A coffee company that started in church basements is Second Cup Ltd.’s first acquisition as it pursues a new strategy to expand by buying small food-service businesses.
Second Cup announced on Thursday that it will acquire Bridgehead Coffee. Bridgehead owns 19 coffee shops in Ottawa, and plans to expand to Toronto under the new ownership.
Bridgehead began in 1981, founded by church ministers and social activists, and sold fairly traded coffee out of church basements in Toronto. It was acquired by Oxfam-Canada in 1984, expanding to sell a range of other products; after suffering losses it underwent a restructuring in the late 1990s. Tracey Clark acquired the brand in 2000 and has been CEO ever since, expanding the chain of coffee shops in Ottawa.
Second Cup will pay $6-million in cash and $3.5-million in Second Cup shares to acquire Bridgehead, with as much as $1.5-million in additional payments over the next two years if the company meets earnings targets.
Ms. Clark will continue in a new role as Bridgehead’s “chief culture officer,” while chief operating officer Kate Burnett will take over leadership of Bridgehead. Its roast master and director of coffee will both continue with the company, and Second Cup’s parent company says the chain will be run independently of Second Cup stores.
“They will be able to provide us with real estate opportunities, will be able to provide capital, and will be able to provide some shared services that are important," Ms. Clark said.
Bridgehead first approached Second Cup about a possible deal roughly 18 months ago, as it looked to expand. Ms. Clark wanted to open cafés in Toronto as far back as 2008, but the plan was shelved when the financial downturn made it more difficult to raise capital.
Bridgehead built its brand on touting its ethically sourced beans, and buying ingredients for its food and baked goods – such as vegetables and sheep’s milk yogurt – from local farms. It will continue to do so in the markets where it expands, Ms. Clark said.
“Both being in coffee, the knee-jerk reaction would be to go and buy the same coffee. That’s not a decision that we want to force on Bridgehead," Second Cup CEO Steven Pelton said. “We don’t want to homogenize the brands.”
Second Cup first announced its new acquisition plan last month. The company believes it can expand by buying up smaller regional food-service brands. As part of its acquisition plan, Second Cup plans to change its corporate name to Aegis Brands Inc. in the new year; the name of the coffee shops will not change.
“This is exactly the kind of acquisition that fits into our repertoire, where they’ve done a great job in a region and they want to go bigger," Mr. Pelton said.
The deal is expected to close before the end of the month.
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