Starbucks swoop for largest UK franchise yields hefty return for Seneca
US coffee giant Starbucks has bought 23.5 Degrees, its largest UK franchise in a deal that has delivered a 7.5x return for investors including Seneca Partners, the North West-based private equity and investment manager.
Seneca backed 23.5 Degrees, the first Starbucks franchise in the UK, with a £1.5m growth capital investment through its Enterprise Investment Scheme (EIS) Portfolio Service in 2015. The investment was made alongside London based investor Connection Capital.
Clients of Connection Capital invested £9m in total to fund 23.5 Degrees’ ambitious growth plans, with an initial investment of £5.6m in September 2015, and a further £3.4m of follow-on funding in July 2018 as the company’s expansion accelerated.
At the time of Connection and Seneca’s investment, 23.5 Degrees operated just 13 stores. Since then, the business has expanded rapidly, growing to 113 locations and employing more than 1,650 people.
This successful exit brings the total value of Seneca’s EIS full and partial exits to over £85 million from 36 investee companies.
Starbucks has acquired Southampton-based 23.5 Degrees as part of an expansion strategy to increase its UK portfolio of company-operated stores, which now amount to 500 – approximately 40% of its total 1,200+ UK store network.
“I want to acknowledge the important contributions of 23.5 Degrees and the dedicated green apron partners. This strategic move will enable us to enhance our investment in new locations, elevate our in-store experience, and drive innovation for our UK customers,” said Alex Rayner, General Manager UK, Switzerland and Austria at Starbucks.
In May 2021, 23.5 Degrees secured a further £17m in debt funding from HSBC to grow its UK portfolio and 12 months later announced a goal to reach 300 Starbucks stores by 2027. The UK is Starbucks’ largest Europe, Middle East and Africa (EMEA) market.
23.5 Degrees is named after the north and south latitude lines that constitute the extent of the world’s “coffee belt” where coffee flourishes. The business was led by Mark Hepburn, whose extensive career in franchising includes working with global brands such as Burger King, Wimpey and KFC. He has stepped down as CEO following the completion of the sale of 23.5 Degrees.
The coffee chain achieved 22% year-on-year sales growth in the UK in the 12 months ending 1 October 2023 to reach £547.7m ($693m), with gross profit rising 15% to £149m ($188.5m).
Matt Currie, Investment Director at Seneca Partners, commented: “Exiting our investment in 23.5 Degrees is a fantastic result and underscores the importance to investors of partnering with the right EIS manager. Since our investment in 2015, the company has experienced remarkable growth, expanding from 13 to 113 locations.
“At Seneca, we are judged by how much capital we return to investors, and this significant realisation is another example of our commitment to delivering value. It adds to our established track record of successful, profitable exits.”
As well as making private equity investments, Seneca’s stable of companies spans Venture Capital, Asset-Based Lending, Property Finance, and Commercial Property Investment. The firm specialises in providing growth capital, strategic advice, and operational expertise to businesses.
