Consumer and Retail
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CONSUMER AND RETAIL INDUSTRY UPDATE │ JUNE 2017 www.harriswilliams.de Harris Williams & Co. Ltd is a private limited company authorised and regulated by the Financial Conduct Authority, incorporated under English law with its registered office at 5th Floor, 6 St. Andrew Street, London EC4A 3AE, UK, registered with the Registrar of Companies for England and Wales under company number 7078852. Directors: Mr. Ned Valentine, Mr. Paul Poggi, Mr. Thierry Monjauze and Mr. Aadil Khan. Harris Williams & Co. Ltd Niederlassung Frankfurt (German branch) is registered in the Commercial Register (Handelsregister) of the Local Court (Amtsgericht) of Frankfurt am Main, Germany, under registration number HRB 96687, having its business address at Bockenheimer Landstrasse 33-35, 60325 Frankfurt am Main, Germany. Permanent Representative (Ständiger Vertreter) of the Branch Niederlassung: Mr. Jeffery H. Perkins. CONSUMER AND RETAIL INDUSTRY UPDATE │ JUNE 2017 HARRIS WILLIAMS & CO. CONSUMER UPDATE The consumer sector continued to evolve during the past quarter as brands, retailers, GROUP OVERVIEW and e-commerce companies continue to adapt to shifts in consumer preferences and buying habits. Over the past three months, we have continued to see this play out in Harris Williams & Co. is a leading advisor to the Consumer market. Our both M&A activity and valuations. The traditional brick and mortar retailers continue to significant experience covers a broad venture outside of historical business lines and acquire additional e-commerce DNA with range of end markets, industries, and deals announced by the likes of Walmart, PetSmart, and Target among others. At the business models. This particular report same time, traditional e-commerce companies are pursuing brick and mortar strategies focuses on trends and metrics in the to either solve perceived last mile issues or better control the overall consumer and brand following areas: experience (e.g. Amazon’s purchase of Whole Foods). These channel changes as well . Consumer Durables as the continued evolution of consumer tastes have created opportunities across . Consumer Electronics multiple segments within products, food, restaurant, and consumer services categories. Consumer Services During Q2 17, Harris Williams closed six consumer deals with companies that are benefitting from evolution in the consumer market. Footwear, Apparel, and Accessories . Franchise Platforms Company A The Soup & Infant Feeding Business of an infant and . Internet Retail a portfolio company of juvenile . Home Furnishings brand has been . Household Goods acquired by Infant and Juvenile Products has been acquired by has been acquired by . Closed, not publicly . Jewelry, Gifts, and Collectibles announced . Omni / Multi-Channel Brands I&J brand that ignites Leading full service Manufacturer of soups, . Outdoor and Lifestyle imagination and a sense of automotive maintenance broths, gravies and wonder in all children provider infant feeding products . Personal Care Products . Pet Care . Specialty and Mass Merchant Retailing a partnership of a subsidiary of a portfolio company of PizzaRev CONTACTS Founders & has been acquired by has partnered with has been acquired by North America John Neuner Managing Director [email protected] Fast-casual pizza concept, Developer, manufacturer Manufacturer of a wide +1 (804) 915-0125 offering highly customizable and marketer of children’s range of pet products to a and high-quality pizzas footwear diverse base of retailers Ryan Budlong Managing Director As highlighted in the chart below, consumer deal volume in 2017 has been lower than [email protected] the same period the prior year. While Q2 data has not been fully compiled, the list of +1 (415) 217-3409 closed deals to date and our conversations with potential buyers (both strategic and Brent Spiller financial) would indicate volume will remain at a comparable level to Q1. This lower Managing Director [email protected] volume coupled with ample capital from strategic and financial buyers continues to +1 (804) 915-0183 create an environment that is favoring sellers. While some aggregated data show valuations may have moderated, our experience is that for well positioned, growing Corey Benjamin Director consumer companies that are capitalizing on the evolving consumer landscape [email protected] continue to draw aggressive valuations and extremely favorable contract terms. +1 (804) 932-1342 1 Consumer M&A Activity 30% Zach England Vice President 27% 28% 26% 25% 27% 25% 26% 26% [email protected] 25% 26% 25% 25% +1 (415) 217-3429 23% 22% 24% 23% Beau Pierce Vice President 975 970 1039 1008 1019 [email protected] 990 951 832 +1 (804) 887-6113 788 803 795 763 742 740 771 Europe 529 595 Edward Arkus Managing Director 318 338 363 340 344 313 241 248 277 252 286 294 284 284 269 225 196 [email protected] +44 207 518 8905 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 1Q 2Q 3Q Q4 1Q 2Q 3Q 4Q 