Capstone Headwaters Restaurants MA Executive Summary Q2 2019

RESTAURANTS Capstone Headwaters M&A EXECUTIVE SUMMARY | Q2 2019 www.capstoneheadwaters.com

INDUSTRY TAKEAWAYS

 While restaurants continue to be challenged by declining traffic and increasing labor costs, same store sales rebounded to show a 1.1% increase in May and provide a cautiously optimistic outlook for the industry, according to TDn2K’s Black Box Intelligence.1 Additionally, top emerging brands continued to grow their footprints in excess of 35% on average, highlighting the ongoing bifurcation in the industry.2

 Technology is a key driver of deal activity as digital tools such as self-order, self-pay, and delivery become increasingly important to consumers. Recent tech-driven deals include Sweetgreen’s acquisition of delivery service Galley Foods (June, undisclosed); McDonalds’ acquisition of personalization platform Dynamic Yield (March, $300 million); and Starbucks’ $100 million investment in food technology startup fund Valor Siren. Notably, of the $11.2 billion invested by venture capitalists in restaurant technology since 2014, $5.8 billion been for ordering and delivery technology, according to PitchBook.3

M&A TRANSACTION VOLUME NOTABLE ACQUISITIONS

 Following a robust year of merger and acquisition (M&A) activity in  MTY to Acquire Yuzu Sushi (June, Undisclosed) – Canadian 2018, transaction volume declined 34% year-over-year but remains franchisor MTY agreed to acquire Quebec-based Yuzu Sushi. MTY at pace with year-to-date 2017. will add the chain to its 75+ brands of quick-service and casual dining restaurants which include Pinkberry and Baja Fresh.  Strategic buyers accounted for 70% of deal activity while private equity groups drove the remaining ~30% through add-on (20.8%)  PWD Acquires Pei Wei (June, Undisclosed) – PWD acquired Pei and platform (8.3%) acquisitions. Wei from Centerbridge Partners. Founded in 1999 as a P.F. Chang’s subsidiary, Pei Wei was spun off in 2017 and has 193 restaurants in 200 the US and South Korea. The deal expands on PWD’s existing Asian brands Pick Up Stix, Leeann Chin, and Mandarin Express. 156 134 150 129 133  MTY Acquires Papa Murphy’s (April, $184.5 Million) – MTY completed the take private transaction of Papa Murphy’s for $184.5 100 million or 8.8x EBITDA. Founded in 1981, Papa Murphy’s owns, 73 operates, and franchises 1,437 take and bake pizzerias in the US, 48 50 Canada, and the United Arab Emirates.

Number ofTransactions  Williston Holding Acquires Kona Grill (May, $20.3 Million) – 0 Williston agreed to acquire Kona’s 27 remaining restaurants and 2015 2016 2017 2018 YTD 2018 YTD 2019 business assets. Casual-dining chain Kona filed for Chapter 11 Year-to-date ended June 11 bankruptcy protection in May after revenues declined 12.4% to Source: Capital IQ, FactSet, Pitchbook, and Capstone Headwaters Research $156.9 million in 2018.4

CSHW RESTAURANT INDEX NOTABLE FINANCING

 Every segment in Capstone Headwaters’ Restaurant Index saw year-  DoorDash Completes Funding Round (May, $600 Million) – over-year growth with Fast Casual concepts outperforming all other DoorDash received $600 million in a deal lead by Sands Capital segments at a robust average of 24.1x EV/EBITDA. Ventures and Darsana Capital Partners. The food delivery startup has raised ~$2 billion including a $400 million round in February. 35.0x  30.0x MOD Pizza Receives Funding from Clayton, Dubilier & Rice (May, $160 Million) – MOD received a $160 million capital raise 25.0x from CD&R in May. Ranked the fastest growing concept in the US, 20.0x with sales increasing 45% last year, the capital will be used to double MOD’s US and UK locations from 433 to 1,000 in the next five years.5 15.0x EV/EBITDA  Dig Inn Receives Funding from Enlightened Hospitality (May, 10.0x $15 Million) – Dig Inn received a $15 million investment bringing 5.0x its total capital raised to $71.5 million. Dig Inn will use the funding to develop more “food that travels,” to branch out its delivery platform Room Service, and to diversify from its fast-casual format.6

Casual Dining Fine Dining Pizza  Luckin Coffee Completes IPO (May, $561 Million) – Luckin raised Family Fast Casual Beverage Retail $561 million dollars in its May initial public offering. The leading Quick Service Differentiated Casual S&P 500 contender to Starbucks in China, Luckin has created a technology- driven retail model which leverages a mobile application for cashier- Source: Capital IQ and Capstone Headwaters Research free orders and pick-up stores to create cost efficiencies.

Leigh Hudson, Managing Director [email protected] • 415-850-3729 Capstone Headwaters

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CITATIONS

1. TDn2K, “Sales and Traffic Roller Coaster Continues With No Signs of Easing,” https://tdn2k.com/snapshot/2019-05-sales-traffic-roller-coaster- continues-no-signs-of-easing/, accessed June 13, 2019. 2. Aaron Allen & Associates, https://aaronallen.com/, accessed June 13, 2019. 3. PitchBook, “Restaurant Tech Market Map: 3Q 2018,” www.pitchbook.com, accessed June 11, 2019. 4. Seeking Alpha, “Kona Grill, Inc.: Form 10-K,” https://seekingalpha.com/filing/4446487, accessed June 11, 2019. 5. MOD, “MOD Pizza Raises $160M and Sets Target for 1,000 Locations,” https://modpizza.com/press/mod-pizza-raises-160m-and-sets-target- for-1000-locations/, accessed June 11, 2019. 6. Dig Inn, “New Partners in Our Mission to Rebuild the Food System,” https://medium.com/@diginn/new-partners-in-our-mission-to-rebuild- the-food-system-fe1de056f4f9, accessed June 6, 2019.

Disclosure: This report is a periodic compilation of certain economic and corporate information, as well as completed and announced merger and acquisition activity. Information contained in this report should not be construed as a recommendation to sell or buy any security. Any reference to or omission ofany reference to any company in this report should not be construed as a recommendation to buy, sell or take any other action with respect to any security of any such company. We are not soliciting any action with respect to any security or company based on this report. The report is published solely for the general information of clients and friends of Capstone Headwaters. It does not take into account the particular investment objectives, financial situation or needs of individual recipients. Certain transactions, including those involving early-stage companies, give rise to substantial risk and are not suitableforallinvestors.This report is based upon information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied upon as such. Prediction of future events is inherently subject to both known and unknown risks and other factors that may cause actual results to vary materially. We are under no obligation to update the information contained in this report. Opinions expressed are our present opinions only and are subject to change without notice. Additional information is available upon request. The companies mentioned in this report may be clients of Capstone Headwaters. The decisions to include any company in this report is unrelated in all respects to any service that Capstone Headwaters may provide to such company. This report may not be copied or reproduced in any form, or redistributed without the prior written consent of Capstone Headwaters. The information contained herein should not be construed as legal advice.