The Second Cup Ltd. shares soared after the company announced it will acquire a popular Ottawa-based coffee chain in its first deal since it revealed plans to become a conglomerate of players in the coffee, food service and cannabis sectors.
The company's shares were up more than 19 per cent on the Toronto Stock exchange following the announcement before paring back somewhat. Shares gained 10 cents, or 7.4 per cent, to $1.45 in early afternoon trading.
Second Cup, which plans to change its name to Aegis Brands next year, announced Thursday it has agreed to acquire Bridgehead Coffee in a $9.5-million deal.
The agreement includes $6 million in cash and $3.5 million in Second Cup shares. Second Cup will pay an additional $1.5 million over two years if Bridgehead achieves undisclosed profit targets. The companies expect the deal to close later this month.
"We created Aegis with the vision of building a portfolio of amazing brands that can grow and flourish with access to our resources and expertise," said Steven Pelton, CEO, in a statement.
Bridgehead is a company with "a deep sense of purpose, strong roots in its community and an incredible potential for growth," he said.
Bridgehead has 19 locations, all corporate-owned, including one combined with its roastery. The locations will continue to operate under the Bridgehead banner, and each one has "consistently delivered strong financial results in a competitive coffee market," Second Cup said.
The acquisition offers Bridgehead the resources to expand while staying true to its efforts to advocate for small-scale farmers and foster community connections, said Bridgehead CEO Tracey Clark in a statement.
Clark purchased Bridgehead in 2000. A group of people founded Bridgehead Trading in 1981 and offered fair-trade coffee through sales at church basements. Oxfam Canada eventually purchased the brand and diversified its fair-trade offerings beyond coffee. Clark has returned the company to its coffee and tea roots.
Clark will take on the new role of chief culture officer, while Bridgehead's chief operations officer, Kate Burnett, will assume executive leadership. The director of coffee and roastmaster will both continue in their roles, and Bridgehead's head office will stay in Ottawa.
“Aegis Brands will offer Bridgehead opportunities in real estate and capital that we would not have been able to access on our own, and give us the autonomy to grow our business according to our values,” Clark said, adding she and her team are excited to serve new Canadian communities.
The Bridgehead acquisition marks the first since Second Cup announced in November plans to change its name to Aegis Brands and become a parent company for acquisitions.
At the time, Pelton said active conversations were underway and the company was searching, for example, for regional brands that could use its support to grow nationally — a strategy well suited to the Bridgehead acquisition.
The coffee-chain operates only in Ottawa, but has "long had a goal of being the biggest little coffee company," said Clark. Pelton, meanwhile, praised the chain's community roots and 'incredible potential for growth' that Second Cup will help fuel in the coming months and years.
Acquisitions could be financed through cash, shares, debt or some combination of those, he had said. The company had $12.336 million in cash and cash equivalents as of Sept. 28, 2019, according to its most recent financial filings.
This report by The Canadian Press was first published Dec. 5, 2019.
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