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Global Sector Overview

Consumer Trend Report

Written by Amy Wu Senior Research Analyst Q1 2018

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Data analysis

Global consumer sector M&A activity kicked off with the first quarter last year. Germany was on a lower note compared with last year, at 426 the most attractive target for global investors Regional Breakdown Trend transactions worth US$ 79.1bn in Q1, down 52.6% based on deal volume. The country attracted 33 2013—2018 Q1 by value year on year (508 deals, US$ 166.9bn). transactions in the first quarter of 2018, seven The dramatic decline can be largely attributed deals more than Q1 2017. to a lack of megadeals (>US$ 10bn) following a 500 15 Asia-Pacific (excl. Japan) dealmaking activity, on record-breaking 2017. 34 the other hand, saw growth in the sector with Consumer, which contributed 8.7% to the overall 73 deals worth US$ 13bn, up 15.3% compared 450 global M&A value, secured only one megadeal with Q1 2017. The top deal in the region was the 90.8 in the first quarter, three fewer than Q1 2017. US$ 2.1bn investment in China-based household 400 12 Still, 2018 marked the fourth highest Q1 since product retailer Easyhome by a group of investors 30.1 2009, highlighting Consumer’s positive stance for led by Alibaba and Chinese private equity 350 dealmaking. firms. With a dramatic 596.4% increase in value 29.8 60.1 compared with Q1 2017, Chinese investors were The US continued to account for the bulk of 300 9 Market shareMarket (%) actively seeking European targets in this sector. 59.1 deals in the global Consumer segment, recording 203.9 92 deals worth US$ 46.4bn in Q1 2018. This The Retail subsector accounted for US$ 27bn 250 comprised 58.7% of total global Consumer deal worth of deals, a decrease of 41.2% compared 122.8 47.3 value and 21.6% by deal count. The country with Q1 2017’s US$ 45.8bn, though deal count 94.2 48 200 6 recorded four out of the top five transactions was only down by one transactions to 152. The of deals (US$bn) Value 42.7 globally. However, this came with a sharp US$ 5.5bn acquisition of US drugstore chain 36.9 150 pullback of 48% on value compared with the first retailer Rite Aid by supermarket giant Albertsons quarter of 2017 (127 deals, US$ 89.2bn). was the top deal announced in the subsector. 62.2 53.6 171.6 Going forward, we can expect to see further deals 100 3 The US’ largest and only megadeal was the 154.7 2.5 in this space as traditional retailers continue to 165.2 13 US$ 23.1bn acquisition of soft drink producer 17.2 seek e-commerce specialists to expand their 50 84.2 Dr Pepper Snapple Group by specialty coffee 88.2 omnichannel capabilities in light of changing producer Keurig Green Mountain. The deal will 46.4 consumer behaviors. create a new beverage giant called Keurig Dr 0 0 2013 2014 2015 2016 2017 2018 Q1 Pepper with an estimated US$ 11bn in annual In the Food subsector there were 118 deals valued revenues, according to the company’s press at US$ 17.5bn, down 31.7% by value compared release. with Q1 2017. One prominent deal was the US$ US Europe Asia-Pacific (excl Japan) 7.9bn acquisition of pet food manufacturer Across the Atlantic, Europe was the most dynamic Blue Buffalo Pet Products by General Mills, the Rest of the world Share towards global M&A value region in terms of deal count. The continent second largest Consumer deal for the quarter. captured 204 transactions worth US$ 17.2bn, Other noteworthy transactions included Italian 47.9% of the quarter’s overall Consumer deal chocolate maker Ferrero’s US$ 2.8bn purchase of count versus Q1 2017’s 45.9%. By value, however, Nestle’s US confectionery business after Europe saw a 69.9% decline compared

