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News & opinion

Private equity investment leaves coffee firm full of beans

12 Dec 2012

Private equity investment left self service machine company Coffee Nation full of beans! Milestone Capital Partners’ three year investment got the firm buzzing with revenues jumping by 55 percent, staff numbers growing by almost half (48 percent) and vending location sites almost doubling before they finally sold to UK giant Costa Coffee. In the last of our series profiling winners of their recent Operational Excellence Awards, Private Equity International describes how they managed to make a great return for their investors and leave behind a bigger and better business.

Between Milestone Capital Partners’ initial investment in Coffee Nation in March 2008 and the company’s sale just three years later to coffee-house chain Costa Coffee, it doubled its earnings before interest, taxes, depreciation, and amortisation (or EBITDA)  to €7.4 million (£5.9 million).

The provider of gourmet coffee vending machines also grew top-line revenues by 55 percent in the same period to £25 million. And it increased its number of vending location sites – from 552 at the management buyout to about 900 at exit – as well as boosting staff by 48 percent.

“There was very impressive growth of revenue during those three years and an even more impressive growth in EBITDA,” said judge Thomas Pütter. “That is a clear indication that they have not only grown the size of the business but they’ve made it into a better margin business and they’ve done it by growing staff, which means they’ve really got productivity up. I found that quite compelling,” said Pütter, who added the 3.7x exit multiple was also impressive. “And there was clearly heavy involvement by the private equity firm.”

Under Milestone’s watch, Coffee Nation grew its supplier base into a global operation with cups and lids sourced from China, coffee machines from the US and Switzerland and coffee beans from South America.

Milestone also refocused product development by ending Coffee Nation’s development of its own machines and outsourcing to a third party, which led to substantial cost savings. The resulting machine held on to the same functionality as its predecessor but also improved performance with increased milk capacity and touch screens. In tandem, Milestone developed a new self-service “vend” offering – previously customers would have had to pay at the counter – which allowed for expansion into new markets like universities and offices.

Those were among the most important operational levers pulled, say Colin Granger and Philip Conboy, the Milestone partners who led the deal. “Telemetry attached to each coffee machine allowed the performance of the machine to be managed from head office and significantly lowered machine downtime as faults could be identified and dealt with in a timely manner,” they said. “This also allowed us to monitor buying patterns such as when the machine was likely to be at its busiest, what drinks the consumers were buying and when the machine was last cleaned.”

They’d realised from the outset that the opportunity was “huge” for Coffee Nation because “there were no other real competitors and there was a move towards ‘on-the-go’ solutions”.

A focus on management was also a factor in the growth of Coffee Nation. Granger and Conboy noted that they “backed a proven management team that understood the sector and the market opportunity.” Milestone also recruited a second tier of management including a sales director, operations director, financial controller and marketing manager – all of which proved key in winning new business.

EBITDA growth


Top-line revenue growth


Employment growth


To find out more about PEI’s Operational Excellence Awards, click here.

James Crisp, Media Manager, EVCA

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