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Consumer and Retail CONSUMER AND RETAIL INDUSTRY UPDATE │ APRIL 2016 www.harriswilliams.com Investment banking services are provided by Harris Williams LLC, a registered broker-dealer and member of FINRA and SIPC, and Harris Williams & Co. Ltd, which is authorised and regulated by the Financial Conduct Authority. Harris Williams & Co. is a trade name under which Harris Williams LLC and Harris Williams & Co. Ltd conduct business. CONSUMER AND RETAIL INDUSTRY UPDATE │ APRIL 2016 HARRIS WILLIAMS & CO. CONSUMER UPDATE GROUP OVERVIEW HW&CO.’S RECENT INDUSTRY OBSERVATIONS Harris Williams & Co. is a leading advisor to the Consumer market. Our 2016 has remained active for the Harris Williams Consumer team, with a number of significant experience covers a broad engagements and a busy pitch slate across our key verticals. In between executing range of end markets, industries, and transactions and building the pipeline, we recently spent time at the International business models. This particular report Home + Housewares Show, where we walked the floor and held productive meetings focuses on trends and metrics in the following areas: with a number of industry participants, PEG-backed platforms, and financial sponsors seeking opportunities in the space. Perhaps most interestingly, we also spoke with a . Consumer Durables number of would-be corporate buyers, who are considering accelerating, or in some . Consumer Electronics cases, launching, their acquisition strategies in an effort to drive growth. Based on . Consumer Services these meetings and our own backlog, we anticipate that M&A activity should remain solid across durables and household goods for the foreseeable future. Footwear, Apparel, and Accessories Key Observations . Franchise Platforms . Internet Retail was IHA Attendance Signals Solid Interest in the Sector – 2016 was another sellout show in exhibitors, Chicago, with over 2,200 exhibitors, including 400 companies exhibiting for the first . Home Furnishings We time. We have attended the conference for a number of years, typically going for . Household Goods typically the Sunday and Monday of the show. Due to various conflicts this year, however, . Infant and Juvenile Products various several of our team attended the show on the opening Saturday. Despite the day, . Jewelry, Gifts, and Collectibles the we still filled out multiple tracks of meetings with a wide filled variety of industry participants and also noted a number . Lawn, Garden, and Pet Products industry of other “financial types” walking the floor. We believe and Services types” this dynamic illustrates the degree of interest in the sector . Omni / Multi-Channel Brands the in general and bodes well for continued activity in the . Outdoor and Lifestyle for space. Personal Care Products THE Consolidators Have Been Busy but are Still on the Hunt – While there have been a . Specialty and Mass number of notable (and sizable) deals in the sector, our conversations indicate that Merchant Retailing many strategic buyers expect to remain active. The below chart demonstrates some select recent transactions with strategic buyers. CONTACTS Acquirer John Neuner Managing Director [email protected] +1 (804) 915-0125 Target Ryan Budlong Managing Director Enterprise [email protected] +1 (415) 217-3409 Value $17.9B $5.4B $222M $210M $143M $83M Brent Spiller Managing Director [email protected] First Time Buyers Also Seeking Opportunities – We held a number of meetings at the +1 (804) 915-0183 Show with public and private corporates that have historically not been active Corey Benjamin acquirers. Interestingly, these groups all expressed a desire to begin doing deals and Director articulated well developed acquisition strategies indicating a legitimate appetite. [email protected] We see this as indicative of the continued challenge to deliver organic growth in +1 (804) 932-1342 revenue and earnings, as demonstrated by the below chart. Matt Conaty Vice President Housewares Index Revenue Growth and Estimates (‘13-’16 YTD) 1 [email protected] +1 (415) 217-3423 6.0% 5.1% 5.0% 4.0% 3.6% 3.0% 2.7% 2.5% 2.0% 1.0% 0.0% 2013 2014 2015 2016E www.harriswilliams.com 1) Index consists of Housewares Public Comparables as shown on Pg. 8 PAGE | 1 CONSUMER AND RETAIL INDUSTRY UPDATE │ APRIL 2016 HARRIS WILLIAMS & CO. CONSUMER UPDATE HW&CO’SKEY OBSERVATIONS,RECENT CONSUMERCONTINUEDDURABLES AND HOUSEHOLD GOODS INDUSTRY OBSERVATIONS (CONTINUED) Intersection of Consumer and Building Products