As bubble tea craze cools in China, can full equity buyouts revive growth?

Fuelled by the recent bubble tea boom and an intensely competitive market, financial investors have shown growing interest in the sector’s major brands, shifting their playbook from early-stage bets and initial public offering subscriptions to full equity buyouts. Growth of mid to high single digits was now expected for the industry in China, down from the double-digit growth projected in previous years, analysts said. The slowdown followed years of capital being raised and deployed to chase the same growth story, said Sandy Lim, director of S&P Global Ratings. In the latest development, global private investment firm Bain Capital said on August 6 that it had reached a deal to buy Taiwan-founded bubble tea brand Gong Cha Global from US private equity firm TA Associates and other shareholders. Bain Capital would work closely with Gong Cha’s management team and focus on its store expansion in Japan, South Korea and the United States, it said in a statement. Gong Cha operates almost 2,200 stores in 33 markets worldwide. Well-established across the Asia-Pacific region – particularly Japan, South Korea and Australia – the brand is also expanding in the Americas and Europe. It currently had no stores in mainland China but operated outlets in Hong Kong and Macau, according to the firm. “Gong Cha primarily operates a capital-light franchise model, generating revenue from franchise and royalty arrangements rather than relying mainly on company-owned outlets. At the parent level, the company directs its spending mainly towards product improvement and brand building,” S&P’s Lim said. “For fresh-tea brands operating in mainland China, most financing transactions remain growth-stage minority investments. We have not seen large-scale private equity buyout cases yet.” With a larger store network and a market crowded with numerous players, the key challenge in China will be improving store economics Sandy Lim, S&P Global Ratings Previously, most Chinese investors backed major domestic bubble tea chains through early-stage financing and IPO subscriptions. Among these are Hong Kong-listed brands Nayuki Holdings and Mixue Group, alongside privately held Heytea. In 2021, Shenzhen-based Heytea closed its Series D financing – its final publicly disclosed round of fundraising – generating US$500 million. Investors in the round included Chinese private equity firms HSG and Hillhouse Investment, and foreign investors Temasek and L Catterton. In the same year, Nayuki went public as China’s first listed bubble tea company. Founding wife-and-husband duo Peng Xin and Zhao Lin remain its largest shareholders. Nayuki debuted in Hong Kong at an IPO price of HK$19.80 per share. It closed at HK$0.73 on Tuesday, a decline of more than 96 per cent over five years. At the time of its listing, China’s private equity firm Tiantu Capital was Nayuki’s top institutional shareholder with an 11.18 per cent stake. Following multiple disclosed stake disposals, its holding fell to 4.98 per cent as of November 2024. Share movements no longer require public disclosure once stakes drop below 5 per cent. From 2023 to 2025, China’s bubble tea chains shifted from net store growth to net closures. The sector saw a net reduction of nearly 30,000 stores last year, as the previous strategy of rapid expansion no longer proved effective, according to domestic consultancy CIC. “With a larger store network and a market crowded with numerous players, the key challenge in China will be improving store economics, including sustaining same-store sales growth and maintaining margin profiles,” said Lim of S&P Global.