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Joe’s Crab Shack Parent Explodes

Ignite Restaurant Group becoming an IPO disaster


Considering the hullabaloo around the Facebook (NASDAQ:FB) IPO — and I’m guilty, too — you could be forgiven for missing another company pulling off a deal around the same time: Ignite Restaurant Group (NASDAQ:IRG).

Ignite owns two restaurant chains: the popular Joe’s Crab Shack and lesser-known Brick House Tavern + Tap. In all, there are 143 locations across over 30 states.

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Until this week, Ignite investors probably had been celebrating their “hidden gem,” which had returned more than 15% since the IPO. Now, they’re likely wishing they’d had lost IRG in the noise, too.

Ignite Restaurant is off more than 20% today — though still above its $14 IPO price — after announcing that its accounting is a complete mess. Apparently, the company has non-cash issues related to its leases, and there also might be issues with the accounting for its fixed assets and depreciation expenses. As a result, Ignite will need to restate its financial statements for 2009 to 2011, as well as the first quarter of 2012.

For any company, these actions are more than enough to rattle investor confidence. Questions start popping up. Does management know how to operate a growing company? Are there other problems lurking?

Just look at the troubles of daily-deals stock Groupon (NASDAQ:GRPN), which has had two restatements in the past year alone. Since coming public in November, GRPN shares have spiraled into the ground.

The best advice for investors: Today’s drop isn’t a dip to buy into. It’s a warning signal. For now, stay away from ignite and give it time to reclaim some credibility.

Tom Taulli runs the InvestorPlace blog IPO Playbook, a site dedicated to the hottest news and rumors about initial public offerings. He is also the author of the upcoming book How to Create the Next Facebook: Seeing Your Startup Through, from Idea to IPO.  Follow him on Twitter at @ttaulli or reach him via email. As of this writing, he did not own a position in any of the aforementioned securities.

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