Dunkin’ announced Monday that the lead underwriters in the company’s recent IPO plan to waive the lock-up restriction for up to 732,758 shares held by 15 executives, former executives and directors at the company. Bain was one of three private equity firms that invested in Dunkin’ before the company’s IPO.

The shares, worth about $19 million at Friday’s closing price, amount to about 0.6 percent of the company’s 120.1 million shares.

The officers and directors at the company who will see the IPO lock-up waived include:
Nigel Travis, CEO of Dunkin Brands and president of Dunkin’ Donuts U.S.
Neil Moses, CFO Dunkin’ Brands.
John Costello, chief global marketing and innovation officer.
Richard Emmett, svp and general counsel.
Kate Lavelle, former Dunkin’ Donuts CFO.
Paul Twohig, COO Dunkin’ Donuts U.S.
Jon Luther, former Dunkin’ CEO.
Todd Abbrecht, Managing Director at Thomas H. Lee Partners  .. .
Andrew Balson, Managing Director at Bain Capital Partners, LLC.
Anita Balaji, Vice President at The Carlyle Group  .. .
Anthony DiNovi, Co-President of Thomas H. Lee Partners.
Sandra Horbach, Managing Director of The Carlyle Group.
Michael Hines, Board member.
Mark Nunnelly, Managing Director at Bain Capital Partners, LLC.
Joseph Uva, board member and former president and CEO of Univision Communications Inc.

Earlier this month Dunkin’ reported that third quarter sales were up, but income dropped. The firm also said on Nov. 1 that it would offer 22 million shares of its common stock for sale in a secondary offering.

Read more at: Boston Business Journal

Other Related stories: Dunkin’ Brands Announces Waiver of IPO Lock-Up Restriction for Certain Officers and Directors

Terms of the deals were not disclosed.

The Louisville, Ky.-based Yum Brands, which also franchises KFC, Pizza Hut  and Taco Bell, said Long John Silver’s would be sold to LJS Partners, a  consortium of franchisees and other investors. A&W Restaurants will be sold  to A Great American Brand, which Yum described as a “franchisee leader with  substantial interest in A&W restaurants.”

Both sales are expected to be completed in the fourth quarter, Yum said.

“As we continue to sharpen our long-term growth focus on international  expansion and improving our U.S. brand positions in KFC, Pizza Hut and Taco  Bell, Long John Silver’s and A&W no longer fit our long-term growth  strategy,” Yum Brands chairman and chief executive David Novak said in a  statement.

Yum noted that the two sales would not have a material impact on corporate  earnings or cash flow.

Goldman, Sachs & Co. acted as Yum’s exclusive financial advisor on the  sales.

Read more: Nation’s Restaurant News

The agreement was negotiated by a team of franchisees: Jim Cain, Bill Daly, Mark Dubinsky, John Motta, Rod Valencia and Ed Wolak. They were known as the G-6 and represented, in equal parts, the Brand Advisory Council (BAC), the Enterprise Advisory Council (EAC) —representing TOGO’s and Baskin’ Robbins—and DDIFO.

According to John Motta, a G-6 member and the BAC co-chair at the time, there was little doubt the letter would resurface one day. Back in 2005, Dunkin’ Brands was sold to a trio of private equity firms whose terms negated the opportunity for a public stock sale.

“I put my copy of the letter in a safe place, because I always thought that the private equity companies would spin us off and there would be IPO,” said Motta. “Some people thought it was a dead deal, but I always felt they would honor it.”

Motta says Luther initiated the original concept of the G-6 and worked with representatives of the new ownership team to approve the pre-IPO sale. Other terms requested by the G-6, including the inclusion of a franchisee on the Board of Directors, were discussed but ultimately rejected by Dunkin’ Brands.

“Because of the make-up of the G-6, we were truly independent of all entities and that gave us the ability to have productive dialogue with Luther and [former Dunkin’ Donuts President Will] Kussell,” Motta said.

