San Francisco-based Philz Coffee is being acquired by Los Angeles private equity firm Freeman Spogli & Co. for an estimated $145 million. The deal, expected to finalize around August 8, will result in the cancellation of common stock held by current and former employees, effectively rendering these investments worthless. This development has sparked significant concern among those who invested in the company's common shares.
The acquisition terms specify that while board members, including founder Phil Jaber and his son Jacob Jaber, along with representatives from previous investors Summit Partners and TPG Growth, and CEO Mahesh Sadarangani, are slated to receive payouts or bonuses, common stockholders will not. As stated in a tweet by Justin Zollars, referencing company documents, > "The company’s common stockholders, including employees, are expected to see their stock canceled and rendered worthless under the terms of the agreement." This outcome is attributed to the acquisition price being insufficient to cover the preferences of preferred stockholders and debt holders.
Philz Coffee, founded by Phil Jaber, expanded significantly over the years, partly fueled by prior venture capital and private equity investments from firms like Summit Partners and TPG Growth. Reports indicate the company faced financial challenges, with one former employee quoted by Mission Local stating, "Philz ran out of money. That’s really what it is." The sale to Freeman Spogli & Co. follows a period of growth and expansion that saw Philz become a prominent name in the specialty coffee market.
Despite the negative impact on common stockholders, Philz Coffee has indicated that there are no plans for job cuts or store closures under the new ownership. The company also stated it would issue a "thank you" bonus to all team members in stores, roasting facilities, and the home office. CEO Mahesh Sadarangani is expected to remain in his role and will reportedly reinvest his after-tax proceeds back into the company, signaling continuity in leadership.
Freeman Spogli & Co. has a history of investing in consumer and restaurant sectors, with previous holdings in brands such as Popeyes and El Pollo Loco. The acquisition of Philz Coffee marks another addition to their portfolio, with a focus on potentially expanding the coffee chain's footprint. The deal highlights the complexities of private equity transactions, particularly concerning the differing protections afforded to various classes of stock.