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Porter,

Companies do secondary offerings to raise cash. It's generally a sign that the stock is fairly -- even perhaps, richly -- priced, since companies would instead by be BUYING shares (if they could afford them) if their shares looked like a good deal.

The new shares will dilute existing shareholders, and future earnings per share. The question is, was the money raised spent usefully enough, in time, to make up for the dilution? If the company is taking on debt to buy distressed restaurants, perhaps it's raising money through the public markets to make it easier to acquire more restaurants, or pay off existing debt, or both.

I generally view secondary offerings as neutral signs, at best. In the situation you presented, it looks as if the company can more easily and cheaply raise more money through stock than buy, conversely, borrowing more from bondholders or bankers. Overall, I don't know the situation well enough to comment specifically, but I'm generally not a big fan of companies that grow by acquisition. They may do a good job turning around the first few restaurant chains, but early success at that does not always translate to a sustainable, repeatable business model.

Thanks for your question, and Fool on,

David Gardner
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