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Demand seen promising for Dunkin’ IPO

By Matt Andrejczak, MarketWatch

SAN FRANCISCO (MarketWatch) — Demand is seen as promising for shares of the initial public offering from Dunkin’ Brands Group, owner of the Dunkin’ Donuts coffee chain and Baskin-Robbins ice cream stores.

Dunkin’, which opened its first shop in 1950 and is now in countries as far from the U.S. as South Korea and the United Arab Emirates, has an established brand name and demand has been brisk for companies being taken public by private equity firms, according to fund managers and IPO advisors.

“It should sell well,” said money-manager Josef Schuster. He plans to buy Dunkin’ for his First Trust US IPO Index Fund (NAR:FPX)  and expects it will be a good investment over the next three to five years for his fund.

While Dunkin’ isn’t part of this year’s Web 2.0 frenzy that includes proposed IPOs by deal site Groupon and game site Zynga, Dunkin’s stock sale should resonate with big-money investors as well as regular folks who are looking to buy shares of a company they can relate to.

“It’s got an amazing brand name,” said Scott Rostan, a former Merrill Lynch investment banker who founded Training The Street. “Dunkin’ Donuts is the Starbucks of the Northeast.”

Dunkin’ is close to setting the terms of its IPO, Bloomberg News recently reported. Dunkin’ has yet to indicate how many shares it will sell or at what price, making it tough to put a market valuation on the company.

The company was bought for $2.4 billion in March 2006 by Bain Capital Partners, Carlyle Group and Thomas H. Lee Partners.

Dunkin’ reported $577 million in 2010 revenue, putting Dunkin’ well ahead of Peet’s Coffee & Tea, Krispy Kreme Doughnuts and Caribou Coffee, but far behind Starbucks and Canada’s Tim Horton’s.

Investors have been enamored of the coffee-chain sector, which is outpacing gains made by the broader stock market. That could help Dunkin’. Over the last 12 months, Starbucks (NASDAQ:SBUX)   shares are up 62%, Peet’s (NASDAQ:PEET)   is up 59%, Caribou Coffee (NASDAQ:CBOU)   is up 59% and Tim Horton’s (NYSE:THI)   is up 37%.

By comparison, the S&P 500 is up 25% over the same period.

Dunkin’ joins a wave of companies being taken public by private equity firms. Deals this year from Nielsen, HCA and Kinder Morgan have all priced above their initial deal terms due to strong demand.

The Dunkin’ IPO is a long-awaited deal, according to Scott Sweet of IPO Boutique, a research and advisory service.

“Of all the (private equity-backed) firms that have come public in 2011, this is one that will do best,” he predicts.

Unlike most private equity-backed IPOs, Dunkin’ going public with far less debt, which could make its business appealing to investors. The company’s total debt was $1.8 billion at the end of 2010.

Dunkin’s 2010 profit was $26.8 million, down from $35 million in 2009. Revenue rose 7% increase, with comparable store sales growing 2.3% after modest declines in 2008 and 2009.

Banks underwriting the deal may try to sell $500 million of stock, Bloomberg News recently reported. Dunkin’, based in Canton, Mass., proposed to raise $400 million in its initial May 4 regulatory filing. It plans to sell its stock on Nasdaq under the ticker symbol DNKN.