Jersey Mike’s, Cumberland Farms Join Swelling IPO Pipeline in US

0:02Bloomberg Audio Studios, podcasts, radio, news. You're listening to Bloomberg Business Week with Carol Masser and Tim Stenovec on Bloomberg Radio. We've got Anthony Hughes with us, a Bloomberg News U.S. equity capital markets reporter. He joins us here in the Bloomberg Interactive Brokers Studio. I want to talk about what Norah says are some delicious submarine sandwiches. Oh, yeah. Yeah, you like these Jersey Mike's. Jersey Mike's is where it's at. And we'll talk about Cumberland Farms. But the moment right now for IPOs, something is happening here. Yes. Well, SpaceX obviously was the deal that got all the attention.

0:37And it's traded reasonably well. I mean, I know there's been a lot of stories saying how it's pulled back. And that's been a negative. But it's still considered a pretty successful transaction. I was just looking at the stats. And if you look at the number of IPOs this year, and we break it up where we'll take away the SPACs. And we'll look at just the big deals, the$50 million plus deals. We can go$100 million plus deals. But, you know, the average return from this year's IPOs is about 19 % for the US IPOs. And that's about double what the market's doing if you look at the S &P 500. So, you know, that's a good year for the banks.

1:09But, you know, there's a lot of IPOs, but we're not 2021 proportions by any stretch. We don't have these – we have a lot of sectors that are not participating. And if you look at the IPOs that have done well – I was just looking at this earlier – it's really been companies that are sort of AI adjacent, some of them private equity-backed. I mean, Forgent, which is a company that has done three follow-on offerings since it went public in February, which is remarkable. That's one of the best IPOs of the year. That's a private equity-backed company that sells power distribution equipment, the most boring thing.

1:38But it's exciting because it's exposed to the AI narrative. And there's been a couple of other big private equity deals like Madison Air and Ineo that have both done reasonably well. And then we've had a bit of a rebound in the buy techs where some of those have done well. but they're smaller deals. But areas like this, where we're talking about Jersey Mike's and Cumberland Farms, or EG Group as it's also known, consumer's been tough. So, I mean, if you look at the consumer stocks, they're actually underperformed the overall market here materially this year. The couple of companies that have gone public that were consumer stocks, there's Once Upon a Farm, which did okay, but not a huge win.

2:21But Suja Juice was a smaller one. That was not a good IPO. We haven't seen that. Suja Juice, which is the fancy juice you'll find in Whole Foods. That one didn't do too well. And there hasn't been that many consumer IPOs. So I think overall the consumer part of the market is not that vibrant compared to say, you know, I mean it's analogous to the fact that the whole economy is somewhat being driven by all the action in AI and not so much in consumers where we've got inflation which is kind of putting a squeeze on it. And I think even these companies that have filed today, they have some pressures around inflation.

2:57Is it a lot of competition right now when you think about any sort of companies that are IPOing that aren't tech? I feel like there's been so much focus on any sort of AI-related trade, any sort of AI-related IPO. We've got some big names just in focus this year. Yeah. What about any other sectors? Is anywhere else getting love? You mentioned consumerism. I've been doing too well on the equity side. But curious if there's been any other things that you've been tracking outside of tech. Yeah, well, you know, the interesting thing about Jersey Mike's is it's majority controlled by Blackstone, which has a lot of companies it wants to take public this year.

3:31And some of them don't quite fit the themes that are hot and they're not necessarily AI adjacent. They've had a couple of software companies that, you know, they got one away and they've got another that they've been trying to get away. That software is not the place to be, obviously, because of AI disruption. but in terms of areas like consumer I think a business like Jersey Mike's looks like it sort of has its own strengths which is sort of a bit beyond this sector as a whole I mean they've got very good same store sales growth and growth in store growth which means they've got very consistent double digit growth overall and that's you know a good formula they're not going to have too much debt the thing with these private equity deals you don't have too much debt but but to your point about what outside of AI, I think the really interesting thing to think about here as we go to the second half is there's all this expectation we're going to have a lot of IPOs that probably have an AI theme.

4:23But you can see in the market at the moment, there's a lot of debate about what's actually going on in AI, who's going to be the winners and losers. And it's possible that the AI trade does come off. And if it does, the bankers want to have these other companies lined up, which might fill the void. And they might be a nice little antidote to the fact that AI trade might come off the boil. And you look at, there's a company called Hub International Insurance Broker, which filed confidentiality last week. Insurance brokers are a business which is supposedly getting disrupted by AI. But if you see it towards the end, it is still a steady growing business.

4:55And those businesses could be in a nice sort of solid antidote if we do see the AI trade come off the boil here. Jersey Mike's Blackstone backed. It was acquired last year by Blackstone for about$8 billion. dollars they're seeking a valuation about 12 billion dollars yeah in the ipo that seems pretty yeah pretty amazing return on investment yeah 50 percent yeah so blackstone's had a few over the years where they've done you know some of the business they have a have gone up in values slowly and they've had a few back in that late to late uh you know early 2000s early 2020s era like like i think about 19 2019 2020 they had a few that will grow their companies where they did a quick turnaround but normally yeah she wouldn't turn around this quick so that's interesting and it just really really does tell you that jersey marks is probably somewhat of an exceptional business from their portfolio perspective well you mentioned suja juice and it's like that's the opposite end of the spectrum expensive juice not doing well those bowl sort of bowl companies where you're you know so-called slot bowls not doing very well like a sweet green for example but the affordability the handheld sandwich have in a moment yeah i mean they've got um pretty consistent sort of two three percent same store sales growth which is good in in the restaurant business at the moment which is tough yeah uh and they've got they're probably growing the store count by maybe uh high single digits every year i think they've and they've got big plans to expand in uh in uk uh you know in europe through the deal they've done with their founder um so that's um obviously another leg of growth and um you know and i think they're probably i I mean, the subtext of Jersey Mike's to me is they're probably taking a bit of share from Subway, which has changed owners recently too and has had a few issues, I believe.

6:45So, I mean, that's another factor to take into account. But I think the other good thing about these sponsor-backed IPOs, you don't want to have too much debt. And if you do your own math here, where maybe this IPO could be, say,$1.5 billion and you look on the balance sheet there, they seem to have about$2 billion of debt. You should be able to wipe a lot of that out with the IPO and you can have a relatively lowly leveraged company. That's perfect. Anthony Hughes, Bloomberg News, U.S. equity capital markets reporter. He stayed late so he could talk IPOs with us. We appreciate that, Anthony, joining us here in the Bloomberg Interactive Brokers Studio.