Texas Roadhouse: Lessons From An IPO

Texas Roadhouse: Lessons From An IPO
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Excerpted from Made From Scratch. Copyright © 2021 by Kent Taylor. Reprinted by permission of Simon & Schuster, Inc. All rights reserved.

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Texas Roadhouse's IPO

As if enough weird stuff hadn’t happened already with this IPO, a couple of weeks before we hit the road for our dog-and-pony show with Wall Street, one of the bankers asked me how many suits I owned, what colors they were, and if they were wool or a polyblend. That was easy: I owned zero suits in zero colors with zero fabric. I did, however, own a couple of sport coats, three to be exact: one for summer, one for winter, and one wild plaid number that would have been obnoxious even in the seventies (I wore it to the Kentucky Derby the year before). Next thing I know, two bankers, Texas Roadhouse Inc (NASDAQ:TXRH) president G.J Hart., and my mom (G.J. must have called her) were telling me what I needed to buy. Hey, when your mom is telling you to spiff up, you at least give it a try. Who knew a tie could cost a hundred bucks?!

The first week of the road show we were set to have presentations in Baltimore, Philly, and then fly to San Francisco, before moving on to Denver, Kansas City, Dallas, and Houston. There would be six to eight meetings a day with various investment firms, hedge funds, and other well- funded interested parties, with each meeting lasting thirty to forty-five minutes.

The morning of our first meeting, I opened my suitcase and pulled out a new suit, tie, and fancy shoes. I pulled them on, looked in the mirror, and asked, “Who is this joker? No way I’m buying into his action.” So off it all came, and I put on the only pair of jeans I’d brought as well as my cowboy boots, the only sport coat I’d brought, and my Stetson hat. I intentionally showed up to our first presentation at the last second so that no one could coach me out of my attire. When I opened the door, our bankers’ jaws dropped as one. G.J. glared, our CFO Scott Colosi (our CFO) was not surprised, and COO Steve Ortiz was stifling a chuckle. It was game on, and I went into my pitch.

Around meeting number three, I told Ortiz to lose his tie, which created quite the crew: fancy-dressing G.J., complete with flamboyant hanky poking from his Armani suit pocket; conservative-suit-wearing Colosi; sharply dressed but with no tie Ortiz, our COO; and a straight-off-his-horse, direct-from-the-ranch Kent Taylor, our head honcho.

When it was all said and done, I actually think it worked just fine. Yet by week’s end I could have stood my jeans up in a corner. Luckily I had enough clean underwear (though you probably don’t need to know that).

The Grueling Travel Schedule

One of the cool things about the grueling travel schedule was that the banks had rented a Gulfstream private jet to ferry us around, as we were usually wheels-up at least a couple of times a day. There would be the four of us from Texas Roadhouse along with a handful of bankers on the flights, and we would get to enjoy the bankers criticizing and coaching us concerning our presentations. They’d keep that up during dinner, until we finally were able to escape for a few hours of sleep.

And yet they soon realized our group was going to be very different from any they’d worked with before. During our first long flight, while eating dinner, G.J. and Jim Walsh—one of our bankers—apparently had a contest to see who could drink the most wine, which ended up in a wrestling match around midnight at forty-five thousand feet. I didn’t get a picture of it but did snap a photo of the two sumo wannabees resting after the match. By the end of the week, the flight crew had had more than enough of us and canceled the following week’s flights. B of A scrambled and found a company that was known for moving around rock bands, and thankfully they were more relaxed about our antics.

The second week we started in Denver, visited the Bennigan’s location I had run for four years back in the mid-eighties, and even did a shot of tequila for old times’ sake. Then we moved on to Minneapolis, Chicago, and finished in Boston and New York, where the big-dog investors were located.

As we flew around early that second week, things were looking up— way up. Orders had already started pouring in from our first week of visits and we were over a billion dollars in demand—all for a $183 million stock offering. With that early success, knowing that so far our batting average was forty-four of forty-five groups we’d presented to wanting in, we may have gotten a little overconfident. When we landed in several cities, Ortiz and I sometimes went out until late and enjoyed the nightlife.

Giving The Wingman A Night Off

A first meeting one day was at eight a.m., and I watched our COO struggle through his presentation, sweat pouring down his forehead. It dawned on me that I might have to give my wingman a night off before I put a hurt on him. We behaved, mostly, for the rest of the week, as the bankers added even more meetings, probably trying to wear us down to keep us in check. They decided one night to throw in an evening cocktail investors’ meeting in New York City, where maybe I got a little creative. The next day I had to visit the principal’s office.

With week two complete, we returned to Louisville with more than $2 billion in orders (more than ten times oversubscribed). Guess my super-voting rights were safe.

We celebrated my forty-ninth birthday at G.J.’s home that weekend and then returned to the B of A offices the following Monday to price the deal and determine allocations (which investment houses would get what percent).

But we weren’t done messing with our bankers. We made all of them wear Willie Braids (a red bandanna with fake ponytails in honor of our friend & partner Willie Nelson) as we negotiated the pricing. That took the formal edge off the meeting. The banks attempted to reduce the share price a bit—so their big clients could take a quick profit and bail—but we held tight and made sure long-term investment firms got more of the deal and short-term houses less. When discussions got heavy, I’d click one of two hidden buttons. One was to a fart machine I’d hidden behind their seats, and the other was a “bullshit” recording positioned under the table. These serious banker types obviously had lost control. They pretty much caved to our proposed price in the onslaught of “bullshit” and “pwaaaaaf.” The negotiating tactics of a seven-year-old, I know, but hey, it worked.

First Day Of Trading

We went to Nasdaq the next day, pushed the make-believe button (no bell, that’s the New York Stock Exchange), and started trading TXRH, beginning life as a public company. Over the next few hours we watched our stock shoot up 28 percent. It was a special day spent reminiscing about where I had come from, our early years of struggles, and chasing a dream that so many times seemed doomed to fail. Here we were, in year eleven, with 183 restaurants and an infusion of $183 million in capital.

At this point, I recognize that for most founders, the story would end here. They’d take their share and retire to a nice cabin in the Poconos or an island off Key West. I enjoyed the moment, no doubt, but the next week I was back in my office moving full speed ahead.

There would be more growth, more people, and more lessons to learn.

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Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at)valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver
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