I was sipping my coffee, or was it my tea and then the news came. Gongcha seeks to be sold at a price of $442 million. Typically, when private equity deals take place via a sale or an acquisition, I sit up and take notice. That is even more so for a company whose products I actually enjoy. Not that Gongcha gives me a sugar high but quite honestly, the tea is quite a standard above many bubble tea franchises. Another reason of course – my wife loves the bubble tea made from its premium tea leaves. Not that I can tell anyway.

But anyway, back to the idea at hand. Gongcha’s news of a possible deal made me sit up and think. And of course, it led down to the rabbit hole. I am not sure if you have heard of Mario Gabelli. He is fund manager that managed to sell the idea of a business being worth at least “private market value” to institutional investors. The private market value proposed by Mario Gabelli is the price an informed industrialist will pay for the entire company. And very famously, Mario espouses the merit of having a catalyst attached to such opportunities. More on this in another article perhaps. But the idea is to buy at prices below what an industrialist would be willing to pay. That industrialist could be a private equity firm or another corporation willing to acquire a competitor. In any case, a lot of times, inevitably, these industrialists have to ask the question “what is the amount of debt I can put on the target company’s balance sheet” if the acquisition is financed with leverage via a leveraged buyout. If you are interested to know more, you can read about a case study I wrote on a company called Challenger Technologies and Dymon Asia, a private equity firm located in Singapore.

I would like to say that Mario Gabelli took that idea and ran with it. Today, he is worth some $1.7 billion. So obviously, his approach works even though he has underperformed recently.

But back to Gongcha. The company was purchased by Unison Capital for $30 million in 2017 according to some reports. Today, it wants to sell the company for 15 times EBITDA. That is a “cash-out” price if you ask me and although a story of growth comes with an incredibly rich price, growth is always a pain in the ass if you ask me. It is one thing to talk about growth but it is quite another to engineer it.

These are some of the details of the deal that may or may not materialise:

  • Unison Capital wants to sell Gongcha for 15 times EBITDA at a price of $442 million.
  • Gongcha has EBITDA margins of between 24% and 25%. Comparatively, Starbucks has an EBITDA margin of just 21%.
  • 2019 EBITDA is projected to be $38.5 million
  • 2019 sales is projected to be $154 million.

It will be interesting to watch how this one pans out. If there is indeed a sale at these prices, this would be one heck of a home run for Unison Capital. Another alternative for Unison Capital is to actually list it on the stock market, which may happen if no buyers fancy the acquisition.

The Man Who Made $300 Million

Man Of Mystery : Learn about a business executive from Hong Kong that seized a once in a lifetime opportunity during 2008-2009 to earn hundreds of millions of dollars. One deal was all it took for him. That is also the reason why contrarians are the gods of the financial world. And I will keep this man a mystery for now. His story is unknown and yet needs to be told. After 100’s of hours of sleuthing through annual reports and other filings, I have an idea of how he made 100’s of millions. I intend to give this information in the form of a talk or in a video presentation or via an article someday. So if you are interested in this story, and consider yourself a high net worth individual capable of going against the grain, this may be for you. I have to also caution that this may not be for everyone. Just leave your email below.

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kingsley

I have been an investor for 15 years now and my journey has meandered from Warren Buffett to Ben Graham. My start, like many, really was the naive idea that Buffett's skills could be replicated in some fashion. I was proven wrong when some of the supposed stock picks that I chose had dismal performances. Then, I learnt that it is no point trying to be someone I am not. Gradually, through failure and some success in deep value investing, my approach towards stocks gradually shifted to an approach based around Graham's techniques. So, I give credit where credit is due and to Ben Graham, I and many other investors around the world, owe him a great deal. So, if you want to read up on biographies, read about Ben Graham. His seminal work, Security Analysis is a gem. My books are just rich interpretations of what he has taught.

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