Project Block
A Case Study in Sell-Side M&A Roadmap to success
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Sale planning and Stage 1: strategy Receive Completion / Post-sale transition / non-binding • Ensure business is Settlement integration / earn out indicative bids market ready Send out Flyer / 4 • Provide access to data room • Finalise pre-sale Teaser to • Bidders will • Authorised bidders undertake due 8 9 Commence restructuring buyer pool submit a diligence or business Issue Information non-binding Sale Process • Issue one page • Bidders invited to meet management improvement Memorandum indicative offer • Agree final transaction documents flyer/teaser initiatives based on the • Bidders submit a binding bid (final bid such as Sale Purchase Agreements, document (general Detailed IM to include: 1 information price, subject to legal documentation) Lease, Employee Agreements, Non- • Identify target information about provided in compete Agreements • Proposed deal • Final negotiations on price. buyer pool the business on a the IM structure If the vendor accepts a bid, parties • Key vendor personnel may be required • Finalise sale deidentified basis) Engagement Letter • Financial Information • Vendor may will negotiate and sign sale to stay on with the business for a timeline and • Negotiate NDAs elect to enter documentation. transitional period, typically 6 months • Agreement of key terms process with interested • Industry snapshot and into exclusivity to 2 years. and scope of work parties growth opportunities with one • Fees usually comprise: • Data room • People – management bidder or invite 6 7 and key staff 2 - 4 bidders to • a) Success fee based on preparation participate in a % of the sale price • Customer profiles Stage 2: Signing stage 2 • b) Monthly retainer 3 Due Diligence & Binding Bids Project Block Case Study
This is a case study demonstrating the key documents in a typical sell-side M&A process. The purpose of these documents is to provide an understanding of the tasks that Nash Advisory undertakes in each of our engagements. This list is not exhaustive, and Nash may conduct additional activities for individual engagements depending on the complexity of the deal, timeframes or a variety of other reasons. The subject of this case study is a hypothetical “Project Block”, an FMCG company providing health food products in Australia. This company has been operating since 2005, and the three equal shareholders of the business are nearing retirement and are looking to retire and sell the business. This document includes examples for Project Block of: ► Confidentiality Agreement (CA) ► Engagement Letter ► Request for Information (RFI) ► Valuation ► Buyer’s List ► Working Capital Analysis ► Flyer ► Information Memorandum (IM) ► Non-Binding Indicative Offer (NBIO) ► Term Sheet ► Settlement Schedule
Separately on our website (www.nashadvisory.com.au), an example excel spreadsheet of the working capital analysis is available.
Please note, this case study is merely an example for illustrative purposes only. If you have any further questions please contact Nash Advisory at [email protected]. Project Block Confidentiality Agreement
Sample Confidentiality Agreement
THIS CONFIDENTIALITY DEED is dated 30 July 2021
BETWEEN Project Block (“Discloser”) Company Address
AND Nash Advisory Pty Ltd (“NASH”) and (“Recipient”) Level 5, 356 Collins Street Melbourne, Victoria 3000 Australia
RECITALS A. The Discloser will provide Confidential Information to the Recipient in connection with discussions in relation to the potential or actual engagement of the Recipient to provide corporate advisory services to the Discloser. B. The Discloser agrees to provide the Confidential Information to the Recipient on the terms of this Deed.
1. "Confidential Information" means all information and documentation which may be disclosed to or obtained by the Recipient from the Discloser in respect of the Purpose during the course of or in consequence of the parties’ discussions (including in writing, verbally or electronic medium) which is proprietary to the Discloser and includes, but is not limited to, information which relates to the Discloser's business, products, research and development, customers, business, financial and marketing plans but does not include any information that:
(a) is in the public domain at the time of receipt by the Recipient or that otherwise enters the public domain other than because of a breach of the Deed by the Recipient;
(b) was obtained by the Recipient from a source other than the Discloser (or its related bodies corporate) through no breach of confidentiality owed by that source (to the Recipient’s actual knowledge); or
(c) was derived by the Recipient without reference to information provided under this Deed by the Discloser.
“Purpose” means discussions between the Discloser and Recipient in relation to, and the Recipient’s consideration of, a potential sale (either by cash, equity or hybrid equity form) of the Discloser’s business and any related pre-sale preparatory and business improvement work.
2. The Discloser may make available to the Recipient and the Recipient may obtain or have access to Confidential Information in various forms from time to time.
3. The Recipient agrees to use the Confidential Information only for the Purpose and will not disclose the Confidential Information other than permitted by clause 4 below, required by law or a regulatory authority, or as directed by the Discloser, to any third parties. The Recipient agrees to restrict its disclosure of Confidential Information to employees that are involved in the Purpose.
4. Notwithstanding anything else in this Deed, the Recipient may disclose the Confidential Information to its related bodies corporate and advisers in connection with the Purpose.
5. As between the Discloser and Recipient, all rights in the Confidential Information and all intellectual property rights, such as copyright, shall remain exclusive property of the Discloser.
CA | 1
6. Upon the Discloser's request the Recipient must return to the Discloser or destroy (at the Recipient’s election) all copies of the Confidential Information, subject to any requirements by law or the Australian Securities Exchange to retain Confidential Information. The provisions of this Deed continue to apply to Confidential Information retained under this clause 6.
7. Nothing shall oblige the Discloser to disclose any information, nor to enter into any agreement or other arrangement, nor shall anything be construed as a granting of any rights, by license or otherwise, in any information, products or rights of the Discloser.
8. The term of this Confidentiality Agreement is one year from the latter of when this Agreement is executed or the receipt by the Recipient of any Confidential Information.
9. The obligations of the Recipient may not be assigned nor transferred without the Discloser's prior written consent.
10. The laws of Victoria, Australia govern this Deed and the Parties hereby irrevocably submit to the exclusive jurisdiction of the Victorian Courts.