1Q Will Bain 2013 2014 2015 2016 2017 Director [email protected] PE Non-PE PE Backed Deals as % of M&A +44 207 518 8906 www.harriswilliams.de PAGE | 1 CONSUMER AND RETAIL INDUSTRY UPDATE │ JUNE 2017 HARRIS WILLIAMS & CO. CONSUMER UPDATE CONSUMER PRIVATE EQUITY EXIT ACTIVITY1 Given the imbalance in supply and demand referenced above, buyers across all segments (strategic/financial/patient capital, domestic/international) have been very active – and increasingly proactive – in targeting assets of interest. Sellers in this market increasingly have options to be able to evaluate who the right partners are for the next chapter in the company’s growth. The fact that sellers are not required to compromise on value is reflected in the exit activity amongst private equity groups. As seen in the chart below, sales to financial buyers have swung back to be on par with strategic buyers as they have become every bit as (if not more) competitive with strategic buyers on most assets in this market. Private Equity Exits by Quarter 200 180 160 140 120 100 80 60 40 20 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 1Q 2Q 3Q Q4 1Q 2Q 3Q 4Q 1Q 2010 2011 2012 2013 2014 2015 2016 2017 Corporate Acquisition IPO Secondary Buyout CONSUMER M&A SECTOR DEAL FLOW1 The ultimate driver of activity and change in the consumer space is the end consumer themselves. The past 3 months continue to reflect the themes in the sector that have been building for several quarters/years – more disposable income driving aspirational purchases (ie. higher price point products), investing in health and wellness for themselves, their kids and their pets (this trend plays out in a variety of categories from fitness, product, food, etc), valuing experiences and services over products in some categories, and valuing convenience in their purchasing habits. These trends play out in the deal activity and are reflected in the expansion/contraction in volume in certain segments. M&A Transactions (count) by Sector 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 1Q 2Q 3Q Q4 1Q 2Q 3Q 4Q 1Q 2013 2014 2015 2016 2017 Apparel and Accessories Durables Media Non-Durables Other Restaurants, Hotels and Leisure Retail PAGE | 2 CONSUMER AND RETAIL INDUSTRY UPDATE │ JUNE 2017 HARRIS WILLIAMS & CO. CONSUMER UPDATE In addition to our deals, Q2 had several noteworthy announced or closed consumer deals that reflect the changes happening in the sector – several of these are noted below: Noteworthy Transaction Description Amazon announced that it has agreed to acquire Whole Foods for $13.7 billion. The deal highlights Amazon Acquiring Whole Foods Amazon’s expanding presence in retail as the company makes its first significant move into over 450 brick-and-mortar locations. As acquisition talks fizzled between the two parties, Target countered with a $75 million investment in Target Investing in Casper Casper. As the leading investor in Casper, Target will now offer Casper’s mattresses, pillows, sheets and more in its stores and on its website. PetSmart has agreed to make the biggest e-commerce acquisition in history, putting a deal in place PetSmart Acquiring Chewy to snatch up fast-growing pet food and product site Chewy.com for $3.35 billon. Kohlberg & Company has agreed to acquire Newell Brands’ winter sports business for $240 million. Kohlberg Acquiring Newell Brands’ Winter The transaction is expected to close in early Q3 2017 and includes Völkl, K2, Marker, Dalbello, Sports Business Madshus, Line, Full Tilt, Atlas, Tubbs, Ride, and BCA. In an effort to resonate more with younger consumers, handbag maker Coach is buying its smaller Coach Acquiring Kate Spade rival, Kate Spade & Co., for $2.4 billion. The deal is expected to close in Q3 2017 and puts M&A rumors to rest. Cornell Capital acquired World Kitchen bringing new commitment to World Kitchen’s product Cornell Capital Acquiring World Kitchen innovation and growth strategy for iconic brands such as Pyrex, Corelle, and CorningWare. CVC Capital Partners acquired PDC Brands from Yellow Wood Partners – financial terms were not CVC Capital Partners Acquiring PDC Brands disclosed. CVC looks to grow PDC Brands domestically and abroad by leveraging their deep sector experience and global resources. Samsonite International has acquired eBags for $105 million. Samsonite made the acquisition of Samsonite Acquiring eBags eBags as a way to strengthen its own e-commerce business to sell directly to consumers. Wal-Mart has reached a deal to acquire Bonobos for $310 million marking a major step for Wal-Mart Wal-Mart Acquiring Bonobos as the company invests in an upscale fashion business. This acquisition further demonstrates the company’s ongoing digital innovation strategy. Spectrum Brands has agreed to acquire Petmatrix for $255 million. Petmartix is a manufacturer and Spectrum Acquiring Petmatrix distributor of dog food products with brands including Dream Bones and Smart Bones. Authentic Brands Group has acquired a 51% stake in Frye from Global Brands Group.