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Data analysis continued acquiring US premium chocolate confectionery delivery portfolio company, which has been manufacturer Fannie May last year. holding fireside chats with prospective buyers in Global sub-sector Trend anticipation of launching a sale in 2018, according 2013—2018 Q1 Meanwhile the “Other” subsector – which includes to Mergermarket intelligence. all categories other than food and retail – had the highest value among all three subsectors. In general, Consumer M&A activity is likely to 500 1000 This subsector recorded 156 transactions with remain favorable this year amid an optimistic an aggregate value US$ 34.7bn, including the Dr global dealmaking environment and rise in total Pepper Snapple Group / Keurig Green Mountain global M&A values. 450 900 deal, which was the top Consumer deal of the quarter. 400 220.5 800 M&A activity in the spirits space was also back in the spotlight, with global spirits giant 350 700 Bacardi acquiring high-end tequila producer Patrón Spirits International for US$ 5.1bn. The 300 168 600 128.2 demand for premium spirits continues to grow. countDeal Separately, Chinese liquor baijiu producer Shanxi 250 500 Xinghuacun Fen Wine Factory’s 11.45% stake 119.9 was acquired by a China Resources affiliate 62.9 200 400 for US$ 820m. Stock Spirits Group, the owner of deals (US$bn) Value 86.3 and producer of premium branded spirits and 75.1 100.4 150 liqueurs, is also seeking acquisitions in Central 300 84.7 and Eastern Europe as part of its expansion 54.5 strategy, according to a report from Polish media 100 200 Puls Biznesu. 153.4 116.2 34.7 50 134.4 100 Private equity investments cooled down in the 88.8 85.8 17.5 beginning of 2018, with buyouts falling 65.7% 27 by value to US$ 3.8bn, while volume dropped to 0 0 2013 2014 2015 2016 2017 2018 Q1 79 from 105 in Q1 2017. Private equity exits, by contrast, remained positive in the first quarter with aggregate deal value rising 8.1% to US$ Retail value (US$bn) Food value (US$bn) Other value (US$bn) 11.3bn, while softening slightly in terms of volume to 46 deals from 55 in Q1 2017. This Retail deal count Food deal count Other deal count increase in deal value was mainly due to the Invus Group’s US$ 7.9bn exit from Blue Buffalo Pet Products. Other potential exits in this sector include Graze, the Carlyle Group-backed snack

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Top deals

Deal details Advisor details

Value (US$m) Announcement Target Bidder FA to sell-side LA to sell-side FA to buy-side LA to buy-side date 23,131 29-Jan-18 Dr Pepper Snapple Group Keurig Green Mountain Inc Credit Suisse Morgan Lewis & Bockius; AFW; Bank of America Merrill Clifford Chance; McDermott Will Inc (USA) Advising FA: White & Case Lynch; BDT & Company; & Emery; Skadden Arps Slate (USA) Goldman Sachs & Co; JPMorgan Meagher & Flom; Advising FA: Weil Gotshal & Manges

7,935 23-Feb-18 Blue Buffalo Pet Products General Mills Inc Centerview Partners; Simpson Thacher & Bartlett Goldman Sachs & Co Cleary Gottlieb Steen & Hamilton; Inc (USA) JPMorgan Skadden Arps Slate Meagher & (USA) Flom; Advising FA: Davis Polk & Wardwell; Gibson Dunn & Crutcher

5,537 20-Feb-18 Rite Aid Corporation Albertsons Companies Inc Citi Jones Day; Skadden Arps Slate Bank of America Merrill Lynch; Schulte Roth & Zabel; (USA) (USA) Meagher & Flom; Advising FA: Credit Suisse; Goldman Sachs Advising FA: Cahill Gordon & White & Case & Co Reindel

5,100 22-Jan-18 Patron Spirits International Bacardi Limited Jones Day Bank of America Merrill Lynch; Covington & Burling; AG (Bermuda) Citi; Lazard Advising FA: Kirkland & Ellis (Switzerland)

2,800 16-Jan-18 Nestle SA (US Ferrero SpA Goldman Sachs & Co Mayer Brown Credit Suisse; Lazard Davis Polk & Wardwell confectionery business) (Italy) (USA)

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Drivers & Heat chart based on potential companies for sale

