What happened
The announcement of a secondary stock issue gave First Watch Restaurant Group (FWRG 1.95%) a bit of indigestion this week. As a result, across the five trading days the company's share price dived a queasy 18%, according to data compiled by S&P Global Market Intelligence.
So what
On Monday afternoon, First Watch, owner of the eponymous chain of early-in-the-day restaurants, announced a selling shareholder would be selling its stock in a public offering. Two days later, that offer was priced at $15.50 per share.
The selling shareholder is private equity firm Advent International, which currently owns just over 79% of First Watch's common stock. Advent is divesting 4.5 million shares in the issue; this will reduce its holding to slightly more than 42.2 million shares, or 71.5% of the total.
The issue's underwriting syndicate, which is led by Bank of America Securities, Goldman Sachs, and Jefferies, has been granted a 30-day option to collectively buy up to an additional 675,000 shares at the offering price.
That $15.50 per share sale price is well below the $18.75 First Watch stock traded at just before the Monday announcement was made. After the pricing was unveiled, investors drove it down further; it ended the week at $15.11.
Now what
When strategic investors make such chunky share sales at prices notably below market, investors tend to take notice. After all, few know the true value of a business better than a majority stockholder. It's hardly surprising that First Watch's share price sank so hard after the issue's particulars were announced.
First Watch said the new share issue should close on Monday, Sept. 19.