In the weeks and months leading up to the agreement, G-6 members took two trips to New York to interview with potential buyers. Before those fact-finding missions, the group engaged Riparian Partners, a Rhode Island merger and acquisition advisory firm, to study the pending sale. “That helped us be sure we asked the right questions and were on the right course,” Motta said.

Former franchise owner and G-6 member Mark Dubinsky remembers DDIFO playing an important role behind the scenes ensuring the franchisee community’s concerns were addressed. Those concerns included distribution in new channels and opportunities to invest in new markets.

“The G-6 worked diligently to extract the maximum benefit for the franchisees during what many franchisees perceived as a potentially perilous transition period. While I remain proud of our efforts, I—for one—was not completely satisfied with our results.”

In a statement to DDIFO, Luther, who is now non-executive Chairman of the Board of Dunkin’ Brands said, “The Dunkin’ Donuts and Baskin-Robbins brands were built one franchisee at a time, and hence the company felt it was important to offer this program.  We were very pleased with the participation from our corporate employees and the franchise community, and we look forward to writing the next history of our chapter together.”

Since its blockbuster opening where it jumped more than 50 percent over its $19 per share initial price at one point, Dunkin’ Donuts stock—traded under the symbol DNKN—has traded at around $25 per share.

According to Lynn Cowan, a reporter for the Wall St. Journal, “Analysts caution that the company’s debt level is high and its valuation is steep compared with other quick-service chains that court a breakfast crowd. Dunkin’ Brands is entirely franchised, so those mom-and-pop shop owners are responsible for most of the costs to launch and maintain doughnut and ice cream shops. The result is higher operating margins and a richer stock valuation compared to company-owned store model favored by Starbucks.”

According to an unscientific survey of DDIFO members, 62 percent said they were planning to purchase DNKN stock at the IPO. A subsequent survey finds that 30 percent have since sold their shares.

Just weeks after the IPO, Dunkin’ Brands began its process of reporting quarterly earnings to its shareholders. For the second quarter, Dunkin’ reported a profit of $17.2 million, down from $17.3 million a year earlier. Revenue rose 4.4% to $157 million, and its operating margin widened to 39.3% from 38.4% though operating expenses were slightly higher.

Even as analysts spin the earnings reports and Dunkin’ Brands’ leadership charts its expansion course across America, Motta believes franchisees will continue their focus on day to day operations and the strengths that have built Dunkin’.

“Franchisees are still going to be focused on customer service and unit profitability,” he said.

The Securities and Exchange Commission describes insider trading as follows: Illegal insider trading refers generally to buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, while in possession of material, nonpublic information about the security.

Insider trading violations may also include “tipping” such information, securities trading by the person “tipped,” and securities trading by those who misappropriate such information.
A person can be liable for “tipping” others even if that person does not buy or sell shares himself.  In the same way, a “tippee” can be liable for trading even if that person is not a company insider, as long as the “tippee” receives material nonpublic information from a corporate insider.

Company insiders may not use nonpublic information to trade stock for gain.  Similarly, the improper acquisition and use “material nonpublic information” to trade securities is prohibited.  “Material nonpublic information” is information that investors would likely consider important in making investment decisions.
Over time an “insider” has come to be defined to include corporate officers, directors and employees.  While franchisees are not corporate employees, they could be considered business associates of corporate insiders, thus corporate insiders.  This may be particularly true of franchisees that by reasons of leadership positions are privy to brand-sensitive information.
These rules do not prohibit you from owning the shares of DNKN.  However, if you do decide to buy or sell shares of DNKN, you should be careful to scrupulously observe these laws and not buy or sell DNKN shares based on material nonpublic information.

The SEC’s website states as follows: Because insider trading undermines investor confidence in the farness and integrity of the securities markets, the SEC has treated the detection and prosecution of insider trading violations as one of its enforcement priorities.

