Crumbs Cupcake Chain Going Public: Report

(Crumbs IPO report updated with analyst commentary.)

NEW YORK ( TheStreet) -- Crumbs, the New York City-based cupcake bakery and retail chain will become a publicly traded company, according to reports.

The deal to take Crumbs public through a merger with special-purpose acquisition firm 57th Street General Acquisition values the cupcake chain at $66 million.

A publicly traded Crumbs "will be a growth play" for investors, Michael A. Yoshikami, president and chief investment strategist at YCMNET Advisors, told TheStreet. He expects investor interest to be strong since Crumbs would represent one of the only ways to bet on the cupcake trend through an exchange-traded equity.

Revenue is also likely to show strong growth, Yoshikami said, "but the real test will come after buzz declines," and the bakery-retailer "must be able to stand on a cash flow story."


Under the terms of the deal, Crumbs will receive $27 million in cash and $39 million in stock. Crumbs owners stand to receive another $44 million in stock, dependent on future earnings and stock performance, according to reports first published late Sunday in the New York Times. The report said the deal should close next month and that Crumbs will be listed on a major stock exchange through the initial public offering.

As a publicly traded company, Crumbs, the largest U.S. cupcake chain, will enjoy the capital it needs to fund its expansion plans, the report said.

Yoshikami said the cupcake space is "unique" with few national brands. Crumbs "could follow the Krispy Kreme ( KKD) model but needs to watch out for the same problem that brand ran into." He cautioned that, for Crumbs, "expansion is doable but should be measured and leverage should be avoided to any excessive degree."

Krispy Kreme was founded in 1937, gained popularity in the 1990s and went public in 2000, opening at $8 per share. By mid-2003 the stock had soared to just below the $50 mark amid the rising popularity of hot glazed doughnuts and the lure of flashing lights in store windows to alert customers that a fresh batch had just come out of the oven.

Then the low-carbohydrate Atkins diet swept across America and Krispy Kreme's stock lost well over half its value in less than a year.

The market for cupcakes has grown rapidly in recent years with the success of chains like L.A.-based Sprinkles, Washington-based Georgetown Cupcake and New York's Magnolia Bakery.

Some have argued that the cupcake trend is a fad, and that taking Crumbs public could actualize something of a cupcake bubble.

Yoshikami agreed that the cupcake trend is a fad, but that it is also "a niche with legs."

He said "growth expectations should be scaled back. This does not have the growth trajectory of tech. This is not Google ( GOOG).


Crumbs, founded in 2003 by Jason and Mia Bauer, currently operates 34 stores across six states. Bauer told the newspaper Crumbs plans to have 200 locations by 2014.

In 2010 Crumbs sold around 13 million cupcakes, bringing in $2.5 million in earnings before interest, taxes, depreciation and amortization on revenue of $31 million, the report said.

The Times said that the Bauers will "retain a substantial stake in the business and continue to run the company," and that former fashion executive and 50% owner Edwin Lewis will keep his seat on the company's board. Lewis acquired half of Crumbs in 2008 for $10 million.

Crumbs sells gourmet cupcakes in a wide range of flavors including apple cobbler, blackbottom cheesecake, cookie dough and red velvet, retailing for around $3.75 per cupcake.

-- Written by Miriam Marcus Reimer in New York.

>To contact the writer of this article, click here: Miriam Reimer.

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