FFA Private Bank will present local and regional investors an opportunity to invest in the Lebanese food and beverage (F&B) industry this Thursday. Lebanese restaurant chain Semsom is seeking to raise $6 million in equity financing for the new unit, Semsom US, that will drive the chain’s expansion into the United States. The bank says it already has a quarter of their target pledged from investors, but March 13 marks the start of their formal fundraising.
Semsom US will be based in the British Crown dependency of Jersey. The company is planning on raising up to 49 percent of equity in a first round of $4 million by selling common stock shares of Semsom US, with the remainder owned by umbrella holding Treats, which also owns Green Falafel and the Lebanese franchise of Dunkin Donuts. Treats, whose shareholder base consists of Christine Assouad Sfeir, the CEO of all three restaurant chains, and her family, will keep 51 percent equity against a cash injection and in-kind contribution that will cover the cost of franchising in the US territory, the franchising fees for each store, resources and expertise.
Semsom is anticipating opening at least 70 new restaurants by 2020 and twice that in the best-case scenario. Expansion is to be both through company-operated stores and franchised outlets, numbering 20 and 50 respectively in their conservative estimate.
Fundraising from investors is going to be split into two rounds. The first-round target is for $4 million with expectation to close this round by mid-April. Under the financing plan, the investment banking department of FFA Private Bank will handle this round and follow it up with a second round seeking to raise at least another $2 million by 2016.
The deal projects an internal rate of return (IRR) of 31 percent in a conservative scenario given an exit by year seven, and a base-case IRR of 42 percent. Acccording to its fundraising material, the venture expects a positive cash flow by 2016, all of which will be re-invested in the company to drive growth. Investors who invest in the first phase will get priority right to take part in phase two, FFA Private Bank says. They are looking for ticket sizes ranging from $100,000 to $1 million.
Land of opportunity
The plan for Semsom US is to open their first restaurant by the end of 2014. The parent company has seen regional growth since it opened its first location in 2008 in Lebanon. Under the management of Treats, the restaurant brand today operates two locations in Lebanon, two in Saudi Arabia’s Jeddah and one in Kuwait. They are planning to open in one in Oman, two in Saudi Arabia’s capital Riyadh and a third in Jeddah, and one in the UAE by the end of 2014.
According to Julien Khabbaz, senior manager and head of investment banking at FFA Private Bank, they doubled their projections for profitability in the GCC to a 35 percent EBITDA ratio (earnings before interest, taxes, depreciation and amortization).
Carine Assouad, a shareholder in Treats and the designated managing director of Semsom US, says the company has been attracted to the US market because of its size and its lack of a single dominant Lebanese food chain. Citing the food and beverage (F&B) industry’s market value of $660 billion per year, Assouad adds that Semsom is initially targeting 3 of the 10 cities that they have identified as most lucrative for F&B: New York, Boston, and Washington.
The makers of Semsom have worked for the past six months to adapt their company to consumer trends in the US market. According to Assouad, “ethnic cuisine” is booming in America – where 63 percent of Americans order it more than once a week. They are also witnessing a growing appetite for “fast casual” style food in the states: a cross between dine-in and fast food, which offers premium food and fast service. They are seeking to tap into both of these trends.
FFA is planning on staying on board long term once the funding is closed. They will take a board seat in the company to represent and protect the investors as one block. According to FFA’s Khabbaz the bank has prior experience in fundraising for F&B projects in Africa and have worked with clients in the region, but their experience in fundraising for projects in the US is limited to the film industry.
