The Breakdown | Explaining Southern California's economy
Business & Economy

After Fender canceled its IPO, will Carl's Jr.'s hold up?

Will this be another Fender? Or will private equity make it to the IPO finish line?
Will this be another Fender? Or will private equity make it to the IPO finish line?

There's still an IPO market out there, folks, even after Facebook's train wreck with the public-offering process (and subsequent struggles with the stock market). Apollo Global Management, the private-equity group that owns, through an affiliate, Carl's Jr. and Hardee's parent CKE has just priced an IPO for the company at between $14 and $16 a share, according to LATimes.

Apollo took CKE private in 2010 for about $700 billion and plans to sell 13.3 million shares, which would raise somewhat less than the $230 million than Reuters reported on back in June, a month after CKE filed its IPO plans with the SEC with the intention of raising $100 million. It appears that the so-called "road show" for CKE, when investment bankers including Morgan Stanley and Goldman Sachs drum up investors, has attracted more interest in the Southern California-based company than was originally expected.

This is a good thing, as $100 million would mostly have gone to retiring $82.1 million in debt. Shedding debt is still in the picture, says the LAT. But CKE could now raise more than $100-million more to help Apollo recoup some of it's initial investment and to grow the company, known by many (with Carl's Jr., anyway) for its racy ads staring things other than burgers.

That is, if the IPO goes through. Another Southern California-based company, guitar maker Fender, got to the stage of pricing its IPO in early July, only to cancel at the last minute, citing a turbulent economy. Fender, also a private equity-owned firm, was also looking to use the IPO to get rid of debt.

These are two completely different businesses, so it's not an apples-to-apples comparison. And although Fender reduced what it expected to raise via an IPO, as has CKE, Fender's bankers seemed to see support fading, whereas CKE has only seen it weaken a bit since June.

What's similar is the use of the IPO process to raise money to pay down debt. That's a useful practice, but it can led investors to see a company as a one-time shot, rather than a operation that's going to reward investors with growth down the road. This may have been Fender's problem. For CKE, it's probably less of an issue.

Follow Matthew DeBord and the DeBord Report on Twitter. And ask Matt questions at Quora.