The government has brought both criminal and civil prosecutions against people for insider trading.

You should also be careful with information outsiders may seek on the condition of your business, new products, sales, sales mixes and any number of other topics.  This information is generally not known publicly, and some traders and analysts may try to get an edge by using information that you might have.  Please be sure not to communicate with these people, and instruct your employees, as you usually do not pass along any such business information.

Passing along inside information, even if you do not trade on it, could put you in violation of these laws.  Even passing inside information to family members could make you liable under the securities laws if family members trade based on that information.

Finally, a reminder that section 10 of your franchise agreement contains a confidentiality provision that requires you to refrain from (a) sharing Confidential Information with anyone, or (b) using Confidential Information for the benefit of anyone, except in carrying out your obligations under the agreement.

If you have any questions, we urge you to consult your own professional advisors and to visit the SEC’s website at http://www.sec.gov/answers/insider.htm.

Click Book to Buy at Amazon

Josh Kosman’s new book is called “The Buyout of America: How Private Equity Is Destroying Jobs and Killing the Economy.” As a business reporter specializing in private equity, mergers and acquisitions for the New York Post, Kosman has specific insight into how private equity firms buy and sell companies and what happens to those companies as a result.

Kosman has written extensively on Dunkin’ Donuts and the recent IPO and will be a featured speaker at the upcoming DDIFO National Members Meeting on September 20, 2011 at Mohegan Sun.

“There is a risk when a company like Dunkin’ is owned by private equity firms that the owners won’t reinvest their profits back into the brand,” said Kosman. “There is pressure for growth not just to satisfy the private equity owners but also for the shareholders. Private equity companies care about how the stocks in their portfolio perform because it tells them what real value of their investment is. If they sell too many shares the value goes down. It creates artificial demand, and in the case of Dunkin’ Donuts, it worked.”

Dunkin’ Brands has made it clear that their strategy for growth is expanding into territories beyond the traditional development triangle that runs from New England to Chicago to Florida. Kosman points out they’ve tried to expand for years but now there’s added incentive because every move is being watched by analysts and investors.

“If I was a Dunkin’ franchise owner I would be concerned about how Dunkin’ Brands will attain the growth necessary for a publicly traded company to demonstrate value to shareholders,” said Kosman. “Will it mean that K-Cups will be sold through other channels? I don’t know but if I were a franchisee, I would wonder.”

Kosman believes private equity firms make fortunes by starving the businesses they own. He cites Domino’s Pizza and Burger King as examples. In the case of Domino’s which Bain Capital, one of the trio of firms that still controls 78 percent of Dunkin’ Brands,  bought in 1998 Kosman says, Bain—after introducing 30-minute delivery—sat back and collected its profits and did not improve the product while the company lost market share. Five years after going public, in 2009, the company set about reinventing itself with a new recipe and a focus on ingredients—not just its 30-minute delivery guarantee.

In the case of Dunkin’ Donuts, Kosman says, the private equity groups timed their IPO pretty well. “When Dunkin’ went public other specialty retailers like Francesca’s Holdings, a women’s boutique, had already popped 63% on their first day of trading which showed that specialty retailers are a flavor of the day for investors.”

In his upcoming talk at the DDIFO National Members Meeting, Kosman says he plans on discussing private equity’s track record in restaurant companies and what is to be learned from examples like Domino’s and Burger King. He says he wants franchisees to better understand exactly what they’re dealing with now that Dunkin’ has become a publicly traded company with the private equity trio maintaining majority ownership. At the time Bain, Carlyle and Thomas H. Lee purchased Dunkin’ they paid approximately 13.5 times EBIDA and was criticized for the price of the purchase but, Kosman points out, today it’s trading above that multiple.

He also will address future competition for Dunkin’ as the company looks to expand its number of stores. Specifically, he says, Tim Horton’s the Canadian-based coffee and donut chain is lining up as a direct competitor—along with McDonald’s and Starbuck’s—with its aggressive growth plans and lower debt to earnings ratio.

