UPDATE: Cashed-up Esquires founder eyes new opportunities as Cooks rejigs ownership
UPDATED: Stuart Deeks, the founder of the Esquires coffee chain in New Zealand, says he sold out of "his baby" in order to take another, as yet unidentified, food and beverage business global.
Majority owners Mr Deeks and his brother Lewis have exited Cooks Global Foods [NZX:CGF], the company they built up from 2002, as it announced plans to expand the coffee chain beyond Australasia and raise more funds to aid expansion..
The Auckland-based unprofitable Cooks plans to sell 35 million shares at 12.8c apiece to its Chinese joint venture partner supermarket chain Jiajiayue Group (JJY) and executive chairman Keith Jackson, raising a total of $9 million, and signalled plans for a further $9 million public share offering in October.
The capital raised will fund a five-year strategic growth plan for existing and new international markets to gain critical mass, Mr Jackson says.
Cooks has 22 stores in design or under construction as part of its roll out of the Esquires chain and aims to have 125 stores by the end of this financial year compared to 70 at the end of the 2015 year. JJY formed a joint venture with the company in 2013 to develop 30 Esquires outlets in China's Shandong province.
The new ownership structure will see JJY and Mr Jackson jointly acquire the Deeks' existing 40% stake in Cooks for 5c a share, or a total cost of $6.8 million. The Deeks will retain one million shares, less than half a percent of the company.
Mr Deeks says he could have held out for, and would have liked, a higher price but the deal was similar to what other franchised coffee chains have recently been valued at.
"If I'd insisted on a higher price the deal would not have happened. This is fair for Cooks and I get to go off and do what is really dear to my heart," he says.
The 49-year-old says the deal provides the capital the company needed to further its global expansion and that Cooks had grown to a size and a corporate culture that no longer best suited his entrepreneurial skills.
"I never imagined when I was making coffee and serving customers that one day I would be being bought out by a huge Chinese company and seeing them take it global. This is going to create a lot of blue sky for my baby," he says.
The company bought the master franchise rights to Esquires through the acquisition of the Canadian chain's founders in 2013, but had already sold the New Zealand and Australian business to ASX-listed Retail Food Group for $11.6 million in 2011 when Mr Deeks divorced and needed the money.
Mr Deeks, who gets 51% of the brothers' $6.8 million payout, says he plans to find a food and beverage company that he could invest into and use his 13 years of experience in developing Esquires and franchising to take it global. He remains as Cook's international business development manager until the end of September while Lewis has already left his operations role. Both brothers resign as directors on August 31.
Once the transaction is completed, JJY will hold 25% of Cooks while Mr Jackson will own the largest shareholding at about 35%. JJY will appoint a director to the board. JJY and Mr Jackson may introduce further investors to fund the deals.
Cooks shares last traded at 12c on the NZ Alternative Index and have dropped 11% so far this year.
The transactions have conditions, including both parties signing formal documents, securing finance, and getting shareholder approval at the Cooks annual meeting in late September.
Cooks posted a $3.99 million loss in the year ending March 31, from a loss of $5.1 million a year earlier.