Remains Attractive – We continue to see strong interest in assets driven by new home construction and renovation & remodel activity, as evidenced by transactions like The Jordan Company’s recent acquisition of Top Knobs, Quanex’s acquisition of Woodcraft Industries, and others in our backlog. We expect this trend to continue as investors remain willing to underwrite solid growth in the housing market. Historical and Projected Housing Starts Repair and Remodeling (units in 000’s) ($ in billions) ~30% below 50-year average Peak / trough ~20% drop Starts forecasted to grow ~22% annually 4.4% CAGR projected through 2018 through 2018 Housing Starts Projections 2,500 $200 2,000 $150 1,500 $100 1,000 $50 500 $0 1960 1968 1976 1984 1992 2000 2008 2016P 2002 2006 2010 2014 2018P Total Housing Starts 50-Year Average Average Recesion Low Source: Census Bureau and Consensus Estimates Source: McGraw Hill PUBLIC MARKET OVERVIEW The housewares segment has consistently outperformed the broader market over the last several years. The transformational merger of Newell and Jarden and expectation of additional consolidation in the space have likely fueled public valuations of some assets. EV / EBITDA Housewares Performance Housewares EV / EBITDA Index (‘13-’16 YTD)1 23.3x 16.0x 17.1x 14.0x 15.7x 12.0x 14.0x 10.0x 13.9x 8.0x 13.3x 6.0x 10.0x 4.0x 9.6x 2.0x 8.2x 0.0x Apr-13 Oct-13 Apr-14 Oct-14 Apr-15 Oct-15 Apr-16 6.9x Overall Median: 13.6x 0.0x 5.0x 10.0x 15.0x 20.0x 25.0x Housewares S&P 500 1) Index consists of Housewares Public Comparables as shown on Pg. 8 PAGE | 2 CONSUMER AND RETAIL INDUSTRY UPDATE │ APRIL 2016 PUBLIC MARKETS OVERVIEW KEY TRADING STATISTICS (DETAIL BEGINS ON PAGE 7) Median TEV/ Median TEV/ Number of Median Enterprise Change in Stock Price Sector LTM Multiples Forward Mulitples Companies Value ($ M) 3 mos. 12 mos. Revenue EBITDA Revenue EBITDA Consumer Products & Services Apparel & Footwear 24 $2,965 20.4% (6.3%) 1.5x 10.6x 1.5x 10.1x Consumer Durables 6 16,914 21.3% (4.1%) 1.0x 10.7x 0.9x 8.4x Consumer Services and Retail Franchisors 7 3,767 9.8% (13.0%) 2.6x 9.8x 2.0x 8.3x Home & Office Furniture & Furnishings 10 1,590 23.9% 1.6% 0.9x 8.6x 0.9x 7.8x Household Products 5 18,061 12.6% 10.6% 3.7x 14.9x 3.6x 14.4x Housewares 10 3,528 19.5% 4.4% 1.4x 13.6x 1.6x 9.3x Infant & Juvenile 12 3,436 17.7% 15.1% 0.8x 10.8x 0.8x 8.2x Outdoor & Lifestyle 20 1,007 12.5% (6.1%) 1.4x 11.2x 1.3x 9.0x Personal Care Products 13 3,702 17.3% 7.9% 1.5x 10.2x 1.4x 9.9x Pet Care 8 2,919 16.5% 6.4% 1.6x 13.9x 1.8x 12.1x Retail Apparel & Footwear Retail 31 1,349 12.6% (15.5%) 0.6x 6.4x 0.6x 5.9x Department Chains 8 6,608 9.5% (34.0%) 0.6x 6.2x 0.5x 6.4x Discount Stores & Mass Merchants 14 26,162 11.3% 0.2% 0.8x 11.6x 0.7x 10.5x Furniture & Furnishings Retailers 14 1,426 15.7% (36.3%) 0.8x 7.4x 0.7x 6.6x Internet Retail 12 4,614 15.6% 1.2% 2.4x 15.0x 2.3x 12.9x Specialty & Other Retail 15 3,975 23.5% (19.2%) 0.7x 6.5x 0.7x 6.3x Consumer Products & Services 115 $3,482 17.5% 3.0% 1.4x 10.8x 1.4x 9.1x Retail 94 $4,295 14.1% (17.3%) 0.7x 6.9x 0.7x 6.5x Consumer & Retail Index 209 $3,615 16.1% (1.9%) 1.2x 10.6x 1.1x 8.7x PUBLIC COMPANY SECTOR PERFORMANCE (12-MONTH % CHANGE IN STOCK PRICE) Infant & Juvenile Household Products Personal Care Products Housewares Outdoor & Lifestyle Home & Office Furniture & Furnishings Discount Stores & Mass Merchants Internet Retail S&P 500 Consumer & Retail Index Consumer Durables Apparel & Footwear Pet Care Consumer Services and Retail Franchisors Apparel & Footwear Retail Specialty & Other Retail Furniture & Furnishings Retailers Department Chains (40.0%) (30.0%) (20.0%) (10.0%) 0.0% 10.0% 20.0% PAGE | 3 CONSUMER AND RETAIL INDUSTRY UPDATE │ APRIL 2016 PUBLIC MARKETS OVERVIEW CONSUMER AND RETAIL INDUSTRY STOCK PERFORMANCE 250 225 200 175 150 Index 125 100 75 50 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Dow Jones U.S. Retail Index Dow Jones U.S. Consumer Goods Index Dow Jones U.S. Consumer Services S&P 500 Index RECENT EQUITY OFFERINGS Gross Proceeds Close Date Filing Date Issuer Ticker Transaction Type ($ M) Primary Industry 04/12/16 04/12/16 Sportsman's Warehouse SPWH Follow-on $67.5 Specialty Stores 03/22/16 03/22/16 The Michaels Companies, Inc. MIK Follow-on 443.4 Specialty Stores 02/18/16 02/05/16 Ollie's Bargain Outlet Holdings OLLI Follow-on 155.5 Retail 12/14/15 12/14/15 Norwegian Cruise Line Holdings Ltd. NCLH Follow-on 596.1 Hotels, Resorts and Cruise Lines 11/23/15 11/23/15 The J.
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