The Future of M&A in a Post-COVID-19 Consumer Market Shaun Browne
Managing Director & Co-Head of UK Corporate Finance London
Mr. Browne is Co-Head of UK Corporate Finance at Houlihan Lokey, working with all Qualifications industry teams as well as the Finance Sponsors and Capital Markets groups. In addition, he is Head of Houlihan Lokey’s Consumer, Food & Retail Group in Europe. His original BA Exeter University area of specific expertise is in the food and beverage sector, where he has advised on OTHER Chartered Accountant more than 150 completed transactions.
PAST McQueen Ltd. Mr. Browne was previously Managing Director of McQueen, the London-based investment HSBC bank focused on the consumer sectors, which he co-founded in 2002. McQueen grew to be one of the most successful M&A advisors to the European consumer sector prior to its PwC acquisition by Houlihan Lokey in 2015. Prior to McQueen, Mr. Browne co-founded the Consumer M&A team at HSBC (1999–2002) and was CEO of HSBC Investment Bank in India (1996–1999). Mr. Browne qualified as a Chartered Accountant with PricewaterhouseCoopers in London in 1988 and joined HSBC in 1992.
2 Houlihan Lokey at a Glance
LEADING FINANCIAL ADVISOR TO THE MID CAP BROAD PRODUCT KNOWLEDGE AND DEEP INDUSTRY EXPERTISE DELIVERS SUPERIOR RESULTS Corporate Finance Financial Restructuring Financial Advisory Product Expertise Dedicated Industry Groups No. 1 Global Private Equity No. 1 Global Restructuring No. 1 Global M&A Fairness Mergers and Acquisitions Business Services M&A Advisor (Pitchbook). Advisor. Opinion Advisor Over the Capital Markets Consumer, Food, and Retail Past 20 Years. No. 1 M&A Advisor for All 1,000+ Aggregate Financial Restructuring Data and Analytics U.S. Transactions Under $1 Transactions Completed. 1,000+ Annual Valuation Financial and Valuation Advisory Energy Private Funds Group Financial Institutions Billion Since 2006. $2.5+ Trillion Aggregate Engagements. Healthcare Debt Restructured. $6.5+ Billion Private Capital Industrials Raised Since 2014. Real Estate, Lodging, and Leisure Technology, Media, and Telecom
HLI FULLY INTEGRATED CAPITAL MARKETS AND FIRST- CLASS-CLASS SELL -SELLSIDESIDE M&A EXECUTIONM&A EXECUTION WITH WITH LISTED LOCAL PRESENCE AND GLOBAL REACH FINANCIAL SPONSORS COVERAGE TEAMS LOCAL PRESENCE AND GLOBAL REACH NYSE 24 offices in North America, Europe and Asia 34022 +offices cross-border in Northdeals over America, the past five Europe, years and Asia-Pacific. Capital Markets Financial Sponsors Coverage 340+ cross-border deals over the past five years. Global team of 30+ 20 senior officers dedicated to the professionals with unmatched sponsor community in North capabilities. America and Europe. MARKET Broad knowledge of, and Coverage of 800+ private equity CAPITALISATION OF senior-level contact into, all firms, 200+ hedge funds, and C. $4 BILLION $60 major credit investors. 100+ family offices. Raised $100+ billion of capital Worked on 800+ engagements for in the past five years. financial sponsors and sold 100+ Largest dedicated alternative companies to financial sponsors investor coverage team in the in 2018. industry. $24
May-16 May-17 May-18 May-19 May-20 Houlihan Lokey Locations
3 Evolution of Houlihan Lokey Corporate Finance in Europe
160 160 Corporate Finance Bankers in Europe 145 150 135
95 90
40
20 5
2002 2002–2014 Sep. 2015 Nov. 2015 2016–2017 Apr. 2018 May. 2018 2018 2019
5 bankers 15 bankers 20 bankers 50 bankers 5 bankers 40 bankers 10 bankers 5 bankers 10 bankers Established New hires in Acquisition of Acquisition of New hires to Acquisition of Acquisition of Expanded Expanded office in M&A, capital McQueen, a a Pan- bolster a leading an independent service lines CFR and London. markets, and prominent European European independent placement across Spanish financial London-based advisory firm corporate advisory agent and the industrials, capabilities sponsors boutique substantially finance and boutique establishment business with new coverage. specialising in increases financial focusing on of a new global services, and senior hire and the consumer, reach in coverage the data and Private Funds financial acquisition of food, and retail Continental practice. analytics Group. sponsors Fidentiis (CFR) sector. Europe. sector. coverage through Capital. recent hires of highly experienced bankers. 4 The Preeminent Advisor in the Global Food and Beverage Industry
Houlihan Lokey’s global Food and Beverage team has announced 12 transactions since the beginning of 2020.
