Guzman Y Gomez in IPO prep; market baulks at valuation

afr.com:

IPO hopeful Guzman Y Gomez’s expectations of what it is worth are setting off cases of heartburn among equity capital markets teams and fund managers across the street.

Guzman y Gomez founder and CEO, Steven Marks. Richard Walker/RDW Photography

Sources said GYG had started meeting with top-tier investment banks in recent weeks as it looks to appoint advisers to steer its potential listing.

However, the Mexican food chain’s valuation expectations are out of whack with comparable listed businesses both in Australia and abroad. Locally, that includes Domino’s Pizza Enterprises and Collins Foods, which owns the Aussie KFCs and Taco Bells. Overseas, NYSE-listed Yum Brands and Chipotle both are trading at much cheaper valuations.

It is understood bankers have told GYG and its backers to come to terms with an IPO at 17- to 18-times price to earnings ratio. The valuation differential between GYG and its comparables suggests the business is worth less than half of what Barrenjoey Capital Partners paid for it just 1½ years ago, sources said.

Naturally, GYG’s co-founder Steven Marks – and his backers at TDM Growth Partners, Barrenjoey, Point King Capital and Aware Super – won’t be too happy on the reality-check being served up. The official line, as told to The Australian Financial Review in early October, is an IPO could happen by late next year.

TDM, in particular, has been itching for a payday since as early as last year. Marks, himself, was set to be replaced as CEO in May but was left saddled with a co-CEO role alongside TDM’s board representative, Hilton Brett, after a lengthy (and fruitless) search.

The big question is if GYG presses ahead with an IPO or kicks the can down the road.

The last set of fund-raising documents