Portillo’s late Monday launched a US$227.5m "synthetic" secondary to allow sponsor Berkshire Partners to pare its stake, a deal that follows a 45% surge in the Chicago-style hot dog chain's stock price in the past two weeks.
Jefferies, Morgan Stanley, Bank of America and Piper Sandler are leading the two-day marketed sale of 8m Class A shares or about 11% of outstanding A and B shares versus Monday's US$28.44 close.
Portillo's shares fell 9.1% to US$25.84 early in Tuesday's session after soaring to as high as US$28.93 on Monday, up sharply from US$19.61 on July 26 and now back above the chain's US$20.00 IPO price set in October last year.
Marking its first follow-on since the US$405.4m IPO, Portillo's is using proceeds to buy LLC units mostly from Berkshire (the "synthetic secondary" nature of the deal). Berkshire, which is reducing its stake to 54.3% from 65.6%, and other major holders have agreed not to sell more shares for 75 days.
The secondary stock sale comes on the heels of Portillo's second-quarter earnings report last Thursday, which showed weaker-than-expected same-store sales growth but better-than-expected margins as the chain fended off the twin challenges of rising meat prices and labor costs.
The sharp move higher accompanied a rally in growth stocks despite concerns about the macro environment, delays in new openings and pressures that saw same-store sales rise only 1.9% in the period as price rises offset lower traffic.
Nevertheless, higher restaurant-level Ebitda margins (25.5%) seem to have restored faith in the chain’s long-term growth prospects, analysts note.
Portillo's operates 71 restaurants in nine states and is best known for its Chicago-style hot dogs, Italian beef sandwiches, char-grilled burgers, fresh salads and chocolate cake.