Jamba Juice to Squeeze Reverse Merger for Growth

By Susan Spielberg

SAN FRANCISCO (May 1, 2006) - Jamba Juice Company is expected to get a burst of cash this summer when it is acquired in a reverse merger with publicly traded shell company Services Acquisitions Corp. Inc., enabling the privately held juice and smoothie chain to continue expanding at the double-digit rate it has enjoyed for the past three years.

Despite growing competition for prime locations, the 528-unit chain is penetrating new markets on the East Coast. Since debuting in New York two years ago, the San Francisco-based brand has launched 18 Jamba Juice outlets in Manhattan, and managers see development there continuing.

Yet while the segment-leading brand is growing rapidly, analysts say it is maintaining that expansion pace by lowering the bar on its former site selection criteria.

Acquiring choice locations poses a challenge for all players in the $2 billion (according to Juice Gallery Multimedia) smoothie segment, with such rivals as 360-plus-unit Smoothie King of Kenner, La., and 320-plus-unit Maui Wowi Fresh Hawaiian Blend of Greenwood Village, Colo., also pursuing aggressive growth strategies.

Dan Titus, a smoothie and juice bar consultant based in Chino Hills, Calif., said there are over 4,100 juice and smoothie locations in the United States. Previously, he had indicated that about 75 percent of all outlets are run by "major players" — companies with 25 or more units — while the remainder are in the hands of independent operators.

As Jamba juice has grown, so has the entire juice and smoothie market. Currently, Jamba Juice holds about 11 percent of the market, the same share Titus said it had in 2004. "The hardest thing in the industry right now is to get good leasing locations," he said. "[Competitors] are all just beating each other up over that."

Titus, whose company, Juice Gallery Multimedia, publishes an annual industry overview called "Juice & Smoothie Bar Analysis," many companies are accepting locations "they would thumb their nose at three and four years ago."

Jamba Juice grew its store base by 16.7 percent during the fiscal year ended June 2005 and by 16.8 percent the previous year. In January 2006 the company operated 321 stores and franchised 207 outlets.

The outlook for the smoothie-juice sector is bright, Titus added. "Smoothies can be targeted toward the mass market, from meal replacement to dessert," he observed. Also, fresh-squeezed juices appeal to customers that "are on the leading edge" and "more health conscious."

Funding for Jamba's growth will come when the company is acquired by Services Acquisition Corp. , known as SVI, for $265 million. In a separate transaction, several institutional investors agreed to purchase 27.4 million shares of SVI at $7.50 per share in a private placement that will take effect at the scheduled June or July close of the merger.

Besides filling Jamba Juice's coffers with expansion capital, the transaction would turn the private company into a public entity, without the expense or risk of an initial public stock offering. SVI, a Fort Lauderdale, Fla.-based "special purpose acquisition company" headed by former Blockbuster Inc. chief executive Steven Berrard, intends to change its name to Jamba Inc. upon completion of the reverse merger. [ A reverse split reduces the number of shares, but not the value, and is often considered a bullish event or is meant as such - JG ]

Net proceeds from the pending private placement, estimated at $198 million after deducting expenses, will be combined with $127 million in cash that SVI raised last year when it went public as a company without operations, formed expressly to purchase a service business.

"When SVI was looking around for potential targets, what they really saw in Jamba Juice was a unique lifestyle brand that had strong management and certainly dominated its category," a Jamba Juice spokeswoman said. "They were impressed with the store economics and the operating history and really saw the opportunity for organic growth."

Paul Clayton will continue as Jamba Juice's president and chief executive, and the merged companies' boards of directors will include mutual representation.

Jamba Juice opened its first outlet featuring blended-to-order fruit smoothies in 1990. For the fiscal year ended last June 28, systemwide sales totaled $345 million for the brand's 323 corporate and 209 franchised units, and corporate net income was $2.5 million. Annual systemwide same-store sales grew 0.9 percent.

For the current fiscal year's first half, ended Jan. 10, same-store sales rose 7.5 percent, eclipsing a 1.9-percent dip a year earlier.

Corporate revenues for fiscal 2005 were $209 million, up 21 percent. However, operating income fell 45 percent to $2.8 million. Net income was $962,000, versus $15.9 million the year before. Jamba Juice had $98.3 million in total assets as of Jan. 10.

The merged companies' pro-forma assets would total $373.7 million and shareholder equity would total $324.9 million.

Source: Nation's Restaurant News