BancBoston Capital (BBC), the private equity investment arm of FleetBoston financial corporation, looks to have profited from its investment in Italian coffee bar chain, Caffé Nero, following the flotation of the company on the London Stock Exchange.
The original MBI and first step of the rollout of the chain took place in June 1997 when BBC and Palladin Associates supported the management team led by chief executive Gerry Ford. BBC committed £2.5 million in unsecured loan stock warrants in a mezzanine deal. Paladin Associates invested £1.1 million in the round.
Following the MBI, Paladin Associates committed small tranches of equity when necessary and in 1999 BBC committed a further £1 million by way of an unsecured loan stock and additional warrants. NatWest was brought in as senior lender in late 1999. By this time the company had expanded its portfolio to include 20 stores.
Since the initial investment, Caffé Nero has grown from five stores to nearly 60, with a current rollout rate of three to four each month. Ian Henderson-Londono of BBC said that the team had decided that in order to bring the company to its target of 100 stores, it would be cheaper to raise public equity, despite the current market conditions.
Andrew Kellett, managing director, said: “The successful flotation of Caffé Nero in these uncertain market conditions vindicates our belief in the company’s management and the underlying strength of the Caffé Nero business concept.”
“The running rate of profitability for the company is high”, said Henderson-Londono. He added that the company makes over 70% gross margins with 5% to 6% like-for-like sales growth per annum. BBC retains a stake of just over 14% in the chain. The IPO leaves Caffé Nero with between £6 million and £7 million to play with for further rollouts. Henderson-Londono says that there is great potential in the airport business and there are plans in the pipeline to set up in major international airports such as Heathrow.
“This is a terrific opportunity for the company,” he said. “Give it another six to nine months and there will be some phenomenal growth ahead. All the credit is due to Gerry – he’s done a great job.”
The first Caffé Nero was opened in 1990 in South Kensington, opposite Christie’s. The chain is well known for its strong authentic Italian theme with traditional coffee and a range of freshly made cakes and snacks.