At midday, Five Below's stock had risen 70%, trading at $29 a share, and giving it a market capitalization of $1.5 billion.
"The world is always looking for a retail concept that has legs," said Richard Kestenbaum, a partner with Triangle Capital LLC, a private investment firm focusing on fashion, apparel and retail.
He added that Five Below "has proven itself in certain geographies and there is no reason why it can't be expanded to other areas. Capital was the missing piece."
Revenue has soared in recent years, increasing 159% between 2009 and the 12 months ended April 28, to $321.5 million. Adjusted trailing Ebitda was $45.3 million.
"Five Below operates on the same concept as dollar stores which have been so successful," Morningstar Inc. equity analyst James Krapfel said. "The company was priced too cheaply based on its sustainable earnings growth rate, especially when compared to Family Dollar and Dollar Tree. We think the stock is worth in the low $20s."
Five Below is a trendy, youth-oriented retailer founded in 2002 by chairman David Schlessinger and CEO Thomas Vellios. The retailer sells everything from T-shirts and sunglasses to duct tape and mini lockers, all priced at $5 and below.
Philadelphia-based Five Below is raising $163 million through the sale of 9.6 million shares of common stock by listing on the Nasdaq under the symbol FIVE.
The company is selling half the shares while existing stockholders, lead by Advent, are selling the other half. The company is using its $81.6 million of the proceeds to repay half of its $100 million outstanding term loan. The remainder will be used for working capital.
Advent is receiving $47.6 million from the 2.8 million shares it is selling in the IPO. The Boston-based private equity firm is reducing its equity stake to 51% from 62%. The value of its unrealized holding rose from about $472.6 million in the morning when it priced at $17 a share to $806.2 million by midday.
The IPO marks a windfall for Advent, which could be looking at an almost fivefold gain on its original investment of $192.9 million made in October 2010. Advent also pocketed $62.2 million of a $99.5 million dividend Five Below paid stakeholders in May.
Two other Five Below PE backers garnered an even higher percentage return. Philadelphia's LLR Partners Inc. injected $20 million into Five Below in May 2005 and then teamed with Blue 9 Capital of New York to invest a further $17 million in September 2008.
The pair, which collected $13 million in the May dividend, own a combined equity position of about 13%, worth $107 million at $17 a share and $182 million at $29 a share. They also raked off a large part of a $196.7 million dividend Five Below paid in 2010 using Advent money, although exactly how much each firm received isn't disclosed in a regulatory filing. Through the offering, LLR is reducing its stake in the company from 9.6% to 7.9% while Blue 9 is reducing its stake from 3.5% to 2.9%.
LLR has come under scrutiny recently for its investment in prison halfway house operator Community Education Centers, which has been accused by The New York Times of neglecting and abusing the people it was paid to mentor.
Five Below, as of April 28, the end of its latest fiscal quarter, had 199 stores in 17 states, averaging 7,500 square feet per store. The stores are concentrated in the Northeast and Midwest.
Goldman, Sachs & Co., Barclays plc and Jefferies & Co. are the joint underwriters for the IPO. Five Below is tapping Pepper Hamilton LLP's Barry M. Abelson and John P. Duke for legal advice. Sullivan & Cromwell LLP's Robert E. Buckholz represents the underwriters.
-- David Carey contributed to this story.
Palamon Capital Partners LP named Ali Rahmatollahi as associate partner and Christian A. Beck as a board of advisers member. For other updates launch today's Movers & shakers slideshow.
Antitrust scrutiny of the cablers' $67 billion merger is bringing over-the-top television into the picture as regulators try to gauge the deal′s effect on programming. More video