INVESTING in the NICHE GROCERY SECTOR Appletree Capital Ltd
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INVESTING IN THE NICHE GROCERY SECTOR Appletree Capital Ltd. Presentation on Supermarkets Plus, LLC Spring 2015 Downloaded from www.hvst.com by IP address 192.168.176.10 on 10/03/2021 PRIVATE AND CONFIDENTIAL These presentation materials do not constitute or form part of any offer for sale or subscription or any solicitation for any offer to buy or subscribe for any securities nor shall they or any part of them form the basis of or be relied upon in connection with any contract or commitment whatsoever. Any decision in connection with any proposed investment must be made solely on the basis of the information contained in subsequent documentation. While all reasonable care has been taken to ensure that the facts stated in these presentation materials are accurate and that any forecasts, opinions and expectations contained therein are fair and reasonable, the materials have not been independently verified and no reliance whatsoever should be placed on them. 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Downloaded from www.hvst.com by IP address 192.168.176.10 on 10/03/2021 TABLE OF CONTENTS I. Opportunity II. Acquisition Process III. Operational Strategy IV. Farmer Jack V. Exit Strategy VI. Appletree Capital Ltd. VII. Current Acquisition Candidates Downloaded from www.hvst.com by IP address 192.168.176.10 on 10/03/2021 I.) OPPORTUNITY Downloaded from www.hvst.com by IP address 192.168.176.10 on 10/03/2021 INTRODUCTION Roll-Up Opportunities in Niche Grocery Sector MARKET OPPORTUNITY Downloaded from www.hvst.com by IP address 192.168.176.10 on 10/03/2021 OVERVIEW & MARKET OPPORTUNITY • Supermarkets Plus LLC is fundless sponsor established to acquire grocery chains from founding families exiting the retail grocery business. OVERVIEW • The Fund intends to acquire small chains in overlapping and adjacent geographies in a consolidation play. • The Fund targets retail stores with strong fundamentals and businesses minimally impacted by Walmart & Whole Foods. •The Midwest & Southeast grocer market is large with numerous family operated chains, making it ripe for consolidation. MARKET • Flourishing chains despite competition from Walmart/Whole OPPORTUNITY Foods are acquisition candidates. • The Fund re-positions newly acquired stores by reinforcing their market appeal as places to shop for weekly groceries. Downloaded from www.hvst.com by IP address 192.168.176.10 on 10/03/2021 ACQUISITION CRITERIA & BUSINESS MODEL •Strong management teams wishing to participate in future growth and consolidation opportunities. ACQUISITION • Profitable stores with potential to expand to adjacent CRITERIA geographies through new or acquired stores. • Stores with good trade names in their home market and opportunities to extend their brand to additional markets. •Sale of membership units in the Fund, structured as an LLC, with option to serve on board of directors. •Fundless sponsor seeks to raise capital of $25 million; early BUSINESS round investments structured more favorably than later rounds. MODEL • After demonstrating “proof of concept”, the Fund will accelerate the pace of rolling-up smaller chains. • Fund leadership provided by individuals with direct operating experience in Midwestern retail grocery chains. Downloaded from www.hvst.com by IP address 192.168.176.10 on 10/03/2021 GROCER OPPORTUNITIES • Supermarkets Plus generates proprietary deal flow of potential acquisition candidates of Midwest and Southeast CONVENTIONAL grocers from its knowledgeable management and industry GROCERS contacts. • Initial acquisition efforts to focus on Midwestern and Southeastern states. • SuperValu approached Supermarkets Plus about acquiring Save-a-Lot stores in the Midwest area; current operators seek to exit Save-a-Lots stores. LIMITED ASSORTMENT • The SuperValu situation presents an opportunity to consolidate a group of regional Save-a-Lot stores and maximize STORES financial returns. •These stores are currently profitable, but opportunities remain for consolidation and margin improvement. Downloaded from www.hvst.com by IP address 192.168.176.10 on 10/03/2021 TRANSACTION OVERVIEW AMOUNT OF CAPITAL RAISE $25 million MINIMUM SUBCRIPTION $500,000 INSTRUMENT TYPE Class B Membership Units ORGANIZATIONAL STRUCTURE Limited Liability Corporation GENERAL PARTNERSHIP Appletree Capital Ltd. Downloaded from www.hvst.com by IP address 192.168.176.10 on 10/03/2021 PROPOSED ORGANIZATIONAL STRUCTURE Limited Liability Company vs. Limited Partnership Structure • LLCs and LPs are common organizational structures used to form private equity funds. • LLC and LP structures used in private equity due to tax advantages. •LLC organizational form provides investors with greater flexibility compared with LPs, without endangering limited liability protection. •Perception that LLC structure will remain advantageous, even if Congress makes changes to tax code. Downloaded from www.hvst.com by IP address 192.168.176.10 on 10/03/2021 II.) ACQUISTION PROCESS Downloaded from www.hvst.com by IP address 192.168.176.10 on 10/03/2021 INTRODUCTION TO ACQUISITION PROCESS ACQUISITION PROCESS: Executives at Supermarkets Plus initiate acquisitions by drawing on their network of industry contacts and relationships built-up over decades of involvement with Midwestern grocery stores. Phase I Phase II Phase III Phase IV Preliminary Negotiate Identify Candidates Due Diligence Discussions Purchase Terms Weeks 12-24+ Weeks 2-6 Weeks 4-8 Weeks 2-4 • Generate leads from • Explore potential Thoroughly review Letter of Intent industry relationships transaction terms, historical financial Time line for closing and word of mouth. including purchase information. transaction Compile list of price and timing. Evaluate operating Company valuation potential sellers. • Discuss potential performance using Purchase price Prioritize leads transaction metrics such as Stock or asset according to structures. SSS, sales per sq. acquisition attractiveness and foot, ROI, inventory Contingent availability of asset. turns, etc… consideration Downloaded from www.hvst.com by IP address 192.168.176.10 on 10/03/2021 PHASED APPROACH TO ACQUISITIONS Supermarkets Plus has adapted a thoughtful and disciplined approach to identifying chains of family owned grocery stores that fit its acquisition criteria. PHASE 1 - Drawing on their decades of experience Identify Candidates working in the retail grocery sector, executives at Supermarkets Plus will generate a list of potential acquisitions under $100 million. -Supermarkets Plus has already identified several potentially attractive opportunities. PHASE 2 - Initiate high level discussions with business Preliminary Discussions owners on key terms such as purchase price expectations and timeline for executing a sales transaction.