Fogo de Chao IPO: The Facts on FOGO

The premium Brazilian restaurant chain Fogo de Chao (FOGO) is going public today, with shares trading on the Nasdaq under the ticker “FOGO.”

fogo-stock-185You might not know much about the steakhouse, but seeing as this is the fourth restaurant to go public in 2015 — and the other three are all trading well above their IPO prices — you should make yourself familiar with the FOGO IPO.

Founded in 1979, the restaurant began with one humble location in Porto Alegre, Brazil, and didn’t open its second store until 1987. Today, the company has 37 locations — 10 in Brazil, one in Mexico and the rest in the U.S. — and plans to open five or six new locations this year.

Even though the company was founded 36 years ago, there’s still plenty of room left for growth, which is why we’re seeing investor demand for the FOGO IPO.

Here are three things you should know about it as it begins trading Friday:

FOGO IPO Price of $20 Is Above Prior Range

Fogo de Chao priced at $20 per share, above its previous $16-to-$18 price range. Considering the popularity of IPOs in the stock market today, that’s not too shocking. In fact, we saw the Fitbit (FIT) IPO do the exact same thing yesterday, going public at $20 per share after previously outlining a Fitbit IPO price range between $17 and $19 a share.

With the company selling more than 4.4 million shares at those levels, the $20 FOGO IPO price translates into more than $88.2 million raised. The Fogo de Chao IPO was underwritten by JPMorgan (JPM) and Jefferies, along with five other underwriters, who collectively have options to exercise an additional 661,764 shares.

Assuming the underwriters do exercise, the valuation of Fogo de Chao will be $545 million — a little more than two times FOGO revenue last year, which clocked in at $262 million.

The Company Swung to a Profit Last Year

FOGO is unlike 2015’s previous restaurant IPOs, which were all casual or fast food companies: Wingstop (WING), Bojangles’ (BOJA), and Shake Shack (SHAK). Fogo de Chao, on the other hand, competes with the likes of Ruth’s Hospitality Group (RUTH) and Del Frisco’s (DFRG).

In 2014, Fogo grew revenue by about 20% year-over-year to $262 million. But more importantly, after losing $937,000 in 2013, it swung to a $17 million profit last year.

Using Proceeds to Pay Down Debt

What exactly will the funds from the FOGO IPO be used for? Paying down the company’s debt, which will cut its interest expenses dramatically and serve to boost Fogo’s bottom line going forward. Along with funds from a new credit facility, the company will pay down $246.5 million in debt.

With some of that debt carrying interest rates of Libor + 9.5%, that’s not a bad idea.

It may not be the most exciting use of funds, but it should help the company look even more attractive to investors going forward.

As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.

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