{"text":[[{"start":7.29,"text":"One of the earliest bubble tea makers is on the block, with reports that Gong Cha Group’s majority stakeholder is looking to sell the company, in a deal that could value the chain at around $2 billion. Now, the big question is who might show up for such a deal, which is likely to cost $1 billion or more."}],[{"start":27.48,"text":"While it’s possible another private equity firm could buy out the stake held by TA Associates since 2019, a stronger possibility looks like a combination of private equity and one of China’s other top milk tea chains. Many of those chains, including Mixue (2097.HK), Chagee (CHA.US) and Chabaidao (2555.HK), have shown an interest in global expansion, which they could instantly achieve by acquiring Gong Cha’s more than 2,200 shops in 33 global markets."}],[{"start":63.97,"text":"What’s more, all of those Chinese chains are profitable, relatively debt-free, are have big piles of cash following IPOs that raised hundreds of millions of dollars over the last two years, mostly in Hong Kong. We’ll take a closer look at some of the top names among that group shortly, and which look like the strongest contenders to make possible bids for Gong Cha."}],[{"start":88.16,"text":"But first we’ll look at the latest news reports, which trace back to a Bloomberg article last week saying TA Associates has hired JPMorgan to explore a potential sale of its Gong Cha stake. TA has never disclosed the size of that stake, beyond the fact that it’s a majority. Still, that means the buyer would need to pay $1 billion or more if TA gets the $2 billion valuation it’s seeking for the chain."}],[{"start":115.85,"text":"The milk tea craze that’s swept the world over the last two decades actually began in Taiwan, and Gong Cha was one of the earliest players. Two friends opened their first milk tea store back in 1996, and established their first Gong Cha in 2006 in the southern Taiwan city of Kaohsiung. One of the founders, Wu Zhenhua, remains actively involved in the company’s operation."}],[{"start":145.54999999999998,"text":"Another key person at the company is Martin Berry, an Australian who is the head of Gong Cha’s global operation that has become its main growth engine. A banker at the time, Berry was in his 30s and traveling in Singapore in 2011 when he happened on a Gong Cha store with a large line of people waiting to buy their milk teas, according to a recent CNBC report. Curious, he joined the line and was impressed with both the product and its popularity."}],[{"start":177.39,"text":"After several unsuccessful attempts to reach Gong Cha’s headquarters, he personally flew to Taiwan to track them down. He later signed a deal to become a franchisee for the company, which was in four Asian markets at that time, and took them to its fifth market in South Korea. The company moved its headquarters to London at the time of the TA Associates acquisition, and has been busy expanding and upgrading its operation ever since."}],[{"start":206.11999999999998,"text":"Tech upgrades"}],[{"start":209.35999999999999,"text":"Like its Mainland Chinese peers, Gong Cha has relied largely on franchising to quickly expand its global operation. Last month it announced it had acquired 170 stores from its largest U.S. franchisee, and was taking over their direct operation as part of its effort to “strengthen franchise development and accelerate its U.S. growth.” That move appeared to show it has big plans to develop the U.S. market, where it currently operates 240 stores."}],[{"start":240.89,"text":"The company is also heavily focused on tech upgrades. In January, it unveiled its Gong Cha 2.0 outlay, whose two centerpieces were a beverage automation system and self-order kiosks. The former automated many of the steps for producing beverages that often contain complex combinations of tea, milk, sweeteners, tapioca pearls and other items, reducing the time to prepare an average drink by nearly a minute. The latter step is seeing the company introduce two self-order kiosks to each store, which also improves efficiency."}],[{"start":278.43,"text":"Gong Cha is a relatively upscale milk tea chain, reflected by its name that means “tribute tea for the emperor,” according to its website. As a private company, it only gives out limited financials, including revenue of about $190 million in 2024, up 12% year-on-year. At the time of the TA Associates deal in 2019, the company was reportedly recording annual revenue growth of 43%, meaning that rate has slowed considerably as the market has matured over the last six years. At the time, the company’s earnings before interest, taxes, depreciation and amortization (EBTIDA) was growing at a faster clip of about 70% in 2019."}],[{"start":324.93,"text":"Having reviewed all that background, we’ll close with a look at which of China’s major listed milk tea chains might be the likeliest to bid for Gong Cha."}],[{"start":335.38,"text":"Mixue is by far the largest of the group, with 14.9 billion yuan ($2.16 billion) in revenue in the first half of the year, up 39% year-on-year. But the company already has a large global footprint of 4,700 stores in 12 markets outside China, accounting for 9% of its overall store count. What’s more, Mixue is the most downscale of the major Chinese players, making Gong Cha’s high-end focus an awkward fit."}],[{"start":371.82,"text":"A more likely suitor is Chagee, which has a similar upscale profile and branding strategy to Gong Cha, drawing on Chinese history. Chagee had 262 stores outside China at the end of September, out of its 7,338 total, and has shown a keen interest in expanding that – especially in the U.S. The company also has a relatively low gearing ratio of 27%, and a sizable 9.14 billion yuan in cash following its U.S. IPO last year that raised more than $400 million."}],[{"start":410.35,"text":"The other chain that has shown similar global aspirations, meaning it could quickly expand its footprint outside China with a Gong Cha purchase, is Chabaidao, which also uses the name ChaPanda. The company had 21 stores in seven markets outside Mainland China, mostly in Southeast Asia, as of last June, representing just a tiny fraction of its 8,444 Chinese stores. The chain also had a relatively sizable 3.24 billion yuan at cash midway through last year. And perhaps most notably, it had no outstanding bank debt as of last June, meaning its balance sheet could easily accommodate any financing needed for a Gong Cha purchase."}],[{"start":466.62,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1773653940_3214.mp3"}