Guzman y Gomez (GYG) is set for an ASX IPO. Here's what we already know

The Mexican food chain has revealed some spicy IPO details.

IPO written in yellow and stuck in the air.

Image source: Getty Images

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Guzman y Gomez (GYG) is planning to become an ASX business by the end of the month, through an initial public offering (IPO).

GYG sells Mexican-inspired, made-to-order food across drive-through restaurants and outlets on shopping strips, food courts and universities. The quick-service restaurant (QSR) has been thinking about an IPO for years and it is finally making the jump.

GYG aims for $2.2 billion valuation

The company is aiming to raise approximately A$242.5 million in the ASX IPO, by selling 11.1 GYG shares at a price of $22 per share. This includes existing shareholders selling $42.5 million of shares during the process.

Guzman y Gomez plans to use the $200 million of primary proceeds to fund its growth strategy over the coming years, with a focus on the "significant expansion" of its corporate restaurant network in Australia. The funds will provide flexibility to accelerate its growth strategy if "appropriate opportunities arise".

If GYG is successful with its ASX IPO, the offer price will value the company at approximately $2.2 billion.

There is no offer for the general public. However, GYG shares are available to institutional investors, clients of some brokers, other eligible GYG shareholders and certain investors, eligible employees of GYG in Australia and eligible franchisees. The general public can buy GYG shares on the market once shares are trading later in June.

GYG has received "considerable support" and demand from existing shareholders including Aware Super, Cooper Investors, Hyperion Asset Management, Firetrail Investments and QVG Capital.

According to Guzman y Gomez, the board, senior management and existing substantial investors will own 62% of the business after the ASX IPO.

The offer is reportedly fully underwritten by Barrenjoey and Morgan Stanley Australia.

GYG shares are expected to start trading on 20 June 2024, initially on a conditional and deferred settlement basis under the ticker 'GYG'.

Guzman y Gomez's plans for growth

The business opened its first restaurant in Sydney in 2006, and it now has 210 restaurants across four countries, with 185 restaurants in Australia, 16 in Singapore, five in Japan and four in the US.

GYG expects to open 30 new Australian restaurants in FY25 and believes it can increase this to opening 40 restaurants per year within five years. GYG thinks it can grow its Australian network to more than 1,000 restaurants over the next two or so decades.

Of Guzman y Gomez's 185 Australian restaurants, 62 are corporate restaurants and 123 are franchise restaurants. The Singapore and Japan restaurants are owned and operated by separate master franchisees, while the four in the US are corporate restaurants.

Between FY15 and FY23, GYG's global network sales have increased from $101 million to $759 million. The Mexican food business is expecting global sales of $1.14 billion in FY25 thanks to "strong comparable sales growth and ongoing network expansion."

It's expecting to improve the guest experience and leverage the benefits of scale to enable its underlying/pro forma earnings before interest, tax, depreciation and amortisation (EBITDA) to grow from $29.3 million in FY23 to $59.9 million in FY25.

Management believes there is a large growth opportunity in the US fast food market, but it will adjust the pace of restaurant expansion to ensure "robust restaurant economics". All four of its US stores are in the suburbs of Chicago.

GYG said the health and profitability of its franchisees are "fundamental." According to GYG, its Australian franchisee return on investment is 51%.

Management comments

The GYG founder and co-CEO Steven Marks said:

Over the last 18 years, the team at GYG have been obsessed with providing our guests with the freshest, cleanest and fastest made-to-order Mexican-inspired food. I am incredibly proud to say that we now do this across more than 200 restaurants in Australia, Singapore, Japan and the US. And the most exciting part is that we are just getting started.

As we commence the next chapter as an ASX-listed company, our vision to reinvent fast food and change the way the masses eat will remain central to what we do. We truly believe that fast food doesn't have to be bad food and we look forward to sharing our food with more guests across Australia and overseas as we look to realise the opportunity we have to grow our network to more than 1,000 restaurants over the next 20+ years.

What next for the potential GYG shares?

The Guzman y Gomez ASX IPO offer opens on 10 June 2024, and GYG shares are expected to start trading on 20 June 2024 on a conditional and deferred settlement basis. Normal trading is expected on 25 June 2024.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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