Buyer N/A
Target
Transaction Pending Transaction Pending
a portfolio company of a portfolio company of a portfolio company of
has received a significant growth A. Zerega’s Sons, Inc. investment from has been acquired by has agreed to be acquired by has been acquired by has been acquired by a fund has successfully raised a super Philadelphia Macaroni Company has agreed to be acquired by managed by senior term loan
Sellside Advisor Sellside Advisor Sellside Advisor Financing Advisor Sellside Advisor Sellside Advisor Sellside Advisor
January January February Lockdown March April April June 2020
January January January March April
a portfolio company of has sold substantially all its assets, a portfolio company of has received a significant growth pursuant to Section 363 of the U.S. investment from a large Consumer Bankruptcy Code, to Healthcare Strategic has been recapitalized by
has been acquired by has been acquired by
Sellside Advisor Sellside Advisor Financial Advisor Sellside Advisor Sellside Advisor
Buyer
Target
*Selected transactions were executed by Houlihan Lokey professionals while at other firms, or by professionals from a Houlihan Lokey joint venture company. 5 Unrivalled Track Record as a Global Sellside Advisor in the Food and Beverage Industry
96 sellside transactions executed since 2015.
a portfolio company of Frozen ready meals manufacturing a portfolio company of a portfolio company of a portfolio company of business in Ireland an affiliated portfolio company of Westwick Frozen Potato Facility Infant Formula and Cereals a portfolio company of has been acquired by has been acquired by has been acquired by has been acquired by has been acquired by has sold minority membership Manufacturing Facility interests to has been acquired by has been acquired by has been acquired by has been acquired by has been acquired by has been acquired by has been acquired by has been acquired by has been acquired by has been acquired by
a portfolio company of a portfolio company of a portfolio company of
€3,000 million
Sellside Advisor* Sellside Advisor* Sellside Advisor Sellside Advisor Sellside Advisor Sellside Advisor* Sellside Advisor Sellside Advisor* Sellside Advisor* Sellside Advisor Sellside Advisor Sellside Advisor* Sellside Advisor Sellside Advisor Sellside Advisor Sellside Advisor
Jan. 2015 Jun. 2015
a portfolio company of a portfolio company of a portfolio company of a portfolio company of a portfolio company of has been acquired by a portfolio company of a portfolio company of has sold a 26% stake to a portfolio company of has been acquired by has sold its U.S. Vitamin, Mineral has been acquired by and Supplement business to has been acquired by has been acquired by has been acquired by KAI N OS K AI N OS CA PIT AL, LLC has been acquired by has been acquired by has been acquired by has been acquired by has been acquired by has been acquired by has been acquired by has been acquired by
an affiliate of a portfolio company of
Sellside Advisor Sellside Advisor Sellside Advisor Sellside Advisor Sellside Advisor Sellside Advisor Sellside Advisor Sellside Advisor Financial Advisor & Placement Agent Sellside Advisor Sellside Advisor Sellside Advisor Sellside Advisor Sellside Advisor Sellside Advisor Sellside Advisor Jan. 2016 Jun. 2016
a portfolio company of a portfolio company of a portfolio company of a portfolio company of a portfolio company of a portfolio company of a portfolio company of a portfolio company of a portfolio company of a portfolio company of has completed a financing has completed a financing has completed a financing has completed a financing has beencompleted acquired a financing by has completed a financing has completed a financing a portfolio company of received a growth equity investment has received a significant has been acquired by consisting of consisting of consisting of has been acquired by consisting of consisting of consisting of hasconsisting been recapitalized of by from investment from has been acquired by has been acquired by $24,000,000 has$24,000,000 been acquired by $24,000,000 $24,000,000 $24,000,000 $24,000,000 $24,000,000 has been acquired by has been acquired by Series D Series D has been acquired by Series D Series D Series D hasSeries been D acquired by Series D has been acquired by an affiliate of Convertible Preferred Stock Convertible Preferred Stock Convertible Preferred Stock Convertible Preferred Stock Convertible Preferred Stock Convertible Preferred Stock Convertible Preferred Stock has been acquired by a portfolio company of has received a significant growth investment from a subsidiary of
