(Bloomberg) — When Steven Marks moved to Australia in the early 2000s, he was shocked by the quality of Mexican food. According to him, it was disappointing. The Long Island native, a veteran of Steven Cohen's SAC Capital and later Cheney Capital, was so disappointed with the burritos and tacos that he resolved to open his own restaurant.
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“At that time, Mexican food was something you could eat while drinking a margarita,” Marks said in an interview Wednesday. “I remember walking into my office one day and telling my business partner, 'I've got the next big idea. We're going to reintroduce Mexican food to this country.'”
It became a reality in 2006, when he and his childhood friend Robert Hazan opened the first Guzman y Gomez in Sydney's inner western suburb of Newtown. Eighteen years later, the Mexican-themed fast-food chain has 185 restaurants in Australia, 17 in Singapore, five in Japan and four in the U.S., with the network generating A$759 million ($506 million) in sales last year.
Shares in Guzman y Gomez Ltd. began trading on the Australian Securities Exchange on Thursday under the ticker GYG, valuing it at A$2.2 billion at the offer price.After a stellar debut that saw the stock jump 36% to A$30, Marks, 52, who is the second-largest shareholder after investment firm TDM Growth Partners, has a stake worth more than A$275 million, according to the Bloomberg Billionaires Index.
Competition with McDonald's
GYG's offering raised 335.1 million Australian dollars, of which 200 million Australian dollars was allocated for expansion plans and the rest to existing shareholders. GYG eventually wants to grow to 1,000 restaurants in Australia, roughly equivalent to McDonald's, and plans to open 30 to 40 new restaurants each year.
“I always used to call GYG fast food. And everybody would say, 'No, no, you're fast casual, McDonald's is fast food,'” Marks said. “I said, 'McDonald's is not food.'”
Former McDonald's Australia chief executive Guy Russo didn't shy away from investing in 2009. He is now chairman of GYG and owns a stake worth more than A$182 million, according to Wealth Index. His son, Gaetano Russo Jr, is the franchise owner of three GYG restaurants.
It's not the only family connection: GYG co-CEO Hilton Brett's son has also signed a letter of intent to become a franchisee of one of the restaurants later this year.
Brett was appointed last October, after the company indicated Marks would step down as CEO because of a health issue that turned out to be minor. But the resignation never happened.
GYG’s A$2.2 billion IPO values it at A$10.6 million per restaurant. By comparison, Chipotle Mexican Grill Inc., a stalwart of the U.S. fast-casual restaurant sector, is valued at more than A$40 million per store, according to data compiled by Bloomberg.
Economic gap
Data compiled by Bloomberg showed GYG increased the size of its initial share sale by about 40% last week, making it Australia’s biggest offering in about a year.
Analysts at Morningstar Inc. are cautious on the company's valuation, saying it's too early to give GYG an “economic moat” — a competitive advantage that keeps rivals at bay. They estimate the shares are worth A$15 a share, 32% below GYG's offering price.
“We expect Guzman to maintain attractive store economics over the next decade,” analysts led by Johannes Faul wrote in a June 7 note. “However, we need to see stronger evidence that brand and store economics are progressing with store roll out to reinforce our optimism beyond the next 10 years.”
On a statutory basis, GYG lost AU$2.3 million last year and is forecast to lose a further AU$16.2 million in 2024 before turning profitable in 2025.
Marx says he was used to hard work from a young age. His father was a Miami Beach “pool hustler” with a drug addiction who left Marx's mother to raise him, his twin brother, and his disabled older brother. By the time he was eight, Marx began working odd jobs to support his family.
But his talent for numbers helped him get a spot at the University of Pennsylvania. After graduating in 1994, Marks said, he was “recruited by a guy named Stevie Cohen.” He got a job on the equities desk of Stamford, Connecticut-based SAC Capital, where he stayed for four years and then moved to Cheney Capital in London.
Marks said he learned to “laser focus and never compromise”, but eventually decided he was fed up of taking a chance on other people's businesses. “I wanted to have my own business, and that's why I moved to Australia,” he said.
–With assistance from Andrew Heathcote.
(Updated asset valuation with closing share price in headline and fourth paragraph.)
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