Muscle Maker CEO on mini IPO: 'Customers love our food. Now, they can own our stock.'
Muscle Maker Grill is the latest fast casual hoping to go public, and it's relying on the loyalty of its customers and employees to help make it happen. The chain, which has more than 50 franchised and corporate restaurants in 12 states, announced last week that it was making the move by taking advantage of a provision of the JOBS Act — Title IV (Regulation A+). Known as a mini-IPO because costs are much lower than a traditional IPO, and the ongoing disclosure requirements are much less burdensome, Reg A allows private companies to raise up to $50 million from the public.
That means people who traditionally don't have the funds or financial backing of banks have the opportunity to invest, a benefit that the chain's CEO, Bob Morgan, is using to his advantage.
"Reg A allows our passionate customers, patrons and followers the opportunity to not only love our food, but to be an owner of the business through stock ownership," he said during an interview with FastCasual. "Our customers and employees are committed to us. And we love, that now, the average person can be an owner. It's a competitive edge that we have. If I'm a person taking my friends out to lunch, I'm going to take them to the place that I own a piece of. We also gave stock grants down to general managers.
"Having all of those customers and employees — everybody pulling the wagon in the same direction is going to do it for us."
Morgan believes the company's recent successes prove its worth. Corporate revenues, for example, are up 86.4 percent for the first nine months of 2017, the chain has seen 12.44 percent sales growth for the third quarter of 2017, for corporate store restaurants that have been open 15 months.
FastCasual and Morgan discussed the mini IPO and the company's growth plans. See below.
Q. Are you confident that this will help grow the business?
A. Yes, we have passionate customers, franchisees and followers, so we believe that extending the opportunity for our loyal customers who love our food, but to be an owner of the business through stock ownership will result in a very dedicated group of customers, franchisees and employees that will help us to support our aggressive domestic and international expansion plan as well as expanding our presence on military bases.
Q.Some news broke this week calling attention to the fact that there was a "going concern" in the IPO filing because of the the chain's reported net loss of $4.2 million in 2016. Should investors be concerned?
A. No, it's the opposite, actually.
Most people not familiar with the IPO process won't realize that about 50 percent of companies applying have a "going concern." To me, it's a bigger red flag if you don't have one because what that means is that you probably didn't invest enough up front. It costs about a million dollars to just get the paperwork and everything in order. Plus, we spent a lot of money opening 10 new locations, developing a new website and loyalty program, for example.
When we started, we were more of a ma and pa shop, but with the $5 million investment we got from American Restaurant Holdings, we are taking it to the next level. You gotta invest a lot to succeed, and when you put it on your books, it looks like you have lost money, but you are crazy not to invest it.
Q. How much money are you hoping this will generate?
A. Muscle Maker, Inc seeks to raise up to $19,999,998 in its Initial Public Offering and intends to use the proceeds from the offering to fund domestic and international expansion, working capital and other general corporate purposes.
Q. What will those funds go toward?
A. Growth. We are excited because we've grown quickly — going from two to 12 corporate locations in the last 15 months — and we're about to open in Kuwait in 30 days, so now we're international. That's a 10-unit deal. We're also really excited about the military. We have five base locations, and think the military is going to be perfect for us. They really see the need for healthy food.
Q. Why the mini IPO versus the standard?
A. We felt that the mini IPO was a better fit for our needs. The new Regulation A+ Initial Public Offering, allows qualified investors who traditionally do not invest to have the opportunity versus the much larger banks and financial institutions. The little guys are who helped us get to where we are today, so we wanted to make sure they had a chance to be involved instead of being boxed out by the big guys.
Reg A allows our passionate customers, patrons and followers the opportunity to not only love our food, but to be an owner of the business through stock ownership. They love our food, now they can own the stock.
Topics: Franchising & Growth
Before joining Networld Media Group as director of Editorial, where she oversees Networld Media Group's nine B2B publications, Cherryh Cansler served as Content Specialist at Barkley ad agency in Kansas City. Throughout her 17-year career as a journalist, she's written about a variety of topics, ranging from the restaurant industry and technology to health and fitness. Her byline has appeared in a number of newspapers, magazines and websites, including Forbes, The Kansas City Star and American Fitness magazine. She also serves as the managing editor for FastCasual.com.www