The Echo-nomist

Who doesn’t love Krispy Kreme’s donuts? Now you can buy, not only their donuts, but also their shares. They’re a public company again… Surprise!

Wait, what do you mean they’re going public again?

On 5th April 2000, they went public on NASDAQ at $21. Soon, they shifted to NYSE and continued till they went private. What happened is, JAB Beech, a German Investment firm, made an irresistible offer to Krispy Kreme- to purchase the company for $1.35 billion. The important part in this offer is this would make it privately owned. The transaction closed on July 27, 2016. That’s when they went private again.

JAB paid a 25% premium on their closing stock price. Usually these investment firms buy other public companies that they believe are undervalued by the stock markets. Their aim is to take these undervalued companies private and help them reach their true potential. Once the company attains a satisfactory performance level, they take them public at a higher valuation. This way they get a good return on their initial investment.

It’s going public again but this time it’s a bullish market. Last time, in 2000, it was the bear that greeted them. On Thursday, the smell of glazed donuts 🍩 and hot coffee ☕ spread across the Nasdaq market. They priced their IPO at $17 per shares, well below the expected price of $21 to $24.

Their sales exceeded the past figures and made an all time high revenue of $1.1 billion for the year ending Jan’21 and a $321.8 million net revenue for the first quarter (a 23% increase year on year). They also have 19 underwriters (includes- JP Morgan, Morgan Stanley, Citigroup, BofA Securities among others)!

At the same time they reported losses! For the first quarter they reported a net loss of $3.1 million, narrower than their loss of $11.5 million in the previous year. They are also in a puddle of debt with $1.2 billion due, many in the form of term loans. Despite all that, IPO day was successful.

Now, almost 5 years later, they’re back in the market. But are they taking it by storm?

Their stocks rose 23% on the first day of trading. It raised a total of $500 million for the donut chain and gave it an implied valuation of $2.7 billion. The closing share price took their valuation to a whopping $3.4 billion!

Here’s a little secret: JAB has a lockup on selling shares for 180 days! There’s something known as IPO lock-up. It’s a period of time, after the company goes public, where major shareholders are prohibited from selling their shares. Insiders and early investors aren’t allowed to sell their share. The basic objective behind this is to ensure an orderly IPO and not flood the market. After this 180 day period, the real fun will begin. The shares will be a lot more volatile and can lead to a possible drop in prices.

Their incentive game is going strong. They’re promoting the larger cause of getting vaccinated against coronavirus… Krispy Kreme is offering free donuts for the rest of the YEAR (except holidays like Christmas, Thanksgiving etc.). All you have to do is provide proof that you are vaccinated. I don’t know about you, but I would totally get vaccinated just for the free donuts.

Krispy Kreme has been doing well during the lockdown. “Indulgence foods have proven to be recession-resistant historically, as exhibited by 4.0% category growth through the global financial crisis (CAGR 2007-2009) and 4.3% during the current COVID-19 pandemic (year-over-year 2019-2020)” That’s the reason they mentioned in their prospectus.

It has been an interesting week for Krispy Kreme as they re-entered Nasdaq (childhood friends). This was just one of eighteen in the list of companies that went public in the US today… Investors have a lot to look forward to!