Kosman says it is clear Dunkin’ Donuts franchisees have demonstrated how to use their power as an influential stakeholder. He points to the firing of Steve Horn as one example of how franchisees used their collective strength to exert pressure on the company at a time when negative media reports of excessive litigation roiled the company’s leadership.

MarketWatch:  Six years after a gang of private-equity investors took Dunkin’ Donuts private, they’ve decided the time is right to tap the capital markets and toss it back into the public arena.

The prospectus is predictably glowing and full of grand plans. The company envisions doubling its footprint. That means management wants to double its number of stores. Of course they do! Most of the revenue (62%, according to the Deal Journal) comes from royalties and franchise fees. The more Dunkin’ Donuts or Baskin-Robbins ice-cream shops that open, the fatter the revenue stream to the mother ship.

But this isn’t a slam-dunk business plan.

Dunkin’ Brands already has 16,000 “points of distribution,” as the company calls them, in 57 countries, with an especially high concentration in Dunkin’s native New England.

Dunkin’s history and much of its business model smacks of Krispy Kreme Doughnuts . After decades of slow, steady growth across the South, that company got cocky and launched a big push into other regions. It went public in 2000, offering its stock at $21 a share. The shares debuted at $32 and finished their first day of trading at $37. The euphoria lasted three years, then faded fast. So did the share price, peaking at $49.74 in August 2003 before plunging to $1.01 in February 2009. The fall raised the possibility of bankruptcy.

Admittedly, just about everyone’s stock cratered in 2009. But Krispy Kreme’s descent began well before the onset of the Great Recession. It simply got top-heavy, crushed by the weight of its own aggressive expansion and investors’ unrealistic expectations. It’s made a reasonable recovery since and now trades around $5.45 a share. But getting there required some draconian culling of its franchise empire.

There are plenty of reasons to think things might be different for Dunkin’. Its coffee business puts it more in a league with Starbucks /quotes/comstock/15*!sbux/quotes/nls/sbux SBUX +0.08% , and it has plenty of aficionados. It also has an ice-cream business. But that hardly makes it diversified. It’s still peddling sugar and caffeine, both of which are vulnerable to the vagaries of volatile commodities markets, and both of which are nonessential.

So glassy-eyed plans to double the footprint looks like a familiar case of overkill.

But, hey, hasn’t the doughnut business always been about excess? Given the public’s uncontrollable urge for food fads and all things sweet, no one should be surprised if the offer is oversubscribed. It’ll be a real sugar rush.

Hanging on to the stock much past the IPO, however, could end up looking like a kid on a sugar crash — a blubbering, sticky mess.

Admittedly, just about everyone’s stock cratered in 2009. But Krispy Kreme’s descent began well before the onset of the Great Recession. It simply got top-heavy, crushed by the weight of its own aggressive expansion and investors’ unrealistic expectations. It’s made a reasonable recovery since and now trades around $5.45 a share. But getting there required some draconian culling of its franchise empire.

There are plenty of reasons to think things might be different for Dunkin’. Its coffee business puts it more in a league with Starbucks , and it has plenty of aficionados. It also has an ice-cream business. But that hardly makes it diversified. It’s still peddling sugar and caffeine, both of which are vulnerable to the vagaries of volatile commodities markets, and both of which are nonessential.

So glassy-eyed plans to double the footprint looks like a familiar case of overkill.

MarketWatch

From Wall Street Journal

Lynn Cowan of the Wall Street Journal covers the big story that Dunkin’ Brands Group Inc., operator of the seemingly ubiquitous Dunkin’ Donuts chain, is the latest private-equity-backed offering to arrange to go public in the U.S., with the coffee and doughnut restaurant chain registering for an IPO on Wednesday.

Dunkin’ Brands, which was acquired in 2006 by a group of private-equity firms, registered to sell up to $400 million in common stock in an initial public offering; that number is used solely to calculate filing fees, so the final amount it raises could vary significantly.

