Shares of Bravo Brio Restaurant Group Inc. surged above 10 percent after it began trading on Wednesday, indicating investor demand for the company's higher-end casual dining restaurants is strong even if consumer demand has yet to be tested.
Shares had been priced at $14 per share, on the low end of the expected range of $14 to $16, raising $140 million in its initial public offering earlier in the day.
Shares jumped $1.50, or 10.7 percent, to $15.50 in afternoon trading on Nasdaq, after reaching a high of $16.
There hasn't been a restaurant IPO in years. Earlier this year Logan's Roadhouse filed an IPO prospectus but instead of going public it was bought by a private equity firm in August.
The restaurant industry is slowly recovering after a downturn during the recession when Americans cut down on eating out.
Bravo Brio operates two Italian casual dining chains on the higher end of the sector: Bravo! Cucina Italiana and slightly pricier Brio Tuscan Grille. The company operates 47 Bravo restaurants in 20 states and 38 Brio restaurants in 17 states. The average per person check runs $19.28 at Bravo and $25.14 at Brio.
Morningstar analyst R.J. Hottovy questioned if the time was right for a higher end restaurant chain to go public.
"I think the market's perception of the restaurant space is that it is already pretty saturated in North America," he said. A restaurant company "has to be something truly unique to be successful."
But David Pittaway, senior managing director of Castle Harlan, one of the three private equity firms that are selling shareholders, said Bravo Brio fills a niche.
While there is a higher-price option in the Asian restaurant category, P.F Chang China Bistro Inc., as well as a higher-price option in the seafood category, McCormick and Schmick's, there is no similar offering in the Italian restaurant category, since Darden Restaurant Inc.'s Olive Garden is lower priced, Pittaway said.
"There is sort of a gap of restaurants in the mid- to upper-price category," he said. "Bravo and Brio fill that niche."
Bravo Brio, based in Columbus, Ohio, targets areas with a $65,000 minimum annual household income and a population density of 125,000 residents for Bravo and $70,000 minimum annual household income and a population density of 150,000 residents for Brio. The company made $311.7 million in revenue in 2009, up 4 percent from the prior year.
Revenue in stores open at least one year fell 7.4 percent in 2009.
The chain eventually plans to expand to 400 to 500 locations in the U.S., Pittaway said.
Other selling shareholders include Bruckmann Rosser Sherrill & Co. Management LP and Golub Capital.