Los Angeles-based private equity firm Freeman Spogli & Co. is in the process of buying Philz Coffee for $145 million, according to documents shared with stockholders and obtained by Mission Local.
Philz board members, which include former CEO Phil Jaber and his son, Jacob Jaber; representatives from investment firms Summit Partners and TPG Growth; and CEO Mahesh Sadarangani will receive payouts or bonuses from the deal.
Those who hold common stock, like employees who bought stock during or after their years at the company, will see their stock canceled under the terms of the agreement, making those investments effectively worthless.
“All Common Stock will be canceled for no consideration and all Options will be canceled and extinguished for no consideration,” the document reads.
The dissolution of common stock is rare outside of cases of liquidation or bankruptcy, but it does happen. Unlike preferred stock, common stock comes with few protections for investors. But to employees who spent years at the company and worked closely with the Jabers, the news comes as a shock.
“Philz ran out of money. That’s really what it is,” said one former employee, referencing a history of private equity and venture capital infusing the company with money when it was running low. He paid tens of thousands of dollars to purchase his stock. “When I saw the price, I thought, well, I hope I can get some of my money back.”
“I was expecting to at least gain something of it,” said another former employee, who paid $12,000 for her shares in 2013. She asked that her name be withheld for fear of legal action. “I committed eight years of my life with them. When I started, there were three stores. When I left, there were 20 stores.”
She said that she had been personally offered stock options by Phil Jaber and Jacob Jaber when they first became available to employees in 2013, and later, in 2015, purchased stock at a discounted rate.
But current and former employees said that the company culture began to change in 2016 with large infusions of cash from investors, like $45 million led by TPG, a private equity company.
Employees who joined the company in the mid-2010s emphasized that the team was tight-knit and that they had direct relationships with the Jabers. That shifted in the last five years, they said, though the company continued to lean into its small business reputation with slogans like “Better Days.”
“It was becoming less of a personality place, more of a purpose place,” said former Philz wholesaler Mike Dalla. “It’s no longer like a treat or destination thing.”
Dalla worked at Philz for nine years until last year, when he was laid off. He said that many longtime employees left around the same time as the company’s culture shifted to a more profit-driven, corporate culture.
On his way out, he said that CEO Sadarangani urged him against exercising his stock options — options that will now, barring changes to the current deal, be worth nothing. “I always assumed they would do the right thing,” Dalla said.
Philz Coffee and Sadarangani did not respond to requests for comment by press time.
The deal is expected to be completed by Aug. 8. Current stockholders have until Aug. 5 to request an appraisal of their shares, according to a notice sent to stockholders.
Philz was first approached by buyers in December 2024, but Freeman Spogli did not enter the mix until April of this year, according to the notice sent to stockholders.
Freeman Spogli has invested in Popeyes, Cinnabon, El Pollo Loco, and Cafe Rio. The firm’s portfolio also includes a keg company, a wine distributor, a med spa company, and a roofing company.
Philz Coffee began in the Mission District in 2003 at 3101 24th St., when original owner Phil Jaber converted a liquor store to a coffee shop. That location closed in 2023, but the business has stores up and down California as well as in Chicago. The chain also had five locations in the Washington, D.C., area, all of which closed in 2023.
Private equity destroys what it touches.
Greed and profit for the few.
How infuriating. They had employees pay for stock, and then just stole the money, while selling the company for $145 million. That is… really bad. No more Philz for me. Hopefully no more for you, either.
I’m mad I gave them any business at all. This is a scumbag Engardioesque move and it ought to be illegal given the promises made. Civil suit? Fight for your cut.
Trying to swipe their shareholders to the curb while they found $145m for their scattering of shops and trailers amounts to plain thievery. I doubt this is legal, but shareholders will have to spend heavy on lawyers in hopes to perhaps one day see pennies on the dollar. (Side note, they are a private outfit and not bound by stock market rules. This wouldn’t happen like that at a publicly traded firm)
The basic obligations to shareholders (in particular, to not just steal their money) come from the law of corporations, and don’t depend on being publicly traded. So those do apply to Philz.
But there are two kinds of shareholders here, or rather two kinds of shares. The employees have common stock. The investors who put in millions of dollars (a total of at least $75M, based on one of the linked articles) got preferred stock. When the company is sold, the preferred shareholders get their money back first, even if that leaves nothing for the common shareholders. Depending on the deal the company made with those investors when they put their money in, they may even get paid a multiple of their original money — 2x, for example — before common shareholders get paid. That’s all common and legal.
(I’m not a lawyer, to be clear; this is from what I’ve learned working at some startup companies around here.)
