Advantage backs Japan coffeeshop chain

It will comprise an allotment of new shares and a convertible bond offering worth about JPY6 billion with stock acquisition rights. Advantage could acquire up to 16.4% of the company if all shares are converted, according to a filing.

Saint Marc's stock fell 7.5% following the announcement of the transaction to a three-month low of JPY1,543. This equates to a market capitalization of around JPY35.1 billion.

Saint Marc described the strategy behind the deal as an attempt to recover a decline in business due to pandemic-related pressures like requirements to maintain shorter business hours and people working from home. It also flagged trends such as the rise of the ready-to-eat home meal segment and changing consumer tastes.

Revenue was down 36.2% to about JPY44 billion during the 12 months ended March 2021 as a profit of JPY1.5 billion swung to a loss of JPY8.1 billion. Profit fell 66.4% between 2017 and 2020. Revenue during this period fluctuated in a range of JPY68-70 billion.

Saint Marc said it expected to benefit from Advantage’s know-how in store operation optimization, branding, marketing, cost reduction, staff recruitment, and digital upgrades. The plan includes scope for the refurbishment of stores and expansion of store format in some cases.

Advantage’s experience in this space includes Komeda Coffee, which it acquired in 2008 for JPY15 billion. The private equity firm sold the business to MBK Partners five years later having taken it from 300 to 500 stores and doubled revenue. It generated a 7.2x return. For its part, MBK completed a staged exit of the business following an IPO in 2016, securing a 5x return.

Founded in 1991, Saint Marc is a holding company for the eponymous cafe chain as well as various branded bakeries, noodle shops, and restaurants. It has about 300 cafe locations domestically, managed partially on a franchise basis. The broader group also has a presence in China, Southeast Asia, and the US.

Starbucks-style coffee shops have proven a popular niche for private equity in Japan. Other deals include The Longreach Group buying Chat Noir, owner of the Caffe Veloce brand. This was Longreach’s second cafe investment in as many years, following the carve-out of Kohikan Corporation from UCC Foodservice Systems.

Advantage, primarily a middle-market buyouts player, is investing in Saint Marc via its “private solutions” strategy, which makes minority investments in listed companies. The idea is to work closely with companies dealing with difficult issues, maintaining aligned interests, and patiently improving performance.

The Advantage Advisors Growth Support Investment fund raised at least $138 million last year, with the bulk of that coming from local telecom company NTT Docomo. Previous investments from this fund include restaurant operator Monogatari, advanced technology manufacturer Ferrotec, and airline Star Flyer.

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• Topics
• North Asia
• Consumer
• PIPEs
• Japan
• Advantage Partners
• Food