Dunkin' Donuts says that "America Runs On Dunkin.'" That is certainly the hope of the company as it prepares for an initial public offering. Dunkin' Donuts hopes to raise over $460 million, but if other recent IPOs are a trend, the number could be substantially higher. Investors who love coffee may want to familiarize themselves with the symbol DNKN, the symbol chosen by the company for its listing on Nasdaq.
For investors familiar with Dunkin' Donuts, the $460 million figure may seem a bit low. After all, there are Dunkin' Donuts stores all over the country, and the coffee maker is a staple in Massachusetts where it has its roots. The reason for the low figure is that only 22% of the company is included in the offering. A full 78% of the company, and six of nine board of director seats, will be controlled by Bain Capital Partners, Carlyle Group and Thomas H. Lee Partners.
So is Dunkin' Donuts a buy at the IPO? This is yet another one where investors should wait and see. Dunkin' Brands plans to use a big chunk of the proceeds to pay down debt, and then if there is money left expand operations here in the U.S. and internationally in such countries as South Korea and the Middle East. Dividends do not seem to be in the picture anytime soon. Paying down debt is great, and can help the financial statements. But expansion is an expensive venture and coffee strongholds in certain regions are hard to infiltrate. This can be seen from firsthand experience for Dunkin. Krispy Kreme had a devil of a time when it went head to head with Dunkin, and Starbucks has not made inroads into New England on a scale that gives it a decent market share.
Dunkin' Donuts anticipates offering about 22.3 million shares. It is currently pricing shares between $16 and $18. An additional 3.3 million shares could also hit the market if the underwriter exercises an option to purchase them within a 30 day window.
While you may love Dunkin' Donuts as a coffee, you may want to let the coffee cool a bit before getting involved. Dunkin Donuts will certainly be a success, but how that translates to investing is another story. Give it a quarter or two of monitoring first.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.