PlacementSellside Advisor Agent PlacementSellside Advisor Agent PlacementSellside Advisor Agent Sellside Advisor Financial AdvisorPlacement & Placement Agent Agent PlacementSellside Advisor Agent PlacementSellside Advisor Agent PlacementSellside Advisor Agent Sellside Advisor Sellside Advisor Sellside Advisor Sellside Advisor Sellside Advisor Sellside Advisor Sellside Advisor Sellside Advisor Feb. 2017 Jun. 2017
& a joint venture of a division of a portfolio company of a portfolio company of Schapendonk Holding B.V. has been acquired by a portfolio company of has sold the assets of its Nutri-Force a portfolio company of Nutrition manufacturing subsidiary to a portfolio company of have sold a portfolio company of has been acquired by a portfolio company of has been acquired by a portfolio company of has been acquired by has been acquired by a portfolio company of has sold a majority stake to has been acquired by has been acquired by has been acquired by to has sold a majority stake to has been acquired by has been acquired by has been acquired by Gaylon M. Lawrence, Jr. a portfolio company of has been acquired by a division of Nestlé Purina PetCare
Sellside Advisor Sellside Advisor Sellside Advisor Sellside Advisor Sellside Advisor Sellside Advisor Sellside Advisor Sellside Advisor Sellside Advisor Sellside Advisor Sellside Advisor Sellside Advisor Sellside Advisor Sellside Advisor Sellside Advisor Sellside Advisor & Fairness Opinion Feb. 2018
has sold its shares in a portfolio company of a portfolio company of has been acquired by a portfolio company of a portfolio company of a portfolio company of A portfolio company of a portfolio company of a portfolio company of has been acquired by has been acquired by has sold a majority stake to
has been acquired by has sold its Swedish and Finnish ready-to-eat salad operations to has been acquired by has been acquired by has been acquired by has been acquired by has been acquired by to has been acquired by has been acquired by has been acquired by has been acquired by Patricia Bragg, Katy Perry, Hayden Slater, Orlando Bloom, and Lesley Tippitt
Sellside Advisor Sellside Advisor Sellside Advisor Sellside Advisor Sellside Advisor Sellside Advisor Sellside Advisor Sellside Advisor Sellside Advisor Sellside Advisor Sellside Advisor Sellside Advisor* Sellside Advisor Sellside Advisor Sellside Advisor Sellside Advisor Jun. 2018 Jan. 2019
Transaction Pending Transaction Pending
a portfolio company of a portfolio company of has been acquired by has sold substantially all its assets, a portfolio company of a portfolio company of has been acquired by has received a significant growth pursuant to Section 363 of the U.S. a portfolio company of has been acquired by has been acquired by Bankruptcy Code, to has been acquired by investment from a large Consumer has received a significant growth A. Zerega’s Sons, Inc. has been recapitalized by Healthcare Strategic investment from has been acquired by has agreed to be acquired by Philadelphia Macaroni Company a portfolio company of has been acquired by has been acquired by a fund has agreed to be acquired by managed by has been acquired by has been acquired by
Sellside Advisor Sellside Advisor & Financing Advisor Sellside Advisor Sellside Advisor Sellside Advisor Sellside Advisor Sellside Advisor Sellside Advisor Sellside Advisor Sellside Advisor Sellside Advisor Financial Advisor Sellside Advisor Sellside Advisor Sellside Advisor Sellside Advisor Jun. 2019 Jan. 2020 *Selected transactions were executed by Houlihan Lokey professionals while at other firms, or by professionals from a Houlihan Lokey joint venture company. 6 Food M&A Activity Since the Beginning of 2020
The total number of global food M&A deals year to date fell 34% year over year.