Deal appetite for organic skincare and cosmetics targets is Heat chart based on potential companies for sale expected to continue, and even increase this year as consumer interest in organic and additive-free products rises, according to Sector Industrials TMT Consumer Pharma, Energy, Business Financial Leisure Transport Mergermarket intelligence. In particular, consumers are preferring & Medical & Mining & Services Services products manufactured by smaller, niche brands as opposed Chemicals Biotech Utilities to multinationals and both strategic buyers and private equity investors continue to eye opportunities in this industry. North America 500 478 267 288 174 173 93 45 26 North Asia 244 218 119 86 57 87 90 40 26 In the food segment, healthy and organic food manufacturers are Western Europe 150 216 123 72 62 110 107 36 27 still in demand as larger peers look to diversify their portfolios. Notable situations in this space include GlaxoSmithKline (GSK)’s CEE 84 81 88 27 46 27 37 17 17 ongoing review of nutritional malt drink brand Horlicks and Australasia 38 87 78 28 49 39 48 27 11 other health nutrition products, as reported. The sale of Horlicks Southern Europe 66 51 97 15 32 32 31 27 21 could generate over US$ 4bn, with global food giants Nestle, South East Asia 47 72 53 25 43 29 37 20 30 Unilever, Kraft Heinz, and India’s ITC expected to be among C&S America 44 34 69 19 44 35 24 9 11 bidders. Meanwhile, organic herbal tea brand Buddha Teas has been approached by two major tea companies, according to Japan 30 36 34 35 3 16 10 3 5 Mergermarket intelligence. South Asia 25 15 44 18 16 14 24 4 9 Nordics 29 46 20 18 13 14 11 5 7 Consolidation is expected to continue in the global Consumer Middle East 11 39 10 11 9 6 4 3 2 segment as changes in consumer preferences and behavior force Africa 17 7 7 3 27 7 14 1 3 consumer giants and mid-sized firms to undertake strategic reviews. Central Asia 1 3 4 1 Meanwhile, cannabis-related businesses in the US and Canada are also attracting investors’ attention. Spreading legalization, maturing Criteria of heat chart: companies, and growing investor appetites in the cannabis Mergermarket’s sector heat chart is based on companies tagged as “Companies for sale” in the last six months. space is likely to bring new investors into the industry and spark consolidation in the coming years, according to Mergermarket intelligence. Relentless Resources, the Canadian energy company, announced in February it may seek acquisitions of licensed cannabis producers or those pursuing licenses as part of its growth strategy.

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League tables

Financial advisor league table by value Financial advisor league table by deal count

Ranking 2018 Q1 2017 Q1 Ranking 2018 Q1 2017 Q1

2018 Q1 2017 Q1 Company name Value Deal Value % Value 2018 Q1 2017 Q1 Company name Value Deal count Value % Value (US$m) count (US$m) change (US$m) (US$m) change 1 1 Goldman Sachs & Co 44,957 11 83,763 -46.3% 1 1 KPMG 751 12 19 -7 2 7 Bank of America Merrill Lynch 36,867 10 39,063 -5.6% 2 11 Goldman Sachs & Co 44,957 11 5 6 3 3 JPMorgan 35,188 7 66,546 -47.1% 3 3 PwC 427 11 18 -7

4 22 Credit Suisse 31,468 3 2,156 1359.6% 4 20 Bank of America Merrill Lynch 36,867 10 4 6 5= - AFW LP 23,131 1 - - 5 2 EY 538 8 18 -10

5= - BDT & Company 23,131 1 - - 6 19 JPMorgan 35,188 7 4 3 7 8 Citi 14,650 5 33,608 -56.4% 7 5 Lazard 9,874 7 10 -3 8 5 Lazard 9,874 7 62,418 -84.2% 8 7 Rothschild 719 7 8 -1 9 6 Centerview Partners 7,972 3 60,986 -86.9% 9 4 Deloitte 605 6 15 -9 10 12 Morgan Stanley 3,287 4 20,807 -84.2% 10 6 Houlihan Lokey 468 6 10 -4

Legal advisor league table by value Legal advisor league table by deal count

Ranking 2018 Q1 2017 Q1 Ranking 2018 Q1 2017 Q1

2018 2017 Company name Value Deal count Value % Value 2018 2017 Company name Value Deal count Value % Value Q1 Q1 (US$m) (US$m) change Q1 Q1 (US$m) (US$m) change

