Freeman Spogli is getting a piece of the coffee business.
The private-equity firm this week acquired the specialty coffee chain Philz Coffee, a 77-unit chain based on Oakland that has quietly been one of the sector’s more intriguing growth concepts.
The chain generated $88 million in system sales last year, up 11.4%, according to Restaurant Business sister company Technomic. The company was founded in 1983 in San Francisco by Phil Jaber and his son Jacob and has grown into the largest of the so-called third-wave coffee shop concepts that offer a premium coffee product.
Its locations, all of which are company-owned, are primarily in California and the Chicago area.
Terms of the Freeman Spogli deal were not disclosed. But Philz CEO Mahesh Sadarangani, who has overseen the chain since 2021, will remain with the company.
Sadarangani called this “an exciting new chapter for Philz” in a statement and praised the private-equity firm’s “deep experience in the consumer and restaurant sectors.” Freeman Spogli has invested in a number of restaurant chains over the years, including El Pollo Loco, First Watch and Popeyes.
But elements of the deal also suggest that Philz has lost some value, which is creating headaches for a group of current and former employees, at least according to a Q&A posted on the Philz website.
Ten former employees who bought Philz common stock “years ago at much higher prices than the current value of the shares” will lose the value of the stock. Another 47 current employees will lose stock options.
Those employees were granted those options, which give the holder the ability to buy stock at a certain point in the future. Those options are “underwater,” meaning that the option price is higher than the current value of the shares. The options will terminate, though the employees will not lose money because they did not exercise those options.
Nevertheless, the deal could pave the way for further expansion of Philz into new markets. Brad Brutocato, a partner with the firm, called the chain “a beloved brand with a passionate customer base, distinctive, handcrafted coffee offerings and significant room for expansion.”
“We believe the company is well-positioned for meaningful growth in the attractive and growing specialty coffee category,” he said.
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