Guzman y Gomez IPO on hold after bumper sales driven by pandemic

Mexican food chain Guzman y Gomez has put its planned ASX float on hold after a bumper year of sales driven by COVID-19 and a significant investment from leading fund manager Hamish Douglass.

The chain which sells a quick and ‘clean’ take on Mexican food has grown rapidly to 151 stores globally, 21 of which will open this financial year.

Founder and chief executive Steven Marks said the IPO, which was initially slated for November last year, had not been derailed by COVID-19, just put on the back burner after the chain secured an $86.8 million investment from Hamish Douglass’ Magellan Financial Group in December.

Guzman y Gomez CEO Steven Marks is ramping up growth plans in Australia.Credit: James Alcock

“We were looking at an IPO which at the right time has always been a dream for me,” Mr Marks said. “I want people that love Guzman y Gomez to have the ability to own it.”

However, the IPO was postponed after Guzman y Gomez met with Magellan, which is a shareholder in Starbucks, Yum and McDonald’s, as part of its IPO roadshow and Mr Marks received a phone call from Mr Douglass.

“He called us up and he said ‘I love you, and I’ve got to get involved’,” Mr Marks said.

The investment from Magellan, which has more than $100 billion in funds under management, valued Guzman y Gomez at $870 million, higher than a reported IPO valuation of $500 million. “We thought that was fair,” Mr Marks said. “When you value businesses, you don’t value them in the past, you value the infrastructure you’ve built and what the future looks like.”

Mr Marks is predicting that future will involve a continuation of Guzman y Gomez’s fast growth trajectory with expectations of reaching up to $3 billion in sales in about six years’ time and opening 500 outlets across Australia.

The chain has also expanded to the United States, Japan and Singapore and Mr Marks said Guzman y Gomez is on track to record $400 million in sales across the chain for the financial year.

The most recent records filed with the financial regulator for the year ending June 2020 show Guzman y Gomez’s holding company recorded $77 million in revenue and a loss of $7 million after tax driven by a once-off cost connected with the chain’s entry into the US and cancellation of an area developer agreement in Queensland.

Investor Tom Cowan of TDM Growth Partners said Guzman y Gomez had come through the pandemic “flying” and the challenge for the business was dealing with its fast rate of expansion.

“When you are growing at that sort of rate, when you are opening 30 to 40 stores a year and you’re adding a significant number of people each year that’s always a challenge,” he said. “It’s what we would call an execution challenge but a positive one to find the right people and ensure you can continue to get the right outcomes.”

Mr Marks still wants to list Guzman y Gomez and said the chain would never take on private equity investors because he wants people to hold the business for the long term. “We are never in a rush to make decisions, we want to build a legacy here,” he said. “It’s happening just not this year.”

In the meantime Guzman y Gomez will use $10 million of the cash injection from Magellan to refit its restaurants to cope with the increased demand across eat in, takeaway and drive through.

“We’re actually refurbishing and revamping every single restaurant we have to meet demand which means more cooking equipment, more chiller, cooler space because all the fruits and vegetables are coming fresh every day,” Mr Marks said. “Because the revenue growth is explosive right now we need to make sure our restaurants are ready.”