Collins Foods a big test

The fragility of consumer and investor confidence has been well noted during the past 12 months but it’s still very rare to see rich list members forced to pull float plans. 

But that’s exactly what has happened during the past few months.

First we saw billionaire Clive Palmer abandon plans to float his coal mining giant Resourcehouse on the Hong Kong Stock Exchange due a distinct lack of investor interest.

Last week we saw mining services company Barminco – part owned by rich list member Peter Barlett – abandon its float plans after failing to achieve the sort of price it had hoped for.

Investors usually view entrepreneur-backed floats quite favourably and those backed by rich list members usually do well so the effective rejection of those floats by the market underlines how wary investors are about parting with dollars right now.  

And that makes the decision of Pacific Equity Partners to push ahead with the float of fast food brand manager Collins Food Group very interesting.

Collins owns 119 KFC outlets in Queensland and 26 Sizzler restaurants. Revenue growth is strong, with sales running at $400 million, the company has clear growth prospects and the float does not look overly expensive, with shares priced at around 8.6 times at the high end of the expected price range.

And the operation’s managers, who own 48% of the business, are going to retain a significant stake.

In other words it looks to be a reasonably attractive package, so if this float can’t get investors interested perhaps we have to declare the IPO market officially dead and buried for the moment.

The float will be closely watched by the franchise sector because the collapse of Allied Brands last year may have scared many investors away from listed franchise companies and franchise sector figures will be keen to see if those scars have healed. 

Clearly Collins is a very different business and food franchises have done quite well during the retail downturn of the past few years.

If the Collins float is successful we could see other franchise brand managers eyeing off the share market.

With anecdotal evidence suggesting franchise recruitment is as hard as it has been in 20 years acquisitions may be the best way for large franchise groups to grow.

But acquisitions require capital, which is where floats come in.

We’ll be keeping an eye on Collins Food Group in the coming weeks – it could be a real bellwether.