1. YogaWorks (YOGA) IPO

    In one of the classic episodes of Seinfeld, Frank Costanza repeatedly screams out, Serenity Now! Such desperate cries were never answered. Perhaps Frank needed a session or two at YogaWorks, one of the largest and fastest growing yoga studios in the country.

    Last year almost 3 million students paid $55 million to YogaWorks in 50 company owned studios. They also have a presence online MyYogaWorks.com.

    You may have the impression that Yoga is a mom and pop local business with a small following. To some extent this is correct. No operator or brand has a big piece of the market. YogaWorks is the only national brand positioned in six of the largest US markets in California (Los Angeles, Orange County, New York City, Northern California, Boston and Baltimore/Washington DC).

    YogaWorks helps people improve their physical and mental well being through the 5,000 year old tradition of yoga, using a community-oriented experience. The increasing stress of daily living is helping popularize Yoga as a solution. Yoga offers benefits to students regardless of age so there are no demographic limits to its popularity.

    YogaWorks offers a variety of class options ranging from rigorous physical exertion to classes that provide a deep stretch that is low-impact. Yoga practitioners believe that healthy physical strengthening and stretching combined with meditation can lead to a feeling of centered positivity and relief from stress.

    YogaWorks has over 2000 employees. Many of them are Yoga teachers. They claim that their teacher-training program is highly respected within the yoga community. More than 11,000 teachers have graduated from the program since its inception.

    YogaWorks is no startup company. They have been around since 1990. In recent times the company has geared up its management team to support much greater bigger level of business. The company is lead by former Merle Norman Cosmetics COO Rosanna McCollough who joined YogaWorks in 2015.

    Overall they list 8 senior executives of which 6 have joined the firm within the past 24 months. That is a lot of executive firepower for a company of only $55 million in revenue. Not only is YogaWorks staffed up for greater volume, more volume is mandatory. The weight of all these administrative expenses results in a money loosing condition at present.

    YogaWorks past the sniff test with three well respected Wall Street underwriters that include Cowen, Stephens and Guggenheim Securities. If these firms are willing to co-manage an offering of only about $75 million, this is a comforting indicator.

    Presuming the underwriters are successful in raising the capital, YogaWorks plans to pay off approximately $10 million in high costs notes. This leaves quiet a nice sum for expansion that could include both opening new studios as well as acquisitions.

    If you are already a student of Yoga, then the brand YogaWorks is probably well known to you and your friends. If you are a typical asset based investor, the concept of yoga studios may be a step beyond your normal universe. After all, with yoga studios, most all the assets are intangibles: it is the brand name and the consumer franchise created by the experience. In the final analysis, the business of Yoga is like a health club without all the weight machines.

    At the same time, it is a business that lacks a dominant leader and in a totally homogenized world of monopolies and duopolies this industry has neither: Serenity Now!

  2. Byline Bancorp, Inc (BY) IPO

    Who decides to do an initial public offering in an out of favor sector that pretty much assures you won’t get the best price for your stock?

    The standard answer to this riddle is: it is an outstanding company that puts the sector to shame. Otherwise, the answer is that that the IPO is merely the first step in a bigger plan. So, hopefully the best price is yet to come.

    Either way, Byline Bancorp, Inc. successfully sold 5.7 million shares raising about $104 million in the process. Experienced underwriters will tell you how tricky it can be to get investor attention on the day right before a four day long holiday like the 4th of July, but Merrill Lynch and Keefe, Bruyette & Woods managed to pull it off on June 30th. Time to shoot off the fireworks for Byline CEO Alberto Paracchini.

    Not A Monster Bank

    With $3.2 billion of assets BY generates just under $50 million in revenues, which is not bad by industry standards. They bring $6.6 million to the bottom line so bravo for Alberto and his team. So what makes Byline Bancorp so special, obviously it is no monster in the banking world?

    On the surface, the answer is there is nothing on the outside that is unique. Headquartered in the City of Chicago, BY operates through 56 branches in the area offering the standard mix of banking products and services to small and medium sized businesses, including commercial real estate and financial middlemen. Their consumer business is geared to people living in close proximity to one of their branches.

    Plain Vanilla On The Outside

    Quoting directly from their S-1, “Our mission is to provide customers with a high degree of service, convenience and the products they need to achieve their financial objectives. We aim to do so one customer, one relationship and one neighborhood at a time. We believe that customers value convenience, prompt decision-making and knowledge of the local market when choosing a banking partner”.

    If this business description appears indistinguishable from every other small bank you would be absolutely right. Occasionally a bland “me too” offering statement can work if you are in a super hot sector like technology or healthcare but we are talking about a bank.
    The financial services sector has not been the place to make good stock market returns for some time now.

    Action Below The Surface

    Here is the story behind the offering. Back in 2013 Byline, then known as Metropolitan Bank Group was in trouble through bad real estate loans and other effects of the Great Recession. CEO Alberto Paracchini and his CFO lead a $207 million recapitalization effort that resulted in Alberto and his MBG Investment Group controlling just under half of the common stock.

    With the recapitalization plan working and the profitability ratios singing a sweet tune, it is time for the risk takers to get paid. About a third of the 5.7 million-share offering came from selling shareholders. We haven’t seen the final prospectus but we assume the MBG Investment Group was among the bigger sellers.

    The important thing is that Alberto and his team still controls a major chunk of BY stock. Our guess is that folks that specialize in recapitalization deals are looking for their next opportunity. That means taking BY public could be the beginning of a two-step process of establishing public valuation and then finding a buyer for the balance of their stock. Why else would there be an urgency to execute an IPO in a market for financial stocks that has been tepid at best?

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