From mid-July through mid-August, the IPO market was cranking out new deals at a break-neck pace. Over this period, a staggering 35 new deals hit the market.  Activity came to a screeching halt, however, as there has only been one IPO since August 15. 

It is not uncommon for the IPO market to take a breather around the Labor Day weekend. With the recent volatility in the market and the notable headline risks – Syria, Potential QE Tapering, Looming Budget Battle in D.C. – the slowdown was more pronounced this time around.

With that said, there has been steady action “behind the scenes,” so-to-speak. Companies continue to file for IPOs and the pipeline is filling up with some intriguing upcoming deals. Today we wanted to take a closer look at a couple of them.

Potbelly Sandwich Works (PBPB)

On August 30, Potbelly Sandwich Works (PBPB) filed for a $75.0 million deal, led by BofA Merrill Lynch & Goldman Sachs. This one caught my attention for a few reasons: 1). It’s expanding rapidly and has an opportunity to franchise out more shops, 2). Restaurant IPOs, including Noodles & Co (NDLS) & Chuy’s (CHUY), have been very successful, and 3). Its’ menu/food is superior to many competitors.

BACKGROUND

PBPB had an interesting beginning. In 1977, it started out in a small antique store in Chicago. In order to differentiate itself, it began toasting its sandwiches — which, of course, is now replicated by larger chains like Subway and Quiznos.

In 1996, the original owner sold it to Bryant Keil, who had the vision of expanding Potbelly, opening the second store in 1997. It then took off, reaching 100 shops in 2005, 200 in 2008, and today, there are about 300 shops in 18 states.

PBPB owns a vast majority of its shops. Of the 286, it only franchises six of them. In 2010, it initiated a program to franchise shops and it intends to expand the number of franchise shops on a disciplined basis.

FINANCIALS AND GROWTH PROSPECTS

Overall, PBPB’s financials are solid. Its comparable store sales growth has been positive in twelve of the past thirteen quarters, revenue growth has been picking up, and it is profitable.

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PBPB has plenty of runway in terms of opening new shops. Last year, it opened 31 new company-owned shops, expanding into New York, Boston, Seattle, Phoenix, and Cleveland. This year, it is projecting to open 32-35 shops and over the long-term it plans to grow its store base by at least 10% annually.

Additionally, PBPB intends to expand its franchise program. It sees this as more of a long-term growth opportunity as it will gradually increase the number of franchised shops.

CONCLUSION

There is no shortage of competition, but, we believe that PBPB has a strong brand name in its markets, is known for its higher quality sandwiches, and has carved out its own loyal customer base.

Its financials look solid as well and it has plenty of room to expand. The question at this point is that of valuation, which we won’t have a handle on until the pricing specifics become available.

RE/MAX (RMAX)

Another high-profile company that has filed for an IPO is RE/MAX. On August 19, it filed to raise up to $100 million, planning to use $27 mln of the proceeds to reacquire franchise rights, with the remaining portion used to purchase common stock in holding company RMCO, LLC.

This will be an especially interesting one to watch as it will provide a barometer regarding sentiment around the housing sector. Had RMAX gone public when its main peer Realogy Holdings (RLGY) did last October, a strong pricing would have virtually been a slam dunk.

Of course, the environment has shifted quite a bit since then as housing related data has softened and housing-related stocks have cooled off.

BACKGROUND

RMAX has had the #1 position in the U.S. and Canada in terms of number of transactions completed since 1999. It operates under a franchise organizational model with four tiers (RE/MAX, Regional Franchise Owner, Franchisee, Agent) with nearly all branded brokerage offices operated by franchisees.

The majority of revenue is derived from franchise fees, annual dues, franchise sales, and broker fees.

FINANCIALS

Revenue for the six-months ended June 30, 2013 was up 12% y/y to $78.3 mln. Operating margin was 29.1%, roughly in line with a year ago, at 29.2%.

The company is profitable, with a net profit of $15 million for this period. Adj. EBITDA grew 25% y/y to $36.7 mln. The company has quite a bit of debt with $223.2 million on the books.

THE BOTTOM LINE

It’s unclear whether sentiment for housing will improve by the time RMAX does go public, so it is difficult to gauge how strong demand will be for this IPO.

With its widely recognizable name, strong market position, and generally solid financials, we would expect there to be good interest. It also appears to have better overall fundamentals than rival RLGY. But, again, much depends on investor sentiment for the housing market at the time of RMAX’ IPO.