Global Europe United Kingdom Transaction volume (disclosed) 319 309
(32%) (34%)
211
143 133
(34%) (29%) 94
21 16 (43%) (25%) 12
2018 2019 2020 2018 2019 2020 2018 2019 2020 Transaction value (£ in billions)(1)
24.9 22.5 17.2 5.1 6.3 3.3 1.6 1.4 0.2
Source: Mergermarket. (1) Total disclosed deal value. 7 UK Food M&A Deals Since the Beginning of 2020
Management Vehicle Buyer
Target
(from administration)
January February March March April May 2020
January February March March April May
Buyer
Target
(50% stake) (c. 30% remaining stake)
Only 12 M&A transactions in the food sector in the UK since the beginning of the year, a c. 40% decrease vs. the same period in 2018.
Sources: Mergermarket, Grocer. 8 Why UK Food M&A Volume Is Down
1 2 Confidence Availability of debt
3 4 No travel Valuation
9 What Are the Prospects for UK Food M&A?
Negatives: Positives:
ꭕ Difficult to meet management/visit factories. May be some distressed disposals (e.g. foodservice/food to go).
ꭕ Lending institutions reluctant to lend to “new” situations. Getting easier to meet management/visit factories.
ꭕ Difficult to forecast future financial performance. Most deals scheduled to launch in March through June have been postponed; likely to be a rush of launches in September. ꭕ Some companies will wait until their performance recovers (e.g. foodservice/food to go). Stock markets have recovered significantly since lows in March.
Many food companies have exceeded budget as a result of COVID-19, so may accelerate their planned disposal timelines.
Private equity need to invest; that is their reason to exist.
Trade have remained willing to invest over recent months, but there is a shortage of available assets.
Houlihan Lokey View
. We expect many UK food deals to be launched in September.
. If there is a continuation in the reduction of COVID-19 cases, transactions will happen.
. However, if there is a significant resurgence of COVID-19 cases...
10 European Private Equity Trends
Comments Private Equity Deal Activity in Europe(1)
. Has significant funds available to invest. 4039 4095 3695 3779 3798 . Likes to invest alongside significant third-party debt to 3279 52 boost the equity returns. 2868 2730 2828 2450 . Believe COVID-19 will cause a reduction in valuations. 1763 632 . Wish they had invested more post 2008 financial crisis.
. Some of best returning funds were invested in 2009– 53 79 2010. 83 178 198 186 217 303 397 336 411 476 453 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q12020* 2020 . Strong focus on buy and build to support existing portfolio, even if that means extending hold period and depressing Deal Value (€B)(€bn) Estimated Deal Value ((€B)€bn) #No. of ofDeals Deals Closed Closed Estimated No.# of ofDeals Deals Closed Closed IRR. EV/EBITDA Multiples for Mid-Cap Transactions(2)
11.0x 10.1x 10.0x 10.3x 10.0x 9.5x 9.9x 10.1x 10.1x 9.2x 9.5x 9.8x 9.0x 9.1x 9.0x 9.1x 9.3x 8.1x 8.6x 8.0x 7.7x 7.7x 7.8x 8.5x 8.5x 8.5x 7.6x 7.5x 7.2x 7.7x 8.3x 7.7x 7.4x 7.0x 7.9x 7.0x 7.1x 7.6x 6.7x 6.7x 6.6x 6.0x 6.2x 6.3x 5.7x 5.0x H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
(1) Pitchbook Q1 2020 European PE Breakdown. (2) Argos Wityu and Epsilon Research: Argos Index May 2020. 11 What Makes Food Companies Valuable?
No one company is likely to have all of these attributes, but a strong cohort is needed to establish an uplift in valuation multiple.
Healthy (or, at least, Direct-to- Personalisation Branded Fast growth better for you) consumer (top-line)
Motivated management Strong gross margins Convenience International in nature (or Scale team and workforce (typically 40%+) strong potential for it)
Diverse and robust Well-invested New category (or very- Significant intellectual customer base manufacturing footprint early-mover advantage) property
12 CORPORATE FINANCE FINANCIAL RESTRUCTURING FINANCIAL AND VALUATION ADVISORY
HL.com
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