UK coffee retail chain Costa Coffee has acquired self-service coffee chain Coffee Nation for £59.5m. Costa plans to launch a new brand, Costa Express, which will target the self-serve coffee bar sector.

Parent company Whitbread said the “acquisition provides Costa with access to new types of location and creates a growth opportunity in the UK’s emerging self-serve coffee bar sector”. This market currently comprises around 2000 units of which Coffee Nation operates 900.

“Customers increasingly want great-tasting coffee on the go, which makes the self-serve coffee market very attractive,” commented Whitbread chief executive, Andy Harrison.

“This acquisition provides an exciting launch pad to develop 3000 Costa Express bars across the UK, providing an additional growth lever for the Costa brand and making Costa available to more customers in more locations.”

Coffee Nation’s coffee bars use fresh milk and freshly ground coffee. Costa Express’s coffee will be supplied by the Costa Roastery in London. Coffee Nation’s existing customer base includes Tesco, Moto and Welcome Break.

Costa Limited will purchase Coffee Nation, which has an annual turnover in excess of £20m, from Milestone Capital and Investec Growth & Acquisition Finance and members of the existing management team.

In March 2008, Milestone Capital Partners (‘Milestone’) led the £24m secondary management buyout of Coffee Nation, backing the existing management team. Investec provided a preferred equity investment of £5.25m in support of their bid.

The £59.5m cash payment, includes the entire issued share capital of Coffee Nation including the repayment of Coffee Nation’s existing debt.

In a trading statement from Whitbread today, Costa reported overall sales were up 28.5% for the 50 weeks to 17 February 2011. Like-for-like sales in the UK were up 7.9% over the same period.

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