At first glance, the Canadian Coffee landscape might be in for some big changes. In early 2019, 49th Parallel Coffee Roasters announced its strategic alliance with Claridge Inc. a private investment firm that represents the interests of the Stephen Bronfman family. And now Aegis Brands has sold “all of the assets” of the Second Cup Coffee Cafe Franchise to Quebec-based business Foodtastic. Foodtastic is in the franchising business and will look to reinvigorate the brand and add it to its existing restaurant portfolio.
The purchase price of $14 million for approximately 242 locations averages out to approximately $57,851.24 for each location. Foodtastic assumes “all of the assets of the Second Cup business and will assume the post-closing liabilities of the business and pre-closing contractual lease liabilities of Aegis associated with franchised cafés”.
At first glance this is far below a craigslist price for a cafe and suggests a win-win for both companies. Since we are Canadian, we could look at this as if it was a hockey player trade. In such that, Aegis metaphorically traded(sold) all of their ‘Second Cup’ NHL and farm team players after signing a handful of superstar bridgehead coffee free agents. In hockey terms this would be a classic rebuild of a franchise.
Back in 2019 Aegis Brands had purchased Bridgehead Coffee Company for $11,000,000 (9.5 cash and 1.5 in stocks if sales targets were met) for 19 locations which averages out to approximately $578,947. Looking back on that purchase, Aegis took a big step out of 2nd wave coffee diner quality and into the 3rd wave ‘specialty cafes’ segment which is growing with consumer demands for higher quality and ethically sourced coffees.
Selling the Second Cup empire effectively removes the 1980's style starbucks coffee diner from their portfolio while double-double down on artisanal 3rd wave Bridgehead coffee as their future coffee business. This shift in their portfolio was welcomed by investors today (02/08/2021) with a 26% increase on the stock price from .98 to $1.14
Time will tell as to who won the metaphoric hockey blockbuster trade... ,or if the rebuild gamble paid off.
Disclaimer: This commentary is provided for general informational purposes only and does not constitute financial, investment, tax, legal or accounting advice nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this article should consult with his or her advisor.