Collins Foods set to defy weak IPO environment with August float

The Collins Foods Group, which operates 145 KFC and Sizzler stores, is said to be working towards an initial public offering next month, going against the grain for private equity sales and boosting hopes that a big bang float could revive Australia’s lacklustre float market this year.

According to reports Collins Food, owned by Pacific Equity Partners, managers and employees, has started its institutional roadshow and a bookbuild is scheduled for the end of next week.

The company is looking to raise $238 million, with much to be reinvested in the business, particularly the refurbishment of the company’s Queensland KFC stores.

Management is expected to keep just over 10% of the business according to reports, with shares said to be priced at between $2.50 and $2.92 each – between 7.7 and 8.6 times earnings before interest and tax.

A float would go against the grain at the moment for food, with Quick Service Restaurants Holdings (QSR) – the group behind the Red Rooster, Oporto and Chicken Treat food chains – sold by Quadrant Private Equity last month to Archer Capital for an estimated $450 million. Quadrant said the certainty of a sale was more attractive than a float.

QSR is the largest Australian-owned fast-food operator, having grown from 450 stores to 620 during Quadrant’s four years of ownership.

Archer Capital partner Peter Gold told SmartCompany that QSR has plenty of opportunities to improve its offering.

Collins is based in Queensland – the franchise capital of Australia – and operates 119 KFC outlets and 26 Sizzler restaurants nationwide. The first KFC store was opened in Brisbane in 1969 and the first Sizzler followed in 1985.

PEP bought into the business six years ago and while some investors have raised concerns about private equity firms stripping businesses bare before flogging them off, investors are expected to be attracted to the chain’s defensive nature in uncertain economic times.

A fund manager told Reuters last month that KFC accounted for four-fifths of Collins Foods Group’s sales, which are tipped to grow by 5% in 2012 from $400 million.