Panera Next Gen Cafe
Shake Shack founder Danny Meyer to invest directly into Panera IPO with USHG Acquisition Corp.
Deal will effectively allow SPAC investors to get IPO allocation at real pricing level
Normally regular investors cannot get access to IPO allocations which are reserved for institutions
Attorneys not involved say structure appears permissible
SPAC cheerleaders like Chamath Palihapitiya have argued that the structure democratizes investing by allowing the average Joe to take stakes in early-stage companies. Restauranteur and Shake Shack, Inc. founder Danny Meyer may do one better with his SPAC agreeing to buy into the Panera Brands IPO.
Mr. Meyer’s SPAC, USHG Acquisition Corp. (ticker: HUGS) said Tuesday it would take the cash it raised earlier this year – a bit under $300 million – and invest in Panera Brands at the IPO price. Panera Brands, which owns Panera Bread, Caribou Coffee and Einstein Bros. Bagels, went private a few years ago and announced Tuesday it would return the public markets with an IPO, which is likely to be a multi-billion dollar deal assuming HUGS takes a modest percentage of it.
The innovation comes after other players including William Ackman and his Pershing Square Tontine Holdings attempted to make various tweaks to the SPAC structure. Mr. Ackman, who pursued a stake in Vivendi’s Universal Music, considered using a portion of SPAC proceeds for one deal and saving the rest for another. Regulators apparently frowned upon such a structure in part because SPACS are generally designed to deploy 90% of their cash rather than only use part of it.
Mr. Meyer’s deal is different. In essence, he will allow anyone who owns HUGS to purchase the Panera IPO at or near the offer price – something that is virtually impossible for regular investors to do in substantial size. Investment banks give the real allocations to big institutions who can often enjoy a “pop” in the early days of trading when retail investors may be forced to buy at higher prices if they want to own shares.
But investors who purchase HUGS now around $10 will essentially get to own Panera at the IPO price reserved for big clients. The HUGS shares would quickly convert to Panera shares, effectively allowing them to enjoy the “pop” like the big boys. (This may already be apparent to some investors, given that HUGS is trading up about 7% premarket Tuesday).
There is good reason for enthusiasm around Panera. Many restaurants have recovered much faster than. expected from the pandemic, even beating the comparable 2019 same-store sales figures. Other notable restaurant IPOs have performed extremely well in recent months: Chicago-based Portillo’s Inc. is up 125% from from its recent IPO while Dutch Bros Inc., a fast-growing coffee chain, is up 195%.
Of course, investors who buy HUGS now will not have had a chance to review historical financials from Panera. Those will appear in a subsequent SEC filing according to the normal process for regular way IPOs.
However, HUGS investors, like those in any SPAC, will have the chance to redeem their shares for roughly $10 apiece in cash. That provides bulletproof downside protection for anyone who decides against owning Panera. In fact, the structure even allows investors to redeem after the Panera IPO occurs, allowing them to see how it trades.
The deal has other features that should inspire confidence. Mr. Meyer is personally investing more cash directly into the Panera IPO. And Panera’s private-equity owner JAB has agreed to cover any redemptions from HUGS with its own cash.
One important question is whether the SEC will give the deal its blessing. Multiple attorneys not involved in the deal told IPO Edge early Tuesday that the structure appears permissible.
There’s been no shortage of excitement in the SPAC world in 2021 and not every innovation will work. But Mr. Meyer’s deal appears to have the ingredients for success.
John Jannarone, Editor-in-Chief