There is a terrific piece by Greg David on the Crain's New York Business website that looks at why Fairway Markets has filed for what is called a "confidential IPO" now.
According to David, "Fairway appears to be the first New York company to take advantage of a new JOBS Act and a streamlined approach for companies to go public. The new law is in response to the argument from Wall Street types and conservatives that the reforms that followed the Enron scandal are so cumbersome and costly that they discourage all but the largest companies from raising money in the equity markets.
"Under the JOBS Act, companies with less than $1 billion in sales can, in essence, secretly file for an initial public offering. They don’t have to release financial information until a few weeks before they actually sell the stock, only have to provide two years of audited statements and are exempt from requirements about the extent of the audits they need and shareholder approval of executive compensation."
While analysts predict that Fairway could generate $750 million in sales this year if, as expected, it opens three new stores, the story notes that there is no way to gauge whether that is a realistic number or not. "It will also be eye-opening to figure out whether it is profitable, what debt load it carries and whether the new shares will raise additional capital or cash out existing shareholders," David writes.
According to David, "Fairway appears to be the first New York company to take advantage of a new JOBS Act and a streamlined approach for companies to go public. The new law is in response to the argument from Wall Street types and conservatives that the reforms that followed the Enron scandal are so cumbersome and costly that they discourage all but the largest companies from raising money in the equity markets.
"Under the JOBS Act, companies with less than $1 billion in sales can, in essence, secretly file for an initial public offering. They don’t have to release financial information until a few weeks before they actually sell the stock, only have to provide two years of audited statements and are exempt from requirements about the extent of the audits they need and shareholder approval of executive compensation."
While analysts predict that Fairway could generate $750 million in sales this year if, as expected, it opens three new stores, the story notes that there is no way to gauge whether that is a realistic number or not. "It will also be eye-opening to figure out whether it is profitable, what debt load it carries and whether the new shares will raise additional capital or cash out existing shareholders," David writes.
- KC's View:
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David points to two other things worth noting. One is that Fairway's majority owner is Sterling Investment, a private equity group, the kind of investor for which "long-term growth is not usually a priority."
The other is that whenever Fairway goes ahead with the IPO, the JOBS Act provisions probably will give analysts, potential investors and the media about a month to sort through all the numbers and projections.
The question is whether Fairway will be a good investment built for long-term, sustainable returns, or whether this is a short-term play designed to generate a return on investment for Sterling.
