Cava IPO could set tone for other restaurants going public

As Cava prepares to make its public market debut Thursday, other restaurant companies will be watching closely while they decide whether to follow in the Mediterranean restaurant chain’s footsteps.

The last 18 months have marked the slowest initial public offering market since the financial crisis. Few U.S. companies have pursued IPOs, wary of a volatile market rocked by the war in Ukraine, inflation, rising interest rates and recession fears.

Of the 44 IPOs that have priced shares this year, just 20 were for companies based in the U.S., according to data from Renaissance Capital, which tracks IPOs and the performance of newly public company stocks.

Cava’s IPO could help break that drought, as a handful of restaurants watch to see how the chain fares as they mull whether to jump into the public market themselves.

“A successful IPO from Cava should open the door to more restaurant IPOs,” said Matt Kennedy, senior strategist at Renaissance Capital. “It’ll show that investors are interested in the space, and companies can get a certain valuation in the public markets.”

On Wednesday evening, Cava priced its IPO at $22 per share, valuing the company at $2.5 billion. The company initially sought to price its common stock offering at $17 to $19 per share, which would have given it a valuation of $2.12 billion, before it raised the range to $19 to $20 per share.

The company will trade on the New York Stock Exchange under the ticker CAVA.

Cava’s decision to raise its initial price range is an early indication the IPO will perform well, Kennedy told CNBC.

That bodes well for the restaurant companies waiting in the wings to go public. Brazilian steakhouse Fogo de Chão and Korean barbecue chain Gen Restaurant Group have both filed regulatory paperwork confidentially, while both Panera Bread and Fat Brands’ Twin Peaks have shared intent to issue an IPO in the near future.

“Nobody wants to be the first one to go public, which is why I think we tend to see companies in the same sector go public in batches,” Kennedy said.

But the window to go public can close much faster than it opens, according to Kennedy. Sudden volatility in the market can spook investors and the private companies hoping to attract them.

Even if the window remains open for future restaurant IPOs, those companies might not see the same level of investor interest as Cava, which reported same-store sales growth of 28% in the first quarter. While the Mediterranean chain is still unprofitable, it’s narrowing its losses and appears closer to reporting more net income than rival Sweetgreen, which went public in November 2021.

“[Cava] rightly came earlier than most because it’s a high-quality name,” said Kevin McCarthy, managing director at Neuberger Berman.