Tag Archives: convertible notes




We wrote an article two days ago, reviewing the state of the restaurant industry at the one year anniversary of the pandemic.

As part of our “BOTTOM LINE”, advice to publicly held companies, we said “companies, in almost all cases, should sell company stock…..it may be a long time before you see these valuations again.”

Turns out, a week ago, Shake Shack (SHAK), carrying one of the very highest valuations ever seen for a restaurant company, did just that !

SHAK has a $4.8 billion valuation attached to a total of 311 locations, systemwide (183 domestic company operated, 22 domestic licensed, 106 int’l licensed). This values each of the current system locations over $15 million. There is a very long runway for growth and that’s a large reason why this system, with long term (before inflation, of course) AUVs projected to be just above $3M is so well regarded by the investment community.

The other major reason for the valuation is that SHAK was founded by the legendary Danny Meyer, and CEO, Randy Garutti, along with his team, is respected almost as much. Valuation aside, we’ve always given management the highest possible marks, both in terms of operating skills and financial management, and they have proven it once again. Are you ready for the terms of the recent offering ?


They sold $225 million of senior convertible notes, for a net of $217.9 million, convertible 45% above the $117.53/share last Monday,  or $170.42/share. The notes are due in 2028 and THE INTEREST RATE IS ZERO. The only negative here is that the funds have to be paid back in seven years, unless the stock is above $170/share and who’s to say it won’t be 😊

In the meantime, the $217 M on top of the $184 M the Company had in the bank at yearend gives them $400M to build infrastructure and stores. When you have been given funds at zero percent interest, it doesn’t take much of a return to provide an attractive arbitrage. The company operated locations don’t provide a store level return anywhere close to what it was when the average volume in NYC locations was $7M but a $3M AUV should provide a store level EBITDA in the area of  25-30% annually and that’s a good cash return when the funds cost you nothing.

We suspect lots of other restaurant companies will not be far behind. That’s what ten years of a bull market, supported by worldwide interest rates close to zero, will do for you.

Roger Lipton