The company didn’t specify a price range, share size or date for its IPO, but most deals take about three months from filing to launch, so it is likely to go some time this summer. Dunkin’ which operates the Dunkin’ Donuts coffee shop chain as well as Baskin-Robbins ice cream shops, plans to list on the Nasdaq Stock Market under the symbol DNKN.

Dunkin’ Brands Group is seeking some serious dough. The owner of the Dunkin’ Donuts chain as well as Baskin-Robbins ice cream shops, today filed to go public. (Sorry for the terrible pun.)

Dunkin’ Deal: Five Things You Didn’t Know:

1. Financials: It turns out doughnuts are a really good business. Dunkin’ Brands pulled down $577.1 million in revenue last year, about 7.3% higher than a year before. And the company’s total operating income for 2010 was $193.5 million. That gives Dunkin’ Brands a quite enviable operating profit margin of roughly 34%.
2. How Dunkin’ Brands makes money: About 62% of the company’s revenue last year came from royalties and franchise fees paid by the business owners who buy the rights to open Dunkin’ Donuts and Baskin-Robbins stores. All stores are owned by franchisees. About 60% of Dunkin’s total sales are from coffee and other beverages. That’s quite a jolt.
3. Feel surrounded by doughnut shops in New England? You’re right: From the IPO filing – “In our traditional core markets of New England and New York, we now have one Dunkin’ Donuts store for every 9,700 people. In the near term, we intend to focus our development on other existing markets east of the Mississippi River, where we currently, have only approximately one Dunkin’ Donuts store for every 48,400 people”
4. Trouble with the tax man: Dunkin’ Brands disclosed that the IRS is currently auditing its federal income tax returns for 2006, 2007 and 2008. The company’s IPO filing said the IRS “has proposed adjustments for fiscal years 2006 and 2007 to increase our taxable income as it relates to our gift card program, specifically to record taxable income upon the activation of gift cards.” Dunkin’ Brands said it is fighting the IRS on this point.
5. Look out China: Dunkin’ Brands has ambitious growth plans in both the U.S. and abroad. The lion’s shares of Dunkin’ Donuts’ and Baskin-Robbins’ collective 16,000 locations are in the U.S. For international expansion, Dunkin’ Donuts is eyeing China, Germany, Spain and Russia. Baskin-Robbins is shooting for expansion in China, Russia, Mexico, Australia and Indonesia. (Dunkin’ Donuts also coming to India, perhaps by early 2012.)

Bankers and market observers say more private-equity-backed IPOs like that of Dunkin’ Brands are likely to be filed this year, as the funds owning the stocks seek to exit positions they took years ago. In Dunkin’ Brands’ case, Bain Capital Partners, Carlyle Group and Thomas H. Lee Partners LP have owned the company for five years; they purchased it from liquor company Pernod Ricard SA for $2.43 billion.

Earlier this year, private-equity-backed hospitals operator HCA Inc. and energy company Kinder Morgan Inc. completed successful IPOs of more than $1 billion each. While the offering from Dunkin’ Brands isn’t likely to be as big as either of those deals, the company’s brand recognition is likely higher among investors, said Scott Rostan, a former investment banker and founder of Training the Street, a financial-services learning company that trains junior professionals at investment banks in accounting, valuation and financial modeling skills. Both Dunkin’ Donuts and the Baskin-Robbins brands date back to the 1940s.

“Dunkin’ is going to be a good bellwether on two fronts: one for private-equity backed companies seeking to go public, and also as further evidence of the strength and momentum of the IPO market this year,” Mr. Rostan said.

Read more at Wall Street Journal

The presentation is titled: The Franchisor In Play: Your Role as a Stakeholder, Not a Spectator

Eric made this same presentation at DDIFO’s National Members Meeting. For more information read: Franchisees as Stakeholders Your Rightful Claim