Hollys Coffee’s ambitions to become the first listed coffee franchise in South Korea have stalled. This domestic coffee franchise paused its IPO process after facing valuation challenges reminiscent of the struggles faced by other coffee chains like Ediya Coffee and A Twosome Place.
Hollys Coffee sent a Request for Proposal (RFP) to major domestic securities firms for an Initial Public Offering (IPO) in Aug. 2023 and received bids from numerous firms. However, the company has now stopped its journey to be listed for the moment.
Earlier this year, there were talks about Hollys Coffee planning to hold a presentation competition from the bidders in February to select the lead underwriter and successfully be listed within the year. However, the company did not announce any shortlist of selected candidates.
The market views Hollys Coffee as following the same path as Ediya Coffee and A Twosome Place, two coffee franchises that also faced difficulties in valuing their company and ultimately dropped their plans to be listed.
According to the investment banking (IB) industry, KG Hollys F&B, the company that operates Hollys Coffee, has reviewed proposals from major domestic securities firms for about six months since sending out the RFPs in Aug. 2023. This is much longer than the usual timeline of two months for selecting a lead underwriter after issuing RFPs.
After that, in Dec. 2023, the company announced plans to select a shortlist and open presentation sessions from bidders to choose a lead underwriter within the year, but they were unable to do so. Earlier this year, Hollys announced that it would open the presentation session again in mid-February and file for a preliminary listing review by the first half of the year at the latest, but these plans were also not realized.
KG Hollys F&B is a company that was formed in 2018 when KG Group acquired Hollys Coffee from IMM Private Equity for $111.54 million. KG Hollys F&B is controlled by KG Inicis through its wholly-owned subsidiary Crown F&B, which holds a 74.3% stake in the company.
The listing of KG Hollys F&B has been a long-awaited project for the group to help them survive in the intensely competitive coffee industry. Unfortunately, their sales have dropped from $119.15 million in 2018 to $104.54 million in 2022 due to the emergence of low-cost coffee brands. The COVID-19 pandemic has further impacted their business, resulting in a 50% drop in their operating profit from $12.31 million to $6.54 million.
To boost their business, the CEO, Lee Jong-hyun, announced in his inaugural address a goal of going public by 2024. The company planned to use the funds from the public offering to expand its current 550 stores nationwide, with the aim of achieving economies of scale. Starbucks, the leader of the coffee franchise industry in Korea, has over 1,900 stores across the country.
Despite the company’s efforts to expedite the process of selecting a lead underwriter and filing for a preliminary listing review, analysts predict that a listing within the year is unlikely due to time constraints. Nevertheless, KG Hollys F&B has officially not decided whether to pursue their goal of going public.
