Silicon Valley-based Altos Ventures-backed Good Food For Good (GFFG), the operator of South Korea’s popular dessert cafe and cream donut specialist, Cafe Knotted, will likely be put up for grabs soon, according to sources in the investment banking industry on Wednesday.
The company, the operator of multiple food and beverage brands, including Cafe Knotted, Korea’s homegrown donut brand that once created a doughnut craze across the nation, is said to be in talks with two potential buyers after verbally tapping demand, said sources.
It is said to be hoping to raise more than 80 billion won ($5.7 million) from the sale, which includes not only Cafe Knotted but also other brands, such as Hojokban and Littleneck.
The company’s asking price is 16 times higher than its earnings before interest, taxes, depreciation and amortization (EBITDA) for 2024.
Currently, Norang Food Co., the operator of a popular Korean-style fried chicken chain, Norang Tongdak, is up for sale at a valuation equivalent to 10 times its EBITDA.
GFFG reported 63 billion won in revenue last year, of which 85% is from Cafe Knotted, suggesting that the company’s valuation will be determined based on the value of the dessert cafe brand, which posted 5 billion won to 6 billion won in EBITDA in 2024.
As of 2024, GFFG’s largest shareholder is its founder and Chief Executive Lee Joon-beum with 53.4%. The remaining shares are held by other financial investors, including Altos Ventures, NH Investment & Securities Co., Korean Development Bank and Musinsa Partners.
TOO CHEAP?
To these FIs, the asking price is, however, too cheap.
When GFFG raised 30 billion won from Altos Ventures and QUAD Investment Management in a Series A funding round in 2022, its valuation was estimated at 300 billion won.
Since the funding, however, Cafe Knotted’s popularity has gone downhill from its peak, largely due to the rapid addition of its chain stores, making the cafe less desirable.
Its Instagrammable donuts in pastel packaging quickly went viral since their debut in 2017, thanks in large part to their perceived exclusivity, with only a handful of stores carrying them initially.
With the expansion of its operations through franchise contracts, the premium value of its donuts has diminished noticeably.
But some argued that the company merits a higher price tag, citing its capability to leverage its brands across new applications and evolve them into intellectual property content.
LIFESTYLE PLATFORM PROVIDER
Cafe Knotted stands out among dessert cafes in the IP business, with its signature characters Sugar Bear and Smiley.
It has succeeded in diversifying its revenue sources with other businesses, such as Knotted World, a cultural space offering various experiences beyond desserts.
It is also actively expanding its footprint in the global market with its flagship stores. Last month, it opened its first US store in Los Angeles, CA.
Considering its ability to transform its brand into a lifestyle platform, GFFG, which was founded in 2015, remains attractive to strategic investors, said industry observers.
Its valuation is expected to be determined, depending on the result of another popular local dessert cafe, London Bagel Museum’s funding for a valuation of up to 300 billion won.
By Da Eun Choi
max@hankyung.com
Sookyung Seo edited this article.
