Coffee SPAC deal relies on caffeinated growth

A barista makes coffee at a café in Beijing, China, May 6, 2017. REUTERS/Thomas Peter

HONG KONG, Aug 17 (Reuters Breakingviews) - Tim Hortons China is preparing a strong brew. The division of the Canadian coffee and donuts chain, a joint venture between Restaurant Brands International (QSR.TO) and private equity firm Cartesian Capital, has agreed to merge with special purpose acquisition company Silver Crest Acquisition (SLCR.O) in a deal valuing its enterprise at nearly $1.7 billion. The Sequoia- and Tencent-backed (0700.HK) seller of breakfast wraps and Iced Capps is banking on rising coffee consumption in the People’s Republic.

It’s hardly the only company hoping to cash in on China’s burgeoning café culture. Comparable store sales at Starbucks’ (SBUX.O) 5,000-plus outlets in the country rose 19% for the third quarter. But the deal values the business at a heady 110 times the adjusted EBITDA that executives hope to make in 2023 – Starbucks’ overall business trades at 18 times – and rests on the company flawlessly brewing growth for several years. Management projects, for example, that it’ll have more than 2,750 profitable stores by 2026, up from 137 stores last year. That’s definitely mug-half-full thinking. (By Sharon Lam)

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Editing by Antony Currie and Oliver Taslic

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