Advantage sees 7x return on coffee chain deal

"When we made the investment we found a company that had a unique business model and a very strong customer following," says Ichiro Otobe, a principal at Advantage who worked on the deal. "There was potential for growth but the founder thought the company had become too big to be operated as a founder-and-partner set-up. He wanted to make the transition to a better organized company with a more structured process."

Now, after five more years of caffeine fuelled expansion, Advantage has exited Komeda to North Asia-focused PE firm MBK Partners, achieving a 7x money multiple. Though the purchase price was not disclosed, Advantage is said to have valued the company in excess of 10x EBITDA.

Otobe explains that while there are many other coffee shop chains in Japan, Komeda stands out from crowd. It shunned the city-center locations, preferring instead to set up large out-of-town roadside shops that provide both ample parking and seats for up to 100 customers.

"It is a very profitable model: most of the customers come almost every day so we didn't have to do much promotion and the menu is quite fixed so we rarely introduced new items" he says. "It is not just the product but more the service and space that people enjoy. The product is simple and the coffee is consistent in quality. We are not selling premium coffee like Starbucks."

Advantage's focus, therefore, was to ensure sustainable growth by doing what the founder thought was beyond him - managing a scale business without it descending into inefficiency. The private equity firm started out by strengthening Komeda's operating team so that it could open new stores swiftly in response to customer demand. Having previously expanded its network at a pace of 20 outlets per year, the company added 183 during Advantage's ownership period, while revenue more than doubled.

When it was time to exit, however, the private equity firm struggled to find a strategic buyer for the business. There were two reasons for this, Otobe says: the paucity of operators in Japan's fragmented restaurant and café market capable of making such a large acquisition; and those who were interested struggling to find synergies with Komeda's unique business model. A secondary sale was next on the list of options.

"We achieved a strong pace of growth and we have proved that there is potential to go further," says Otobe. "I feel there is a more robust company organization in place and factory capacity to go to 1,000 outlets in Japan without even going into metropolitan areas."

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• Topics
• North Asia
• Exits
• Consumer
• Advantage Partners
• Consumer
• Exit
• Japan