% Arabica China franchisee raising funds at $1.2 billion valuation

The China operator of coffee chain % Arabica is weighing a new funding round and could seek a valuation for its business in the country of as much as $1.2 billion, according to people familiar with the matter.

Lucky Ace International Ltd., which holds the exclusive franchise of the Japanese coffee retailer in Greater China, is looking to raise about $300 million to bankroll its expansion and has reached out to potential investors for the round, the people said. Lucky Ace was valued at about $800 million to $900 million in its last funding round, said the people, who asked not to be identified as the information is private.

Deliberations are ongoing and the proposed funding size and valuation could still change, the people said. A representative for PAG declined to comment, while % Arabica didn’t immediately respond to requests for comment via email and its website.

Founded in Kyoto in 2014, the gourmet coffee brand entered China in 2017 with the opening of two Hong Kong stores, and launched in Shanghai the following year, according to the operator’s website. There are 61 locations across the country, the parent’s website shows. Private equity investors PAG and General Atlantic are among the chain’s backers.

China’s coffee market is growing, though it remains a niche beverage in a nation of tea drinkers, Bloomberg Intelligence analysts Angela Hanlee and Kai Lin Choo wrote in April. Annual consumption is just 5.3 cups per capita versus 51.1 cups elsewhere in Asia Pacific. Starbucks Corp. and Luckin Coffee. have increased coffee awareness in the country, with their more than 5,000 and 6,000 stores in China respectively.

Shanghai-based Manner Coffee, which counts ByteDance Ltd. and a venture arm of food delivery giant Meituan as backers, is considering an initial public offering in Hong Kong that could raise at least $300 million.