Deal focus: Malaysia’s Tealive taps PE scaling expertise

New, tech-savvy food and beverage (F&B) outlets with rapidly growing footprints are naturally attractive to private equity, but there’s an asterisk on the opportunity pointing to the pitfalls of overextension. Investors studying this risk needn’t look any further back than China’s Luckin Coffee, which expanded furiously only to be stopped in its tracks when management was discovered to be falsifying sales figures.

At first glance, Malaysia’s Tealive seems to be squarely in this danger zone. The youth-oriented beverage chain ballooned to 650 locations in the space of five years by leveraging a digital platform that accounts for 40% of sales. But unlike many similar operators, Tealive cracked its model quickly and became profitable after the first year.

The founders are now taking some chips off the table, selling a 30% stake to Creador for $50-60 million. The private equity firm is making one of its last investments from Fund IV, which closed at $580 million in 2019; Fund V is already in the market, targeting $680 million. The go-forward plan with Tealive will be entirely funded by profits, rather than the investment.

“They already have a very successful model – this is really more around providing them with some ideas for new areas of growth in Malaysia and regionalizing the business,” says Brahmal Vasudevan, founder and CEO of Creador. “The business is already making good money, and this year, it will probably grow at least 20%.”

Tealive’s parent company Loob recorded MYR307 million ($75 million) in revenue and MYR58 million in profit for the 2020 financial year. It claims that revenue and profit have grown 56% and 180%, respectively, over the past three years. Tealive represents more than 95% of Loob financially and operationally, although smaller assets of note include Bask Bear Coffee, a mostly online brand delivered from Tealive locations.

Growth plans include an expansion of the Tealive menu, which currently covers milk tea, smoothies, chocolate, and coffee, as well as an ambitious international expansion. The company has a preliminary presence in Australia, Brunei, Myanmar, the Philippines, Vietnam, Cambodia and the UK. These toeholds will be the focus of a push to hit 1,000 locations within the next three years.

Creador is expected to play a significant support role. The firm’s key F&B experience is OldTown White Coffee, a Malaysian chain it helped expand in Indonesia among other regional markets. Creador paid $15 million for a 10% stake in 2012 and generated a 2x return and IRR of 101% the following year.

There is also an important domestic angle in the Tealive thesis, with the company noting that Malaysia’s made-to-order tea market has been growing more than 20% per annum for the past few years yet remains underpenetrated. The depth of untapped demand implied by this momentum could underpin some entirely new lines of brand monetization.

“OldTown had half its business in F&B and half in supermarkets,” Vasudevan says, referring to the company’s own-branded instant coffee packs. “It’s still very early days, but the question here is, can we explore making an FMCG [fast-moving consumer goods] product for Tealive that can be made and consumed at home?”

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• Topics
• Southeast Asia
• Expansion
• Consumer
• Malaysia
• Creador
• Growth capital