Cooks Global Foods (NZ) Targets US Expansion
03 Sep 2018 - Cooks Global Foods, which owns the master franchise rights for the Esquires Coffee chain outside New Zealand and Australia, says its planned $19 million purchase of Mojo Coffee Cartel will boost its earnings and expand its reach.
The planned acquisition was announced earlier this month, with NZAX-listed Cooks saying it will pay $14 million cash and take on up to $5.3 million in debt in Mojo.
Today, Cooks said it plans to raise $20.5 million to fund the purchase, via $14 million in new capital, $4.3 million in new equity underwritten by Cooks Investment Holdings which is associated with its executive chair Keith Jackson, and $2.2 million in shares it's issuing to Mojo's sellers.
Buying Mojo will be "transformational" for Cooks, the company said, lifting its sales from $6.8 million in 2018 to a pro forma $33.2 million and turning it from a $1 million loss in earnings before interest, tax, depreciation, and amortisation to a pro forma $1 million ebitda profit.
"Cooks will be generating positive cashflows, become a significantly larger company and, with a New Zealand retail presence, have greater visibility to New Zealand investors. It is an exciting time for Cooks," the company said. "Along with establishing an earnings presence in NZ through Mojo and migration to the NZX main board post transaction, Cooks’ anticipates enhanced liquidity and market coverage over time."
The deal is expected to settle by Oct. 31 and Cooks said it will refresh its board in the coming months and will move to the NZX Main Board, from the current NZAX small-cap index. Stockmarket operator NZX announced in its interim report earlier this month that it will consolidate its junior equity boards into the main board with changes finalised by November.
Cooks currently has 101 Esquires Coffee Houses, mostly in Ireland, the UK, China and the Middle East, and the deal will add 43 Mojo stores, 36 of those in New Zealand. The company plans to have a combined 158 stores by March 2019, with 3 new Mojos and 11 new Esquires outlets.
Mojo has plans to expand into the United States and has spent $2 million over two years to establish itself there, opening its first store in Chicago in June 2017. That store is generating revenue of US$60,000 per month and Mojo's management estimate it needs four US stores to break even. It has planned to open three new stores in Chicago in the next twelve months and to have opened six new stores by March 2020.
Cooks and Mojo see an opportunity in the US despite that market being dominated by large chains, as they predict younger consumers are willing to spend more on better quality coffee. Mojo's medium-term plan is to open at least four stores each year for the next seven years within the Chicago CBD, and then expand to other cities - it has identified Austin, Cincinnati, Denver, Miami, New York, Philadelphia, Nashville and San Diego as suitable.
Cooks said Mojo is consistently profitable in New Zealand. Its 2018 revenue was $26.4 million, up from $24 million in 2017, and it's forecasting $27.2 million for the 2019 financial year. Mojo's New Zealand ebitda in 2018 was $2.8 million, forecast to rise to $3 million this year.
Mojo's branding and staff will remain following the acquisition. Co-founder Steve Gianoutsos and executives Katy Ellis and John Holloway will join Cooks’ senior management team while continuing to run the Mojo business.
Cooks' shares last traded at 8.5 cents and have gained 70 percent this year, having started 2018 at 5 cents.