Tims China Listed on NASDAQ! Raising Nearly $200 Million

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Tims China: The First Coffee SPAC Listed on Nasdaq

On September 29th, Tim Hortons' China business (abbreviated as "Tims China") officially listed on Nasdaq! The total fundraising reached nearly $200 million.

According to Tims China, on August 18th this year, American special purpose acquisition company Silver Crest held a special shareholders' meeting, approving the merger with Tims China. The completion of the merger was announced on September 28th Eastern Time. The next day, Tims China was listed on Nasdaq under the stock codes "THCH" and "THCHW", becoming China's first coffee SPAC stock.

Understanding SPAC

What is SPAC? As a Special Purpose Acquisition Company, SPAC is a method of backdoor listing. Unlike traditional backdoor listings, a SPAC serves as a listing platform (shell company) with only cash and no actual business and assets. This company will invest in and acquire target companies preparing for listing, allowing these target companies to quickly achieve listing and financing through merger with an already-listed SPAC.

After IPO (Initial Public Offering), a SPAC has up to 2 years to find a merger target. After conducting a series of due diligence and financial audits on the target company, the SPAC's shareholders will vote on the project. If it receives more than half approval, the SPAC will proceed with the merger with the target company, trading under a new stock code. If no suitable target is found for merger within two years, the SPAC will be liquidated, and $10 will be returned to investors.

Compared to traditional IPOs, SPAC listings offer advantages such as faster time, lower costs, higher success rates, and simpler processes, providing significant benefits for both investors and target companies. Of course, this listing method also carries certain risks.

Investors can achieve listing at a relatively low cost, but most SPACs aim primarily to achieve listing status. Compared to traditional listing methods, they lack historical business accumulation and subsequent development planning. After SPAC-type acquisitions were completed in the past one or two years, many lacked development momentum and soon returned to their starting point.

In this merger with Tims China, approximately 99% of Silver Crest's shareholders chose to redeem their shares, totaling over $343 million. However, shareholders had to withdraw their redemption decisions before August 29th, with the final redemption ratio at 96%, totaling $331 million.

Meanwhile, Tims China's PIPE (Private Investment in Public Equity, where investment funds can purchase listed company shares at a discount) financing is expected to meet the $175 million minimum cash condition for this transaction. At the same time, Tims China also reached an agreement with an investor to purchase up to $100 million of the company's shares within three years after the SPAC merger.

Choosing the "SPAC+PIPE" path vaguely reveals Tims China's urgent mindset for listing. After a equity financing round in March this year, Tims China also reduced its "entry" valuation by nearly $300 million.

Tims China's Development Strategy

As a legendary North American coffee chain brand, Tim Hortons' parent company RBI jointly established Tims China with Cartesian Capital in 2018, opening its first Chinese store in Shanghai's People's Square in February of the following year.

Tims' initial goal when entering the Chinese market was to open 1,500 stores in China within 10 years. However, Tims China CEO Lu Yongchen stated in a recent interview with "Chinese Entrepreneur" that the plan has been adjusted to "increase to 2,750 stores by 2026." Currently, Tims has 400+ stores in the Chinese market, and according to the latest plan, Tims' store opening speed will reach one store every 36 hours.

Tims is developing rapidly, and its current situation in China mirrors Luckin Coffee's early expansion path - the more it expands, the more it loses. According to Silver Crest's data, from 2019 to 2021, Tims China's revenues were 57.257 million yuan, 210 million yuan, and 640 million yuan respectively, mainly from "self-operated store product sales," "franchise fees," "other franchise businesses," and "e-commerce businesses."

2021 was the fastest-growing year for Tims China, but net losses also multiplied. In the three years since entering China, Tims' total losses exceeded 600 million yuan, mainly attributed to the pandemic and rising raw material costs.

In terms of products, Tims China follows a "coffee + dessert + light food" approach, offering regular espresso-based coffees, donuts, toasted sandwiches, etc., with prices in the 15-30 yuan range, positioned between Starbucks and specialty coffee. To attract more young consumers to focus on the brand, Tims China has leveraged various scenarios in recent years to build its youthful brand image, such as e-sports themed stores and "The King's Avatar" themed stores.

Store locations are also chosen near Starbucks to attract coffee consumers whose needs aren't met by Starbucks stores. In terms of facade style, Tims is brighter and more energetic than Starbucks, creating a cozier third space.

Unlike Tim Hortons' positioning in Canada as affordable and grab-and-go, such pricing in China appears somewhat high-end and could become a competitive bottleneck. However, even as losses expand, Tims China has not stopped its expansion.

Tims China CEO Lu Yongchen stated in a recent interview with other media that the company uses various formats and scales to increase density and convenience, utilizing advanced analytics for site selection to improve store economics and cover more coffee scenarios, thereby increasing brand awareness. Simultaneously, launching the "coffee + warm food" product strategy effectively meets the differentiated needs of different users and their desire for high-quality, cost-effective products.

This approach is like finding a middle ground between Luckin, Manner, and others that provide cost-effective coffee but no dining space, and Starbucks which provides coffee, light food, and space but at higher prices.

Gradually, through different scenarios and product strategies, Tims attracts customers who need both quick, cost-effective chain coffee and third-space chain coffee, providing more opportunities for the general public to access coffee.

Future Outlook

With the title of "China's First Coffee SPAC Stock," will Tims China be able to display the style of a "North American Legend" in the future? Let's wait and see together!

Image source: Internet

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