[Edaily Marketin YunJi Kim Reporter] As the milk tea franchise Gongcha prepares to welcome its third private equity fund (PEF) owner, attention is focused on the value-enhancement strategy the new buyer will unveil. During its time under the management of UCK Partners and TA Associates, Gongcha grew from a franchise operator holding the Korean business rights into a global franchise with a store network spanning some 30 countries; as such, the next shareholder is expected to need a growth strategy that differs from those of its previous management firms. Given that the company has already made significant inroads into overseas markets and is being valued at a high level, the industry views the key challenge as how to boost the profitability of the existing store network and enhance customer loyalty.

Gongcha, Shaped by Private Equity… Lays Groundwork Through Acquisition of Taiwan Headquarters

According to investment banking (IB) industry sources on the 4th, TA Associates, Gongcha’s largest shareholder, and the lead underwriter, J.P. Morgan, are conducting negotiations with multiple investment firms regarding the sale of controlling interest. While the sellers initially expected Gongcha’s enterprise value to be around 2 trillion won, ongoing disagreements over the high asking price have raised the possibility that the actual transaction price will be lower than this figure.

Potential buyers are reportedly deliberating on post-acquisition value-enhancement strategies, given that Gongcha’s enterprise value is estimated at around 2 trillion won. Through two previous private equity fund (PEF) investments, Gongcha has already implemented major growth strategies, such as securing management control of its Taiwan headquarters and expanding its overseas store network. This means that the next shareholder will need to devise plans not only to open additional stores but also to boost sales and profitability at existing locations.

Gongcha’s Korean operations began in 2012 when an individual entrepreneur secured the domestic business rights from the Taiwanese headquarters. Although the company grew rapidly—surpassing 100 stores just two years after opening its first location—the management burden increased as the organizational and operational systems failed to keep pace with the speed of expansion.

After acquiring approximately 70% of Gongcha Korea’s shares in 2014, UCK Partners focused on improving the profitability and operational systems of existing stores rather than opening new ones. Although short-term performance deteriorated for a time, the recovery in sales at existing stores laid the groundwork for resuming store expansion.

Having streamlined its domestic operations, UCK Partners used Gongcha Korea as a vehicle to gradually acquire shares in the Taiwanese parent company and, in 2017, secured management control of Royalty Taiwan, which held the brand and overseas business rights. Since then, Gongcha has directly determined new product launches and marketing strategies while expanding its business reach to Japan, the United Kingdom, and the United States. By the time it was sold to TA Associates in 2019, it had grown into a global franchise operating over 1,000 stores across 17 countries.

TA Expands Its Growth Focus Beyond Asia… What’s Next for Its Value-Enhancement Strategy

? Under TA’s ownership, Gongcha expanded its overseas operations beyond Asia into North America and Europe. TA recruited executives with experience in global foodservice franchising and continued to enter new markets and open stores abroad. As a result, the number of stores worldwide has grown from approximately 1,000 at the time of the 2019 acquisition to around 2,200 today, and the number of markets served has expanded from 17 to about 30. Last year, Gongcha Group’s revenue reached $217 million, a 14% increase from the previous year.

While expanding its overseas store network, TA also worked to bring the business rights for key markets back under headquarters’ management. This year, Gongcha acquired the master franchise rights covering 170 stores across 13 U.S. states from a local operator, transitioning to a system where it directly manages franchise development and support in those regions. Industry observers view this as the establishment of a structure that allows headquarters to more directly secure franchise revenue and supply chain efficiency resulting from store expansion.

The store network expanded by TA and the reclaimed business rights are expected to serve as a foundation for the next shareholder to build upon. While UCK Partners secured management control of the Taiwanese headquarters to establish a global business foundation and TA Associates expanded the overseas store network, the industry views the next step as increasing the productivity of existing stores. Given the recent surge in competing brands within the same industry, analysts suggest the company is likely to implement strategies to increase loyal customer base through menu localization by country and the expansion of premium products.

An official in the domestic capital market stated, “Although the overseas business is growing rapidly, it appears that these expectations are already fully reflected in the sale price,” adding, “This is a deal that requires both an increase in the number of stores and improved profitability; however, given the rise in competing brands, it will not be easy to boost value through simple store expansion alone.” The official continued, “Wouldn’t a realistic strategy be to increase sales per store and secure loyal customers?” but added, “Since the company already has global recognition and a franchise business foundation, there is room for further growth if it can boost store productivity in key markets.”