Starbucks China valued at about US$5 billion by bidders, sources say

[HONG KONG] Most of the bidders seeking to buy a portion of Starbucks’ China operations have submitted offers valuing the business at as much as US$5 billion, said two people with knowledge of the deal discussions.

That quotation would make a potential deal one of the most valuable China unit divestments by a global consumer company in recent years.

The two sources asked to remain unidentified as the information is confidential.

The offers, which have not been reported previously, would let Starbucks push ahead with the sale in a market where it faces sluggish economic growth and stiff competition from local brands. Starbucks invited around 10 potential buyers to submit non-binding bids by early September, Reuters reported last month.

Most of those bids set the value for Starbucks China at about 10 times its expected earnings before interest, taxes, depreciation and amortisation (Ebitda) of US$400 million to US$500 million in 2025, said the people.

At least one bidder offered an Ebitda multiple in the high teens, said one of the people.

The multiple bidders offered for Starbucks China is similar to one of its main rivals Luckin Coffee, which is currently valued at nine times its projected Ebitda for the next 12 months.

Luckin has been gaining market share against Starbucks by offering lower-priced products and increasing its presence in smaller Chinese cities.

In response to a request for comment, a spokesperson for Starbucks referred to the chain’s latest quarterly earnings which saw record-breaking sales growth in international business and the third consecutive quarterly revenue growth in China.

The spokesperson declined to comment on the valuation of the China business or the latest status of the bidding process.

Starbucks’ enterprise value for the global business is 20.6 times its trailing 12-month Ebitda, and is projected to be 19.3 times the forecast of Ebitda for the next 12 months, according to data from the London Stock Exchange Group.

The Seattle-headquartered Starbucks had a market value of about US$99 billion as of Thursday.

Interested parties

Starbucks has not yet decided how large a stake it is selling in the China business, Reuters reported last month. The two sources said they did not have information on the stake size.

In May, the company said it was not considering a full sale of the business. Starbucks chief executive officer Brian Niccol said on the quarterly earnings call in July it would maintain a meaningful stake in the China business.

Starbucks’ market share in the world’s second-largest economy – home to more than a fifth of its cafes – was 14 per cent last year versus 34 per cent in 2019, data from market researcher Euromonitor International showed.

The chain has since taken the rare step of reducing prices for some non-coffee drinks in China and increasing the pace of new and China-centric products.

Comparable-store sales in China increased 2 per cent in the quarter ended on June 29 versus zero growth in the previous quarter.

Last month, Reuters reported the coffee chain invited interested parties including private equity firms Carlyle , EQT, Hillhouse Investment and Primavera Capital to submit initial bids.

Other potential buyers selected included Bain Capital, KKR & Co and technology major Tencent. It is not immediately clear if all of them submitted non-binding offers.

It was not immediately clear what the next steps in the sale process are. Typically, the seller would select a smaller group of bidders from the initial round for a final round, when binding offers are expected. REUTERS