Coffee SPAC deal relies on caffeinated growth

Tim Horton’s is a fast-food restaurant chain China is brewing a potent concoction. In a deal valued at roughly $1.7 billion, the Canadian coffee and donuts chain’s division, 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). The breakfast wraps and Iced Capps supplier (0700.HK), funded by Sequoia and Tencent, is betting on increased coffee consumption in the People’s Republic.

It’s far from the only enterprise aiming to profit from China’s growing café culture. Starbucks’ (SBUX.O) 5,000-plus locations throughout the country saw comparable store sales rise 19 percent in the third quarter. However, the deal values the company at a whopping 110 times adjusted EBITDA that management want to achieve in 2023 — Starbucks’ whole business trades at 18 times – and is predicated on the company brewing growth flawlessly over several years. Management estimates that by 2026, it will have more than 2,750 profitable locations, up from 137 last year. That is, without a doubt, mug-half-full thinking.

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