Jollibee acquires top South Korean coffee chain Compose Coffee

MANILA, Philippines — Philippines-based fast food firm Jollibee Foods Corp. (JFC) is set to take control of South Korean coffee chain Compose Coffee after acquiring a majority stake for $340 million.

In a disclosure on Tuesday, JFC announced that its subsidiary, Jollibee Worldwide Pte. Ltd., is set to own 70% of Compose Coffee Co. Ltd. and JMCF Co. Ltd., collectively known as Compose Coffee.

As of June 2024, the coffee chain has 2,612 stores in South Korea, according to Compose Coffee's website. Compose Coffee and its roasting facility, JMCF Co. Ltd., were established in Busan in 2014.

It was ranked first in the South Korean coffee industry for having the highest growth rate in terms of franchised stores.

"We believe that Compose Coffee is a compelling strategic fit for JFC and is on track to becoming the largest, fastest growing, and leading value coffee player in South Korea," JFC chairman Tony Tan Caktiong was quoted as saying in the firm's disclosure.

Following JFC's acquisition, 25% of Compose's shares will be held by private equity firm Elevation Equity Partners Korea Limited while 5% will remain with Titan Dining II LP which is also a private equity firm that owns the Tim Ho Wan brand.

The disclosure also cites data from McKinsey and EuroMonitor claiming South Korea ranks third globally in terms of coffee consumption. This data was not made public. Publicly available sources like the World Population Review, World Atlas and Statista rank South Korea outside the top 10 countries for coffee consumption per capita.

Behind the decision

The total cost for the acquisition is approximately $340 million, or roughly P20 billion. The amount was estimated at a price of about eight times of the target company's annual earnings, or EBITDA. Compose Coffee, moreover, has a positive cashflow and without debt.

EV/EBITDA is a financial metric used to evaluate a company's profitability and valuation by comparing its enterprise value.

In sealing the agreement, JFC's executives found they obtained a more advantageous deal compared to the industry's average EV/EBITDA multiple.

JFC operates several fast-food chains and coffee shops in the Philippines. It has over 6,000 stores globally.

It started to expand in the tea and coffee segment by acquiring a 50% share of Vietnam's Highlands Coffee before taking a controlling interest in 2017. In 2019, it acquired the US-based Coffe Bean and Tea Leaf (CBTL) through venture Java Ventures LLC.