Bawang Chaji and CHABAIDAO seem most suitable to bid for the controlling stake of this high-end tea beverage pioneer that TA Associates is preparing to sell.
<h4>Key Points:</h4>
<ul>
<li>TA Associates has hired JP Morgan to explore the sale of its stake in Gong Cha. Gong Cha is one of the oldest milk tea chain brands in the world, with origins dating back to the 1990s.</li>
<li>Gong Cha's extensive global presence and its focus on the high-end market align closely with the development strategies of Chinese chain brands Bawang Chaji and CHABAIDAO.</li>
</ul>
Yang Ge
As one of the earliest bubble tea brands in the world, Gong Cha is now reportedly up for sale. According to reports, the major shareholder of Gong Cha Group is considering selling the company, with the deal potentially valuing the chain at around $2 billion. The biggest question now is who would be interested in taking over this deal, as the cost of acquiring this stake is likely to be at least $1 billion.
While it is possible that another private equity fund may take over the stake held by TA Associates since 2019, it is more likely that a private equity fund will team up with other leading Chinese milk tea chain brands to make a move. Among these brands are Mixue Bingcheng (2097.HK), Bawang Chaji (CHA.US), and CHABAIDAO (2555.HK), all of which have shown intentions to expand into overseas markets in recent years. If they acquire Gong Cha, they would gain access to Gong Cha's international network of over 2,200 stores across 33 markets worldwide.
More importantly, most of the aforementioned Chinese tea chain brands are currently profitable, have relatively low debt levels, and have substantial cash on hand after completing their IPOs in the past two years. These IPOs were mostly conducted in Hong Kong, raising hundreds of millions of dollars in total. The following will further examine some of the most representative companies to see who is most likely to become a strong contender for acquiring Gong Cha.
However, before that, let's look at the latest news sources. Related reports trace back to a Bloomberg article from last week, indicating that TA Associates has hired JP Morgan to study the possibility of selling its stake in Gong Cha. TA has never disclosed its specific shareholding ratio, only stating that it is a controlling stake. However, if TA can indeed secure the targeted $2 billion valuation for Gong Cha, potential buyers would mean paying at least over $1 billion.
The bubble tea craze that has swept the globe over the past two decades actually originated in Taiwan, and Gong Cha was one of the earliest brands to enter the market. Two friends opened the first milk tea shop as early as 1996, and later established the first Gong Cha store in Kaohsiung, a city in southern Taiwan, in 2006. One of the founders, Wu Zhenhua, is still actively involved in the company's operations.
Another key figure in the company is Australian Martin Berry, who is currently responsible for Gong Cha's global business, which has become the company's main growth engine. According to a recent CNBC report, Berry was still a banker in 2011, in his thirties, when he happened to see a long line outside a Gong Cha store while traveling in Singapore, with many people waiting to buy milk tea. Out of curiosity, he joined the queue and was left with a deep impression of both the product itself and the brand's popularity
After multiple unsuccessful attempts to contact the Gong Cha headquarters, he simply flew to Taiwan to find them. Subsequently, he signed a contract with the company to become a franchisee. At that time, Gong Cha's business only covered four markets in Asia, and Berry later brought the brand into a fifth market—South Korea. By the time TA Associates acquired the company, Gong Cha had moved its headquarters to London and has since been busy expanding its business footprint and continuously upgrading its overall operations.
<h4>Technological Upgrades</h4>
Similar to its peers in mainland China, Gong Cha primarily relies on a franchise model to rapidly expand its global business. Last month, the company announced that it had acquired 170 stores from its largest franchisee in the United States and switched to direct operation as part of its plan to strengthen its franchise system and accelerate development in the U.S. market. This move indicates that the company has significant development plans for the U.S. market, where Gong Cha currently has 240 stores.
The company is also vigorously promoting technological upgrades. In January of this year, Gong Cha launched the &#34;Gong Cha 2.0&#34; plan, which includes an automated beverage production system and self-service ordering machines. The former automates part of the complex production process that combines various ingredients such as tea, milk, syrup, and pearls, reducing the average preparation time for each drink by nearly one minute; the latter introduces two self-service ordering machines in each store to further enhance operational efficiency.
Gong Cha is a higher-end milk tea chain brand, and its name &#34;Gong Cha&#34; means &#34;tea offered to the emperor,&#34; a positioning that is also explained on its official website. As a private company, its disclosed financial data is limited, with projected revenue of approximately $190 million in 2024, representing a year-on-year growth of 12%. When TA Associates invested in 2019, the company's annual revenue growth rate reportedly reached 43%, indicating that as the market has gradually matured over the past six years, the growth rate has significantly slowed. At that time, the company's earnings before interest, taxes, depreciation, and amortization (EBITDA) growth rate was even faster, reaching about 70% in 2019.
After reviewing the above background, let's take a look at which of the major listed tea beverage companies in China is most likely to make a move to acquire Gong Cha.
Among these companies, Mixue Ice City is the largest in scale, with revenue reaching 14.9 billion yuan (approximately $2.16 billion) in the first half of this year, a year-on-year growth of 39%. However, the company currently has 4,700 stores in 12 markets outside of China, accounting for about 9% of its total store count, indicating a fairly extensive overseas presence. Additionally, Mixue's brand positioning is more affordable compared to Gong Cha's high-end positioning, which does not align very well.
A more likely potential buyer is Bawang Chaji, which, like Gong Cha, follows a high-end route and uses Chinese historical culture as part of its brand narrative. As of the end of September last year, Bawang Chaji had 262 stores outside of China, which is still a small proportion of its total of 7,338 stores. The company has also shown a strong willingness to expand overseas, especially in the U.S. market. Furthermore, the company's leverage ratio is only 27%, and after raising over $400 million from its U.S. listing last year, it holds approximately 9.14 billion yuan in cash, indicating strong financial strength.
Another company with global expansion ambitions is CHABAIDAO. If it acquires Gong Cha, the company could quickly expand its overseas footprint. As of June last year, CHABAIDAO had 21 stores in seven markets outside of mainland China, primarily distributed in Southeast Asia, which is still a very small proportion compared to its 8,444 stores in China
The company held approximately 3.24 billion yuan in cash by mid-last year. More notably, as of June last year, it had no bank loans, indicating that its balance sheet was quite robust, sufficient to support the necessary financing arrangements for the acquisition of Gong Cha

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TA Associates is preparing to sell its controlling stake in Gong Cha, with a valuation potentially reaching $2 billion. Potential buyers include Chinese milk tea brands such as Bawang Chaji and CHABAIDAO, which have shown intentions to expand into overseas markets in recent years. Acquiring Gong Cha would give them access to a network of over 2,200 stores across 33 global markets. TA Associates has hired JP Morgan to explore the sale, and the specific shareholding ratio has not been disclosed

Which milk tea giant will acquire Gong Cha?