Dunkin' Donuts IPO: Doughnuts to go public

It's time to take the doughnuts public.

Dunkin' Donuts made "Munchkins" something to eat rather than characters on "The Wizard of Oz." It created Fred the Baker and coined the "Time to Make the Donuts" catchphrase. President Barack Obama worked at its sister company, Baskin-Robbins, when he was a teenager.

And the next move for the company? It's going public, so it will be not just a place to get coffee but also a ticker on the Nasdaq — DNKN, if all goes as planned.

Dunkin' Brands Group Inc., the parent company of Dunkin' Donuts and Baskin-Robbins, on Wednesday filed regulatory papers saying it plans to raise as much as $400 million by selling shares to the public, using most of the money to pay off debt.

The company didn't say when the Baskin Robbins and Dunkin' Donuts IPO might be, or how many shares it would offer.

Dunkin' Brands is currently owned by private-equity firms, who bought it in 2005 from wine and spirits distributor Pernod Ricard. The owners, Bain Capital Partners, Carlyle Group and Thomas H. Lee Partners, do not plan to sell their shares, the company said.

The company said it would use its proceeds from the stock offering to pay down about $475 million in high-interest debt owed to banks. That money was borrowed partly to pay a $500 million dividend to some of the company's current shareholders.

Dunkin' is also hoping it will have money left over to fund expansion plans.

The Canton, Mass. company's stores are concentrated in the northeastern U.S., where it has about one location for every 9,700 people. Now it wants to expand into the unconquered western U.S., where it averages one store per 1.2 million people.

Its owners have been reshaping the store beyond doughnuts and coffee. The company hired an executive chef and a technology head, added egg-white sandwiches to appeal to the health-conscious and bragged about its new doughnut with no trans fat.

It also moved into gas stations and started selling its coffee beans in grocery stores. It ran commercials with a supermodel and the guitarist from Kiss.

And, perhaps most importantly, it's waging war with Starbucks for the hearts and discretionary spending of coffee drinkers.

While Starbucks churns out fancy drinks and encourages visitors to plug in their laptops and stay a while,Dunkin pushes a cup o' joe at a reasonable price and doesn't suggest that its guests linger. It wears its blue-collar roots proudly: It started in 1950 when a food-cart vendor opened a coffee-and-doughnuts store catering to factory workers.

Eric Giandelone, director of food service research at Mintel, said he thinks there's room for both. Unless, he added, Starbucks keeps trying to poach Dunkin' customers with $1.50 coffee.

At Dunkin' Donuts, coffee and other drinks make up nearly 60 percent of U.S. revenue.

And even though the restaurant industry took a wallop in the recession, doughnuts fared well. In 2009, in the depths of the recession, traffic to fast-food restaurants fell 3 percent. But traffic at doughnut shops rose 3 percent, according to Bonnie Riggs at The NPD Group. 2010 followed a similar trend: Traffic at fast-food restaurants overall was flat, while traffic at doughnut shops rose 4 percent.

Dunkin Brands' announcement Wednesday is another sign that the market for IPOs, lethargic in 2008 and 2009, is picking back up. Last year, 257 companies filed to go public, according to Renaissance Capital, up from 107 in 2008 and 119 in 2009.

Two of the better-known companies to go public so far this year are car-sharing service Zipcar Inc. and Arcos Dorados Holdings Inc., the South American franchisee of McDonald's Corp.

Francis Gaskins, of IPOdesktop.com, says Dunkin is a "another relatively dull boring leveraged buyout with established brands and modest growth expectations." He said the company will have to price shares at "somewhat of a discount" to attract investors.

Dunkin' Brands has about 16,200 locations worldwide, behind Starbuck's 16,900. Revenue at Dunkin's U.S. stores open at least a year rose 2.7 percent in the first quarter. At Starbucks, that measure rose 7 percent.

The company lost $1.7 million in the first quarter of 2011, largely tied to costs to refinance debt, compared with $5.9 million in net income the year before. The company filed an earnings report because some of its debt will be publicly traded.

It also noted in Wednesday's filing that the IRS is auditing its tax returns for 2006, 2007 and 2008.

You can't talk about Dunkin' going public without being reminded of the cautionary tale of Krispy Kreme Doughnuts Inc., the much-smaller North Carolina company that went public to great fanfare in 2000 and then nearly collapsed after rapid expansion and an SEC accounting investigation that lasted five years.

Dunkin could be set for a sweeter future. Conrad Lyon, an analyst at B. Riley & Co., said Krispy Kreme's woes were due to missteps by the later-deposed management, not issues in the coffee-and-doughnut sector.

"It's more of a personality issue than anything," Lyon said.