year, from $385.9 million in 2004 to $785.6 million in 2013.

The chain's revenues, more than half of which comes from franchising, have grown from $51.9 million in 2011 to $80.5 million in 2013. The company reported a net loss of $2.6 million last year, but had an operating income of $10.5 million. Comp sales have been steady, rising 2.8 percent in 2013, after a similar increase in 2011 and a 5.7 percent same-store sales growth in 2011. Adjusted EBITDA last year was $24.4 million.

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