I think it makes to some extent a little bit of sense.

We should give, I think, a tiny bit of back story.

So Costa is a UK coffee chain started in the early 19 seventies and in 1995 for the sum total of £19 million.

It was acquired by Chemical Whitbread, who had been brewers.

They own hotel chain in the U.

K and Whitbread are a publicly traded company.

Fast forward to today and Whitbread had ended up being kind of forced by an activist investor into splitting cost out as a business.

So while Whitbread publicly traded cost a coffee are not so the idea is Costa Coffee will become a separate stumble on business, potentially to be publicly traded on the stock market. 00:00:58.670 --> 00:01:6.420 But what ended up happening is dead is that Whitbread have agreed to sell it to Coca Cola for Whitbread point of view, this is pretty great news. 00:01:6.430 --> 00:01:13.930 They have sold it for an enormous amount more than they paid for it, as well as, uh, what seems like a very rich valuation.

So typically, when valuing the company, we use a metric called a bit dark, which stands for earnings before interest, tax, ation, depreciation and amortization.

It's a pretty standardized way of measuring the profitability of the company on D.

Whatever that number is, you might then add a multiple to it to create evaluation.

Companies that have large potential for growth tend to attract higher multiplication sze higher multiples off that even dye number in this case cost A sold for 16.4 times.

It's a bit dark, which is a staggeringly high valuation.

And so, while cost A may have close to 4000 cafes around the world, now that is still a very, very healthy evaluation of that company.

What makes that more surprising is that cost A as a business actually isn't doing all that well. 00:01:59.170 --> 00:02:2.920 It has been continuing to grow, but mostly through new store openings. 00:02:3.110 --> 00:02:6.310 It's like for like sales have been flat or actually on the decline. 00:02:6.630 --> 00:02:10.470 So as a cafe business definitely doesn't look that healthy.

Why is this interesting to Coca Cola?

So Cola doesn't really have a strong coffee brand that it's portfolios off its brands and products out there.

I think eight brands, I suppose, would be connected to coffee in some way.

But there's nothing that is a solid, strongly coffee focus brand for them.

So cost is interesting, and cost right now has no ready to drink products.

There is no cost a cold brew in in shops to buy.

They don't really do that.

So Coca Cola unquestionably must be looking at Causton as their solution for bottled, ready to drink coffee sales on growing the business.

That way now is actually a pretty tough time to sell soft drinks.

There's increasing taxes on sugar.

You're the bad person in the obesity epidemic.

Where is coffee bottled can ready to drink? 00:02:57.740 --> 00:03:1.850 Coffee is unquestionably booming, and popularity around the world is growing category. 00:03:2.010 --> 00:03:4.350 So for Coca Cola, this makes perfect sense. 00:03:4.540 --> 00:03:9.190 They're very good at putting stuff in bottles, but they're even better a distribution. 00:03:9.530 --> 00:03:15.310 And thats Coca Cola's great strength, their distribution network and their delivery network, their supply network.

It's not just the endless people in vans driving stuff all over the world.

It's vending machines.

It's every every kind of distribution point that they have access to.

And so for them to get a coffee brand that is sufficiently widely accepted that they could start to put that brand in every Coca Cola vending machine and have it moved that?

I think that's a really strategy for them.

So the deal, I think we'll go through early, 2019 and I would say very quickly after that, I think we're gonna start to see a lot of Costa ready to drink, Bottled, canned.

I don't know exactly what I'll do, but that format that's gonna be everywhere, and that's not really any particular insight from me. 00:03:54.400 --> 00:04:3.180 They've publicly stated that this is unquestionably going to be their plan, so they bought a brand that gives them access to a market through which they already have the distribution network. 00:04:3.310 --> 00:04:6.080 It's a sensible play color. 00:04:6.080 --> 00:04:20.420 I guess now that we've proven as an industry that ready to drink coffee is a category that's growing, there's meaningful that it's valuable and there is here to stay now as an addendum to this, I did make a video at the start of the year.

Talking about some predictions on one of them was that costume would make a splay into specialty.

I still think that may happen.

Like I said, the stores themselves are not doing that well.

They're struggling in this market, and so they definitely need some sort of injection of something into the stores into their into their retail bricks and mortar offering to make that business thrive a little bit more than it is.

As I said, delightful lakes are in a bad place right now, and they definitely know they must need to make a change.

What that will be.

I still don't know. 00:04:52.640 --> 00:05:2.820 But I would say it's still reasonably likely, regardless of who the parent company is, whether the parent company is is interested in hotels or interested in soft drinks. 00:05:3.190 --> 00:05:5.450 For Acosta, the problem remains the same. 00:05:6.140 --> 00:05:8.160 Their audience is not growing the way they want it to. 00:05:8.920 --> 00:05:10.870 So there's my insight.

There's my thoughts on this deal announced today.

I would love to hear your thoughts in the comments down below.

Let me know if you want more of these kind of updates, let me know like this video if you wanna subscribe.

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