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Coffee Bean plots Asia expansion, may consider IPO or strategic sale

The Coffee Bean & Tea Leaf, in which three private equity firms recently bought stakes, may consider an initial public offering or a strategic sale over the next few years as part of an exit strategy for investors, its CEO said. The funding would allow the company to accelerate its growth plans in southern California and north Asia as it seeks to double its revenue from directly-owned and franchised-run stores in five years to a total of $1 billion, Mel Elias, also the president of the Los Angeles-based firm, told Reuters in an interview on Wednesday.

This is the first time Coffee Bean has provided financial details of the chain, which operates under the corporate name of International Coffee & Tea LLC. Boston-based Advent International, along with Taiwan's CDIB Capital, agreed to buy a large stake in the coffee and tea retailer last month. Other investors in the deal include Asian firm Mirae Asset Private Equity and the Sassoon family, the largest existing shareholder in the chain.

"This is what I call the growth inflection point for Coffee Bean. The Sassoon family looked at the consolidations that were happening in the market place since valuation in this space is at an all-time high," said Elias, who has spearheaded the chain's expansion from 60 stores in 1999 to nearly 1,000 now. Founded in 1963 in Southern California, the chain has stores spread across 30 countries, with about half located in Asia.

The private equity investment in Coffee Bean is the latest in the US sector that has seen a slew of deals, including European investment group Joh. A. Benckiser's acquisitions of D.E. Master Blenders NV, Peet's Coffee & Tea and Caribou Coffee, as well as Starbucks' acquisition of Teavana. "We are not at this juncture ruling anything out. So anything being strategic sale, being initial public offering, anything is on the cards," said Elias.

He said that if the company decides to do an IPO it could consider both the United States and Asian destinations like Singapore for the listing and said such exits by private equity firms typically take two to seven years. Coffee Bean faces an uphill task to compete with Starbucks Corp, the world's biggest coffee chain, which has a dominant market share in Asia and controls nearly one-third of the $8.9 billion Asia excluding Australia specialty coffee chain market, data from research firm Euromonitor International shows.

Coffee Bean has a nearly 3 percent market share, according to Euromonitor, with a sizeable presence in the Southeast Asian markets of Singapore, Malaysia and Indonesia. Elias said there was room for a second large brand across Asia. "There is a big gap. There is the 600-pound gorilla and then there are the rest of the companies," Elias said, pointing out the competition with Starbucks. "This is our opportunity to be seen and grow our brand and grow our number of stores. Now, it's time to turn up the volume on our growth."

The industry's biggest growth is coming from China and some Southeast Asian markets, Euromonitor data shows. "As the middle class emerges, as disposable income increases, the demand for this premium lifestyle experience is growing," Elias said. The next expansion phase would be centred around North Asia. "These countries are all ripe and we have been too slow in taking advantage. But now with this transaction, it has become a strategic focus for us and we are going to roadmap our way into getting a huge presence in north Asia, specifically Greater China."

Copyright Reuters, 2013



 



 
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