23.5 Degrees’ journey to an acquisition by Starbucks
23.5 Degrees Limited
Our real estate team played a crucial role in the sale of 23.5 Degrees Limited – a client of the firm for over 10 years and the largest Starbucks licensed business partner in the UK – to Starbucks Coffee Company. It marked a major milestone in the client’s decade-long journey from a single store to a nationwide presence, with our team advising on the property elements of the deal.
Decade’s worth of high-quality work ensures a smooth deal
In February 2013, with the help of our real estate team, 23.5 Degrees Limited (at the time, the only Starbucks franchise in the world) established its first store. A year later, it had opened 4 more, and it now operates over 120 Starbucks stores across the UK. Throughout this decade of rapid growth, we provided ongoing support to 23.5 Degrees, offering employment law advice, and, importantly, acting on the acquisition of the vast majority of its trading stores.
The long-term goal for 23.5 Degrees Limited had always been to achieve an exit that represented a good deal for its shareholders and stakeholders, and was with the right buyer. Believing they had found this, the owners tasked our team with representing them on a deal to sell the business to Starbucks Coffee Company; specifically, on the property elements of the acquisition. This deal would significantly expand Starbucks’ wholly owned footprint, increasing its total number of company-operated locations to almost 500 in the UK.
As part of the transaction, the property due diligence conducted by the buyer was extremely comprehensive, with a team of around 15 real estate lawyers preparing reports on title and putting the acquisition work we had carried out for the client under the microscope. Happily, Starbucks, as well as our client’s venture capital investors, were pleasantly surprised that this due diligence revealed an absence of any ‘red flags’, demonstrating how our team had, over the past 10 years, ‘provide[d] high-quality advice while dealing with volume and a fast roll out programme’. The deal was able to continue smoothly, and the exit was ultimately successful, one that delivered a 9x gross return for investors.
Key takeaways
A fruitful, long term client relationship
From helping 23.5 Degrees with the establishment of its very first store, right through to its successful exit, we supported the business for over a decade, demonstrating our ability to form long-lasting, effective, and successful relationships with our clients.
Commercial, pragmatic advice for a high-growth business
For 23.5 Degrees’ expansion – from one store to over 100 in the space of 10 years – speed was of the essence. When we acted on the acquisition of its new trading stores, we were able to provide pragmatic, commercial advice, that ensured leases were negotiated at pace.
High quality, detailed acquisition work
Of course, the risk of moving at speed was that crucial details could be missed or errors made, both of which could cause issues further down the line. As demonstrated by the due diligence undertaken as part of the deal, our team had handled the acquisition work for the client to an excellent standard, especially considering the high volume and fast roll out of stores.
Aligning our advice with the client’s long-term objectives
With the long-term goal of a successful exit for 23.5 Degrees in mind, it was imperative that all leases for new stores we had negotiated were attractive to any institution looking to buy, with a clear absence of any red flags. Our understanding and knowledge of what an institutional buyer would be looking for was crucial for ensuring the proposed deal went smoothly.
Key facts
125+
Number of stores 23.5 Degrees Limited operates
10
Average number of new stores established every year
The team at Penningtons were an integral part of our journey from the very start. Their consistently high-quality advice, especially on the property side, gave us the confidence to scale rapidly and strategically. When it came time to exit, their deep knowledge of our business was invaluable in completing the complex transaction with precision, and without delay. We couldn’t have asked for a better partner.
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