So unless $145M is a lowball price for the whole company, it’s likely that what’s happening is perfectly legal.
Now, if the Jabers wanted to be real stand-up businesspeople here — if they wanted to live up to the image they’ve cultivated — they could have done more than the bare minimum the law requires. Someone’s paying $145M for this business, and there was a negotiation. What’s the total amount that employees paid for shares? It’s probably not a lot compared to $145M. So the Jabers could have said something like “hey, we want to take care of our employees — if you want to buy this company, they should get their money back”.
The catch, from the Jabers’ perspective, is that that money would probably have come effectively out of those bonuses they’re getting. It’d sure be interesting to know how big those bonuses are.
“On his way out, he said that CEO Sadarangani urged him against exercising his stock options — options that will now, barring changes to the current deal, be worth nothing. “I always assumed they would do the right thing,” Dalla said.”
So the CEO did him a solid?
Yeah, definitely sounds like that was good advice the CEO gave him.
That was just last year. So by then it would have been clear to the CEO that the common stock wasn’t likely to be worth much, if anything.
What they are doing to those people should be illegal. They should, at the very least, give them back what they originally invested. BS business practices. 🐈⬛😠🦇
How shameful! Phil, I thought you were than that. Do the right thing — honor your employees hard work and commitment.
The community should boycott Philz and anything the Jabers have anything to do with. This is disgusting.
I remember when Philz was a corner market on 24th that also happened to serve great Turkish coffee. Phil himself would reach his hand deep into a jar of ground beans and pull up a handful of dark, roasted grinds. Then sling it into a filter, add cardamom or mint, and pour the hot water over. It was simple. It was strong. But when they opened their lab on Minnesota St. in the Dogpatch, I knew this was a new creature. A brand.
“Mission Made” was their tagline, so I always assumed that they valued their community. But you’ve got to treat loyal employees, who are invested in your business, as if they are part of the deal. Otherwise, it is no wonder that values like work ethics and loyalty have become irrelevant.
Will never spend a cent in a place that doesn’t honor its commitment to employees.
Not.
A.
Cent.
As they say in Vegas…. Thanks for playing! I never liked this coffee chain!
Imagine paying $40,000 to Phil and not even getting an iced mint mojito.
Impressive seeing this place start as a little shop and get to where it is now. Bummer for the employees with stock who didn’t cash out at peak.
There never was a time the employees could have cashed out. Philz stock was never trading on a public market (never had an IPO), which would be the usual way employees get such a choice.
For some tech companies that are making tons of money, sometimes these days they’ll arrange a deal where employees can cash out even before an IPO. But that’s unusual even in tech; it only works for a company that’s found a gusher of money, where investors are queueing out the door to buy a piece. Philz clearly never made it to that category.
LEARN HOW TO READ ARTICLES.
PAY ATTENTION TO MAJOR DETAILS.
Disgusting. Back in the day at the original Philz, Phil was my homie’s landlord (he lived in the apartment above Philz). It was funny and quirky back then. It’s unconscionable that Phil and probably his loser son will get a huge bag and not even do the basic decent thing of allowing the employees to get the money back that they paid for the stock. The CEO telling the employees not to exercise their options might have been doing that to help them, knowing this was coming down the pipe. As usual, society rewarding the corrupt failures with money…this is the norm. I hope the employees sue, this is definitely territory for a derivative lawsuit that would throw a wrench into the deal.
So in other words, Philz is no better than Starbucks who does not pretend to be but is a corporate chain. If I were the Philz employees I’d get a lawyer ,and sue to get payment for their stock.
Sad outcome. Seems like they took a lot of investor money. The way those deals work, you’re basically betting the whole company on whether you can grow a ton. If you *don’t* grow huge afterward, the investors effectively own the whole company. And then they lost that bet.
Philz was a great local chain a decade ago, before they took all that investment. It’s too bad their leadership wasn’t content to stay that way.
First Republic Bank flamed out like that. The point is, there’s Freeman Spogli & Co. who are forking over $145 for the outfit, which should be plenty to make everybody whole, not just paying out institutional investors and “rewarding” executives.
This article is an example of why Mission Local is great journalism. I will never again be a customer of Philz Coffee.
Were employees who bought the stock warned at the time that they could simply lose their money in the event that a non-bankruptcy-related change of ownership occurred? This seems outrageously unfair.
I go to the one on 24th Street .I like it’s old coffee house vibe and the fact that they exhibit local artist. Will be sad to see it go.
Seven million per store? There’s something fishy about that also.
How is it legal for them to cancel stock that employees have already bought? Are they losing ALL the money they invested?
Down with PEs….9/11, they missed Wall St
Take a hint!