1 6 Skadden Arps Slate Meagher & Flom 40,613 8 64,176 -36.7% 1 2 DLA Piper 485 11 16 -5 2 39 White & Case 28,668 4 2,202 1201.9% 2 9 Jones Day 11,000 10 7 3 3 98 McDermott Will & Emery 23,194 5 171 13463.7% 3 1 Kirkland & Ellis 7,524 9 17 -8 4 106 Morgan Lewis & Bockius 23,131 1 134 17161.9% 4 25 Skadden Arps Slate Meagher & Flom 40,613 8 4 4 5 2 Jones Day 11,000 10 86,208 -87.2% 5 10 Weil Gotshal & Manges 4,322 7 7 0 6 3 Davis Polk & Wardwell 10,735 5 85,574 -87.5% 6 34 Freshfields Bruckhaus Deringer 2,286 6 3 3 7 9 Simpson Thacher & Bartlett 8,801 2 60,567 -85.5% 7 20 Allen & Overy 2,160 6 5 1 8 42 Gibson Dunn & Crutcher 8,635 2 1,999 332.0% 8 8 Latham & Watkins 1,345 6 8 -2 9 10 Cleary Gottlieb Steen & Hamilton 7,935 1 43,537 -81.8% 9 17 McDermott Will & Emery 23,194 5 6 -1 10 4 Kirkland & Ellis 7,524 9 83,822 -91.0% 10 6 Davis Polk & Wardwell 10,735 5 8 -3

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Criteria Contacts

All data is based on transactions over US$ 5m Production Commercial Deal Submissions Senior Research Analyst Americas Americas and is based on the Mergermarket’s M&A deals Amy Wu Kurt Viehl Jason Loria [email protected] [email protected] [email protected] database. Deals with undisclosed deal values +852 2158 9708 +1 212 390 7812 +1 646 378 3122 are included where the target’s turnover Research Editor Asia Asia exceeds US$10m. Deals where the stake Jasmine Wu Laurence Edwards John Capulong [email protected] [email protected] [email protected] acquired is less than 30% will only be included +852 2158 9770 +852 2158 9771 +852 2158 9723 Head of Research APAC EMEA EMEA if the value is greater than US$100m. Gerry Tee Ben Rumble Andrea Putaturo Click here for the full deal criteria. [email protected] [email protected] [email protected] +852 2158 9741 +44 20 3741 1007 +44 20 3741 1274

Press Relations

M&A trend: Based on the dominant sector League tables: Based on the dominant sector Americas of the target company being Consumer. The of the target company being Consumer and dominant geography of the target company is the geography of the target, bidder or seller Chrissy Carney [email protected] based on global activity or the region stated. being global. The financial advisor tables +1 646 378 3118 Excludes lapsed and withdrawn bids. exclude lapsed and withdrawn bids. The legal advisor tables include lapsed and withdrawn Cross-border M&A: Based on a transaction Asia bids. involving at least two different countries Chrissy Carney between target and bidder. All values are in US$ [email protected] Top deals: Based on the dominant sector of Data correct as of 03-Apr-18 +1 646 378 3118 the target company being Consumer. The League Tables correct as of 03-Apr-18 EMEA dominant geography of the target company is based on global activity. FA refers to financial Olivia Cummins advisor. LA refers to legal advisor. Excludes [email protected] lapsed and withdrawn bids. +44 20 3741 1129

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In M&A, information is the most valuable currency. Mergermarket reports EMEA Americas Asia on deals 6-24 months before they become public knowledge, giving our 10 Queen Street Place 330 Hudson St. 16/F, Grand Millennium Plaza subscribers a powerful competitive advantage. With the largest network London 4th Floor 181 Queen’s Road Central of dedicated M&A journalists and analysts, Mergermarket offers the most comprehensive M&A intelligence service available today. Our reporters EC4R 1BE New York, NY 10013 Hong Kong are based in 67 locations across the Americas, Europe, Asia-Pacific, the United Kingdom USA Middle East and Africa. +44 203 741 1000 +1 212 500 7537 + 852 2158 9790 [email protected] [email protected] [email protected]

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