Shake Shack Prices IPO at $21, Above Expectations, Source Says -- Update

By Corrie Driebusch 

Restaurant chain Shake Shack Inc., known for its burgers and crinkle-cut fries, priced its initial public offering above expectations at $21 apiece late Thursday, according to a person familiar with the offering.

The deal raised $105 million by selling 5 million shares, according to the person familiar with the offering, and gave the chain, which catapulted onto the dining scene 14 years ago as a hot dog cart in a Manhattan park, a valuation of roughly $745.5 million.

There was strong appetite for shares of Shake Shack, according to money managers. Reflecting that demand, the company earlier this week increased its price range to $17 to $19 a share from $14 to $16 per share, its original range.

Investors and analysts said the appeal of Shake Shack's shares lie mainly in the chain's growth prospects. Shares of so-called fast-casual restaurants have been gobbled up by investors in recent IPOs, in part on a bet that consumers will be spending more money eating out as falling gas prices leave more money in consumers' pockets after filling up their cars' gas tanks.

Among the most recent fast-casual restaurants to go public, burger chain Habit Restaurants Inc., priced above expectations at $18 per share and then soared 120% in its first day of trading in. Habit's shares have fallen back, but remains up 83% from its IPO price.

Shake Shack officially opened in 2004 and now operates 63 restaurants, with 31 company-operated restaurants--including seven in Manhattan--and five domestic licensed Shake Shacks in the U.S. The rest are internationally licensed, including 20 in the Middle East, according to its prospectus.

Though its current footprint is fairly small, its growth plans are big.

It plans to open at least 10 new domestic company-operated restaurants each year, beginning in fiscal 2015, for the foreseeable future, and expects to grow to at least 450 domestic Shake Shacks.

Troy Huff, a senior research analyst who covers consumer sectors for Nuveen Asset Management's small cap core and growth teams, said he was seriously considering the Shake Shack IPO, even though he acknowledged the growth plans can be viewed as lofty, since every Shake Shack is unique in its design and requires prime real estate.

"Most investors...they understand this is a very young company," Mr. Huff said.

Instead, the focus of many fund managers is on the average sales per Shake Shack, the margin profiles the different locations, and the development pipeline.

Shake Shack is set to start trading on the New York Stock Exchange on Friday under the symbol "SHAK". The deal is being led by J.P. Morgan and Morgan Stanley.

Write to Corrie Driebusch at [e-mail]

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