New York's Fairway Surges on Whole Food Dreams

Tickers in this article: FWM WFM

NEW YORK (TheStreet) --

Fairway Group Holdings Corp. was surging in New York as investors bought shares in the budget supermarket operator rather than miss a chance to buy a company that could become the next Whole Foods Market Inc .

Fairway, known for its slogan "Like no other market," gained 33% Wednesday after pricing its IPO at $13 a share. By Thursday afternoon, the stock was adding 8.5% to $18.85 to value its market capitalization at more than $766 million. Whole Foods, with a market cap of $15.7 billion, was falling 1.3% to $84.70.

Private equity backer Sterling Investment Partners LP will retain 52% of Fairway's common stock, according to the final prospectus of the offering. At the $13 per share IPO price, this stake is worth $279.1 million, or about 5.6 times the firm's original equity investment of about $50 million.

Sterling acquired a majority stake in Fairway in January 2007, valuing the retailer at about $137 million, sources told The Daily Deal at the time.

Fairway said it will use part of its IPO profits toward building new stores. The company will first pay $76.8 million in accrued "unpaid preferred stock dividends, a management agreement termination fee and management bonuses."

Underwriters have a 30-day option to purchase up to roughly 2 million additional shares. Lead underwriters for the offering are Credit Suisse Securities (USA) LLC, Bank of America Merrill Lynch, Jefferies LLC and William Blair & Co. LLC.

The supermarket retailer has 12 locations in the New York metropolitan area, with additional stores planned for Manhattan's Chelsea neighborhood and for Nanuet, N.Y., both to open in 2013.

In fiscal 2012, the grocery store chain generated sales of about $555 million, up from roughly $401 million in 2010, while adjusted Ebitda increased to nearly $36 million, from approximately $24 million over the same period.

Jefferies investment bankers involved in the transaction are John Tibe, Mike Bauer and Adam Sokoloff.

Written by Richard Collings in New York