PE consortium exits from Coffee Bean in six years

  • 2019-07-26

A consortium of private equity firms led by the US-based Advent International Corp. has exited its investment in The Coffee Bean & Tea Leaf for a small gain, six years after it acquired a majority stake in the coffee chain for around 300 billion won ($253 million).

Jollibee Foods Corp., a fast-food giant in the Philippines, signed an agreement on July 24 to buy 100% of the Los Angeles-based coffee brand for $350 million from the consortium and Singapore’s wealthy Sassoon Family.

The private equity consortium, including Mirae Asset Private Equity and Taiwan’s CDIB Capital, sold their 75% holding for $262.5 million, based on the transaction value.

It marked the first exit of a global franchise operator by a South Korean private equity firm.

Of the 75% holding, Advent International held a 40% stake and Mirae Asset PE owned 20% by investing 60 billion won.

The transaction excludes the profitable South Korean operations, Coffee Bean Korea, which has been run by a Korean businessman independently since 2000.

PULLOUT FROM CHINA

The exit was made after the two previous attempts to sell the coffee brand fell through due to pricing differences.

Its pullout from China in 2018 placed a stumbling block in selling the loss-making chain, raising doubts about its growth prospects.

A South Korean retail and apparel brand shut down Coffee Bean stores in China last year, just two years after it won a 20-year exclusive right to open Coffee Bean stores in the country. It had opened only 17 stores in China which failed to make a profit, falling far behind Starbucks.

Coffee Bean, founded in 1963, runs around 900 outlets in 30 countries. Most of its revenues come from royalty payments by franchisees.

The Coffee Bean deal also came as other private equity houses have put coffee and tea brands and restaurant chains in South Korea on the market.

South Korea-based IMM Private Equity has been seeking to sell Hollys Coffee for two years, to which it had injected 82 billion won for the acquisition and rights offering.

Unison Capital Inc. has put 100% of Taiwan-style milk tea brand Gong Cha up for sale, a deal estimated at up to $442 million.

Higher minimum wages, rising rent prices and tougher regulations on franchise operators have clouded the outlook for the food and beverage industry.

But Starbucks Korea, which takes more than half of the country’s specialty coffee market, has been growing at a fast pace, free from the regulation on franchise stores because it takes direct control of its outlets.

Net profits at Starbucks Korea have jumped by more than 20% a year over the past three years. Its 2018 earnings of 112 billion won were nearly 10 times as much as those of Hollys Coffee and Coffee Bean Korea.

Meanwhile, Anchor Equity Partners, a Hong Kong-based private equity firm, increased its stake in Korean coffee chain, A Twosome Place, to 85% after buying an additional 45% stake for 202.5 billion won in April from food and restaurant firm CJ Foodville Co. Ltd.

A Twosome Place posted a net profit of 21 billion won in the February-December period of last year, compared with 12 billion won of Hollys Coffee for the whole of 2018.

By Chaeyeon Kim

why29@hankyung.com

<Edited by Yeonhee Kim>

(Photo: Getty Images Bank)