The Philippines' largest fast-food company Jollibee Foods Corp has made another leap forward in its ambitious overseas expansion, with an unusually risky deal in the US.
The Manila-headquartered company has agreed to buy 100% of loss-making Los Angeles-based chain The Coffee & Tea Leaf for $350 million, it said in a filing to the Philippine stock exchange on Wednesday.
"The acquisition of The Coffee Bean & Tea Leaf will be JFC's largest and most multinational so far, with business presence in 27 countries," said Jollibee's chairman and founder Tony Tan Caktiong.
The price tag is above the $210 million it paid for US's Smashburger in 2018. Jollibee's shares fell by about 8% in Manila.
The Coffee & Tea Leaf had 1,189 outlets at the end of 2018, of which 284 are in the US, 447 in Southeast Asia, 336 in other Asian countries and 122 in other regions. The chain will add 14% to Jollibee’s sales, grow its network by 26% and will lift overseas’ contribution to 36% of worldwide sales.
In the past, Jollibee has been conservative in its acquisitions, mainly buying country-specific companies with a footprint in only one country as in Vietnam or China mostly for less than $100 million. It tends not to hire advisors for its deals, preferring to rely on its own resources and network of contacts in the food business.
Generally it has been successful in managing and marketing the operations of its acquisitions, said one investment banker who knows the company well.
Founded in 1975, Jollibee built its success on catering to local tastes with local ingredients including its sweet Jolly Spaghetti with hotdogs and banana ketchup instead of tomato sauce. Its mainstay is its fried chicken on the bone called Chickenjoy.
It faced a major challenge when McDonald's and KFC entered the Philippine market in the early 1980s, but the firm flourished and grew into the largest fast-food chain in the Philippines with 3,195 restaurants.
Jollibee started its overseas expansion in 1987, in large part catering to the Filipino diaspora hankering for a taste of home. It also operates 1,418 stores across various brands overseas.
The ambitious company wants to become one of the top five restaurant companies in the world in terms of market capitalisation.
The purchase of the Coffee Bean & Tea Leaf chain is a big fillip to that drive. Established in 1963, it is owned by International Coffee & Tea LLC. The company owns 336 of its stores and the other 853 are franchised.
The Coffee & Tea Leaf generated sales of $313 million in 2018 up from $301 million a year earlier. It had an Ebitda of $23.7 million as of end 2018 according to Jollibee's calculations. The US firm reported a net loss of $21 million last year, according to audited statements.
The acquisition will be funded through a bridge loan. Jollibee will invest $100 million and advance $250 million. The Coffee Bean & Tea Leaf will then issue preferred shares within six to nine months to repay Jollibee for the advance, a structure which offers Jollibee some downside protection.
Combined with Highlands Coffee, with business mostly in Vietnam, this acquisition will make Jollibee a player in the coffee business. The Coffee Bean & Tea Leaf will be Jollibee’s second-largest business after the Jollibee brand while the coffee business will account for 14% of the group’s worldwide system sales.
Jollibee expects to complete the acquisition not earlier than 60 days from execution of the purchase agreement, subject to government approvals in the United States and meeting certain closing conditions.