Kiso Asian Restaurant Chain Prepares IPO Amid Sector Uncertainty Following Japnika Violence
Next week, the Asian restaurant chain Kiso is set to launch its initial public offering (IPO), testing the appetite of institutional investors for the dining sector. Until recently, the restaurant industry was deemed high-risk and largely avoided by institutional funds. However, in the past year, investment firms, led by Leumi Partners, have entered the market, backing chains like Mymy Vanuno and Japnika. Business figures have also invested in Kiso, alongside Lantern, which invested in Biscotti, a dessert supplier for restaurants.
Kiso initially targeted a valuation of 400 million shekels, roughly double the price early investors paid. Yet, last week, institutional investors reportedly valued the company at only 300 million shekels, prompting speculation that the IPO might be canceled, a claim denied by Kiso's owners. The coming week will reveal whether institutional demand will support the IPO or if the owners will withdraw. Market conditions have cooled recently, with share prices falling and IPO demand becoming more selective. For example, the security firm Begira had to reduce its valuation by 25% under institutional pressure.
Complicating the restaurant sector's outlook is the violent episode involving Japnika, where grenades and explosives were thrown at seven branches amid organized crime disputes, possibly over franchise rights. Japnika operates over 40 branches, mostly franchises, with only a few owned by its founder, Barak Abramov. This incident has cast a shadow over Japnika's own IPO plans, which are currently on hold. Leumi Partners, which owns 20% of Japnika's parent company at a valuation of one billion shekels, may face scrutiny over its involvement given the criminal associations.
Recent IPOs in the sector also show volatility. Rustik Bakery, which produces frozen pastries for restaurants and retail, raised 200 million shekels at an 800 million shekel valuation two months ago, but its stock has since dropped about 17%, with high volatility and low trading volumes.
A senior analyst from a major Israeli investment house, who met with Kiso during its roadshow, noted that while Kiso's management is highly competent, the IPO is relatively small, involving only eight restaurants and annual revenues of 300 million shekels. The analyst highlighted the restaurant sector's vulnerability to external shocks, referencing closures during the COVID-19 pandemic and recent conflicts. The IPO includes a partial sale by existing owners, meaning not all proceeds will go to the company. The analyst also dismissed comparisons to large U.S. restaurant IPOs, emphasizing the scale difference.
Another analyst described the restaurant sector as attractive and profitable but acknowledged the challenging timing and small size of Kiso's offering. The market will have to wait to see if Kiso's IPO succeeds and at what valuation.
