Dunkin’ To See Slow Growth

Josh Kosman of the New York Post this morning warns investors looking at Dunkin' Donuts' IPO that they may want to watch their appetite.The now anticipated $600 million will go to pay Dunkin's sizable debt. Any growth that is promised must come from its troubled franchised shop owners. And franchisees are telling the Post that growth from existing franchisees will be slow.

If the growth is coming from existing franchisees, it is going to be slow," said one franchisee, who asked to remain unnamed. "This brand really needs a shared growth strategy.

In other words, Dunkin' will grow inasmuch as its franchisees are nourished and want growth, or the franchisor decides to become a baker by setting up its own bakeries to expand nationwide.

How big is the franchisor's debt that investors will help pay? BIG.

Private equity backers — Bain Capital, Carlyle Group and THL Partners — plan to use the IPO proceeds to repay $475 million in high-interest debt owed to banks and to refill a $100 million revolving line of credit. Dunkin' will still have about $1.8 billion in debt, or about 6.5 times earnings before interest, taxes, depreciation and amortization.

Dow Jones reports that the franchisor plans to sell 22.3 million shares at $16 to $18 a share to repay its debt but the New York Post reports now more is anticipated.