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44 deals update Deal of the month: Project Latte


This is the first of a regular series – Deal of the Month – in which The Business Magazine highlights a key transaction in the region. To have your deal considered, send details to Peter Laurie (peter@elcot.co.uk). Deals submitted should be recent transactions that have not previously been reported in The Business Magazine


Completion Date: 09/15 Target: 23.5 Degrees Deal Value: £15.3 million


Details: Meridian Corporate Finance has advised 23.5 Degrees, Starbuck's first global franchise partner, on its £15.3m growth funding package from NatWest and Connection Capital


Funding: NatWest and Connection Capital Corporate Finance Advisers: Meridian


Legal Advisers: Shoosmiths, Glanvilles, Osborne Clarke and Gateleys Financial Due Diligence: PwC Tax Advice: Baker Tilly Commercial Due Diligence: Smith Cooper


From barrister to king of the baristas World's first Starbucks franchise partner


In 2005, Anil Patil and his wife Astrid borrowed £75,000 from friends and family to purchase their first Domino’s pizza franchise. Three years later, with three stores, Anil shocked his friends and family by leaving his job as a barrister, to join Astrid, and by 2012 the partnership had grown to 18 Domino’s stores. Later that year, Anil became aware of a rumour that Starbucks might be about to embark on a franchise programme. The Domino’s business went up for sale, realising a significant equity stake and Anil invested his gains into 23.5 Degrees (23.5°) becoming Starbucks’ first global franchise partner, opening his first store in February 2013.


Aware of the opportunity that was opening up to 23.5°, Anil assembled a superb management team, being joined by fellow shareholder and director of operations Mark Hepburn. The business had significant funds, invested through Anil with further funds promised by a private investor. The private investment didn’t materialise, leaving Anil and Mark with their first major challenge. Several referrals led to 23.5° talking with a family office about investment during 2014, then in August last year Anil and Astrid bumped into Meridian Corporate Finance director Mike Barcia at their local gym.


Barcia commented: “I really like Anil and Astrid; they are very genuine people. They explained their history, the opportunity and the terms on offer from the family office, and to me it seemed that they could do better. They had great careers but risked everything and went into franchising. They made a huge success of Domino’s, made significant capital but saw


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the opportunity of being in early with one of the world’s most iconic brands, again risking the capital they had already made. I felt this opportunity should be one for private equity and the banks to support.”


In March 2015, with 11 open stores, Meridian and 23.5° approached selected private-equity investors and banks with a view to raising £15 million of development funding to acquire stores from Starbucks and grow organically.


Anil explains what happened next and why. ”Meridian, Mark and I met several interested parties, but it’s fair to say some of the investors were struggling with franchising and the ultimate relationship with a franchisor. We were due to meet Connection Capital (CC) at their London offices, but thanks to Mike’s awful navigation skills eventually met near Piccadilly for lunch instead. Those two hours cemented our relationship. CC got it straight away and their business model of high-net-worth individuals investing meant that they were not subject to restrictions placed on other PE houses.”


Demand from CC clients to invest in 23.5° was fully subscribed within a matter of days, with over 75 private investors participating. Pascal Wittet, investment director at CC, commented: “This is an attractive opportunity to invest in an ambitious UK company, with a first-class management team, backed by a world- class international brand, so we were expecting demand from our client base to be high – and this has certainly proved to be the case. It’s a really exciting deal.”


Alongside CC’s £5.6m investment for a minority stake, Meridian negotiated bank funding of £9.75m from the NatWest Bank (NatWest). The combined funding together with the strengthening of the management team by the addition of James Garner, part of the original Starbucks team that pioneered the concept of the franchising programme, should enable the business to achieve its growth target of opening 100 stores within five years.


Relationship director Mikael Rosen and director of structured finance David Moxham led the NatWest deal team. Rosen said: “We are extremely pleased to be supporting 23.5°. We are excited to be working with such an experienced and dynamic management team that is being backed by a leading global brand in Starbucks.”


Hepburn said: “This investment will give us the capacity to deliver on our plans to expand our franchise network. As the franchise market continues to grow across the UK, we will be able to capitalise on latent demand in under-served areas of the country and help boost Starbucks’ UK market share.”


James Garner, 23.5°’s commercial director, added: “We’re delighted so many private investors have recognised our potential and the positive direction of Starbucks UK business model. We are also hugely grateful to the Meridian team for helping us deliver this funding package. They became an integral part of our team, introducing us to CC and RBS and guiding us through what is an intense and complicated process.”


THE BUSINESS MAGAZINE – THAMES VALLEY – NOVEMBER 2015


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