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The Early Bird: Amid Twitter Frenzy, Remembering Boston Chicken

Michael Santoli
Michael Santoli
Pedestrians walk past a Boston Market restaurant in West Hollywood, Calif., Friday, May 29, 1998.

Almost exactly 20 years before Twitter Inc.’s (TWTR) initial public offering wowed Wall Street, screaming to an 80% opening gain and a $30 billion market value, the original hot “bird IPO” defined the phenomenon of the day-one pop.

In late 1993, Boston Chicken fed hungry investors in a burgeoning bull market in consumer stocks with new shares priced at $20, only to watch them rocket an almost-unheard-of 140% by day’s end, closing at $48.50.

The stock would eventually climb more than an additional 60% in the next few years, before the company succumbed to over-expansion and questionable accounting methods, ultimately falling into bankruptcy protection in 1998. Now known as Boston Market, it was acquired by McDonald’s Corp. (MCD) out of bankruptcy and is now owned by private-equity firm Sun Capital.

This isn’t remotely to suggest a similar fate awaits Twitter, a truly unique, fast-growing and flexible social-communications and advertising platform. But by epitomizing the spectacle of the breathlessly anticipated IPO that touches off a game of speculative hot potato, it’s worth recalling the Boston Chicken experience.

(It was followed less than two years later, importantly, by the debut of Netscape Communications, the then-16-month-old browser company that launched the Internet IPO frenzy of the ‘90s by surging from $28 to as high as $75 on day one. By that point, the first-day pop was an assumed element of most every IPO, rather than a fluke.)

Taking flight

Boston Chicken was considered a true innovation in the restaurant business at the time, the most prominent pioneer of “fast casual” food – healthier than fast food and closer to home-cooked meals. It was opening franchises at a breakneck pace, becoming a buzzy phenomenon in every town it arrived in.

The first-day frenzy was not fully anticipated by anyone, from the company (whose insiders were happily the ones selling at the $20 IPO price) to the investment bankers at underwriter Merrill Lynch.

Yet there were inklings that an unusual level of demand for the stock was welling up among the public ahead of the deal. This was at the very front edge of the retail-investing boom of the ‘90s, when discount brokers were becoming more popular and the psychological wounds of the 1987 market crash were finally healing. Interest rates were low, and a slow recovery was taking hold in the U.S. economy following the housing/savings-and-loan bust a few years earlier.

And, as Hersh Shefrin describes in his 2007 book “Beyond Greed and Fear: Understanding Behavioral Finance and the Psychology of Investing,” investors had been primed to covet new IPOs that year. Merrill recently had brought public two other trendy consumer-tuned companies, the kids-play-center chain Discovery Zone and popular golf-club maker Callaway Golf Co. (ELY). Each stock was up more than 60% upon its debut.

Shefrin notes that Robert Natale, then an emerging-growth stock analyst at Standard & Poor’s, predicted in a pre-IPO report on Boston Chicken that it would be hot “because of small investors who had profited – or wished they had – in Discovery Zone.” For Shefrin, this illustrates the tendency of humans to regret painfully missing out on a win or profit, which often animates future economic decisions.

Once and future greed

Having watched with envy the stupendous gains in the likes of LinkedIn Corp. (LNKD) and Yelp Inc. (YELP) since their IPOs, are investors over-determined to get a piece of the buzziest social-media company of them all in Twitter?

Natale back in 1993 offered two other relevant factors helping to drive the stock higher. It was selling a relatively narrow slice of the company publicly, restricting the float; institutions got all the stock upfront, and were in position to flip it to the eager small bidders at rich prices. And the Boston Chicken chairman had come from Blockbuster Entertainment, a hugely successful video-rental chain of the time (which just announced it is closing its remaining 300 stores).

This echoes Twitter a bit, with the thin stock float and widespread adoration of the founders’ genius.

Again, none of this means Twitter shares are sucker bait at all. Sure, its $30 billion valuation gives the company an enormous amount of unearned credit for years of enormous growth and skillful expansion to come, but only marginally more so than existing expensive social-media stocks are enjoying.

But the psychology surrounding the hot-IPO process –- with its interplay of a rapidly growing company in an exciting new business, the exclusivity of the share-sale process and the greed for the next easy-money vehicle -– is something that transcends the decades.