Case Study: 23.5 Degrees

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Deal size:
£15.3m
Transaction:
Development Capital
Sector:
Retail
Deal completed:
September 2015
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About the deal

Meridian advised the World’s first Starbucks franchise partner 23.5° Degrees Limited on their £15.3m growth funding package from Connection Capital (“CC”) and Royal Bank of Scotland (“RBS”).

23.5° was founded by Anil Patil, a former barrister who left legal practice to build a successful 18-site Domino’s Pizza franchise (sold in 2013) and Mark Hepburn, whose 25-year career in franchising includes working with brands such as Burger King, Wimpey and KFC.

Anil and Mark met with several interested parties, but some of the investors were struggling with franchising and the ultimate relationship with a franchisor. CC understood the concept immediately 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 Connection Capital commented, “This was an attractive opportunity to invest in an ambitious UK company, with a first-class management team and 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. The energy, drive and experience of the management team, the strong relationship with Starbucks, and the continued potential for growth in the UK coffee market, makes this a really exciting deal to put to our investors.”

Relationship Director Mikael Rosen and Director of Structured Finance, David Moxham led the Royal Bank of Scotland’s deal team. Mikael said, “We are extremely pleased to be supporting 23.5 Degrees Ltd with £9.75m debt facilities to help achieve its strategic growth ambitions alongside Connection Capital. We are excited to be working with such an experienced and dynamic management team that are being backed by a leading global brand in Starbucks.”

Mark Hepburn, Operations Director of 23.5° said, “This investment will give us the capacity to deliver on our plans to extend and 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.”

Commenting on their meeting Mike said, “I really like Anil and Astrid, they are very genuine people. They told me about their history, the opportunity, the terms on offer from the family office and to me it seemed that they could do better. This was a couple who had great jobs but risked everything and went into franchising. They made a huge success of Domino's, made significant capital but saw the opportunity of being in early with one of the World’s most iconic brands in a sector that some people would have thought was saturated and went again, risking the capital they had already made. They had assembled a great team around them and it felt as though the opportunity should be one for private equity and the banks to support.”

Prior to the deal completion 23.5° operated 14 Starbucks stores across six Southern UK counties – Berkshire, Oxfordshire, Dorset, Hampshire, Surrey and Wiltshire, with another 16 new store openings in the pipeline.

Starbucks – the world’s largest coffee chain and ranked 52 on Forbes’ world’s most valuable brands, has recognised 23.5° Degrees’ contribution to its business by presenting it with two awards for delivering impressive organic store growth, and for dedication to customer service.

Other advisers on the transaction included the Hampshire based offices of Shoosmiths (23.5° legals relating to investment from CC), PWC (Financial Due Diligence), Glanvilles (23.5° legals relating to purchase of stores from Starbucks), together with Osborne Clarke (Bristol – acting for RBS), Gateleys (London – acting for CC), Baker Tilly (Reading – tax advice to CC and Newco) and Smith Cooper (Derby – Commercial due diligence).

23.5°

north and south of the equator is the world's main coffee growing area

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We are 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 the advisers needed to guide us through what was an intense and complicated process

Mark Hepburn , 23.5 Degrees Ltd