EXECUTED AS A DEED BY:
Project Block
Name of Authorised Representative Signature
Nash Advisory Pty Ltd
Name of Director Signature of Director
CA | 2 Project Block Engagement Letter
Sample Engagement Letter
The following details the standard components of an Engagement Letter for the divestment of a business from Nash Advisory. For full details and an understanding of our scope of works, please reach out to our team for a discussion at [email protected].
Overviews of each section are denoted in this format
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
1 January 2022
Project Block Contact Person, [email protected] Project Block, CEO Company Address
By Email: [email protected]
Project: Block Appointment of Nash Advisory to assist with the divestment of Project Block.
1. Background
A high-level overview of the Engagement, parties and scope of works.
2. Scope of the Engagement
A detailed overview of the scope of works we agree with you to undertake as part of our Engagement. An overview of a selection of services is provided below.
Nash Advisory does not provide key services and the Company is expected to engage external parties to manage Accounting, Legal and Taxation advice. Nash Advisory supports the Company by liaising and working with all advisors during the transaction.
Timeline and process
Nash Advisory provides an overview of the expected timeline for completing the Transaction. This may be subject to change depending on a number of factors, including availability of information, market factors and investor engagement.
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3. Professional Fees
Nash Advisory is typically engaged on a retainer and success fee basis.
4. Nash Team
Nash Advisory commits our team members to the transaction and provides dedicated senior resources to each Client, supported by the team of analysts and senior analysts as appropriate. The team members are set out here.
5. Information and Communication
It is imperative that during a Transaction, any information related to the Engagement is shared with Nash Advisory. As such we ask that the Company keep Nash Advisory informed of key information as it becomes aware of it.
6. Termination
Both the Company and Nash Advisory have the right to Terminate the Engagement, however key clauses of the Engagement Letter, such as Confidentiality, remain in place beyond Termination of the Engagement.
7. Confidentiality
Both the Company and Nash Advisory must keep the terms of this Engagement confidential.
8. Indemnity
A standard indemnification clause exists for each Engagement Letter.
9. Variation
Subject to both parties agreeing, terms of this Engagement Letter may be varied from time to time.
10. Exclusivity
It is a requirement that each Engagement is treated as exclusive to Nash Advisory for those services listed in the Scope, while the Engagement is ongoing.
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11. Non-circumvention / subsequent transactions
A standard non-circumvention clause is required as part of the Engagement Letter, subject to a pre- agreed timeframe. This clause has been redacted.
12. Acceptance
This letter sets out the terms and conditions Nash Advisory would like to agree with you to perform the Services for the Company.
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
To discuss any element of this Engagement Letter or to learn more, please reach out to us at [email protected]
3 Project Block Request For Information
Sample Request For Information Document Request for information - Project Block IM - Information Memorandum, DD - Due diligence
# Item Description Purpose Priority Status Nash Advisory Comment Project Block Comment
1. Company information 1.01 Corporate structure Diagram outlining all the corporate entities, if more than one, wholly or partially owned (or a related party) by Project Block including the relative IM Medium Not started ownerships of each entity by shareholder or shareholder group 1.02 Constitution Company constitution for all relevant corporate entities DD Low Not started 1.03 Shareholder Agreement Copy of the current Shareholders Agreement (if applicable), including any amendments or side letters IM Medium Not started 1.04 Asic documents Certificate of registration and current company extract for all relevant corporate entities DD Low Not started 1.05 Board Reports Copy of last 6 Board reports and Minutes, if available IM Medium Not started 2. Financial information 2.01 Management accounts - Historical P&L Detailed historical profit and loss management accounts showing GL level accounts for the last 4 financial years and current FY YTD. Please provide in IM High Not started Preference for excel (e.g. report format from MYOB / Xero) excel in a monthly multi-period format 2.02 Management accounts - Historical Detailed historical balance sheet management accounts showing GL level accounts for the last 4 financial years and current FY YTD. Please provide in IM High Not started Preference for excel (e.g. report format from MYOB / Xero) balance sheet a monthly multi-period format 2.03 Management accounts - Historical cash Detailed historical cash flow statement for the last 3 years IM High Not started flow statement 2.04 Statutory accounts Statutory financial statements for the last 4 financial years IM High Not started 2.05 Current FY and next 2 FY Budget (3-way Detailed P&L budget by GL code shown in a monthly multi period format. The budget should include all relevant workings and assumptions used IM High Not started Preference for excel models if available) 2.06 Business Plan Copies of any business plans for the next 3 to 5 years IM High Not started 2.07 Accounting Policies Please provide summary of accounting policies (Aged debtors - collection policy, Aged creditors - payment terms, Revenue - recognition, etc) IM Medium Not started 2.08 Aged debtors Current aged debtor report by debtor IM Low Not started Preference for excel (e.g. report format from MYOB / Xero) 2.09 Aged creditors Current aged creditor report by creditor IM Low Not started Preference for excel (e.g. report format from MYOB / Xero) 2.10 Inventory A breakdown of inventory by product (including product code, name, cost. Quantity, value, age and expiration date) IM Medium Not started If this is available at daily periods, please provide 2.11 Obsolescence Obsolescence provision (if applicable) and details of calculation / methodology IM Low Not started Including the value of products discarded due to expiry over the past 4 financial years 2.12 Fixed asset register Detailed fixed asset register identifying asset name, purchase date, opening book value, accumulated depreciation, depreciation method, current book IM High Not started value and location of asset 2.13 Intangible asset register Detailed register of all intangible assets including business names, trademarks, domain names, software or any other intangibles and accumulated IM Low Not started amortisation if applicable 2.14 Abnormal expenses /normalisations Provide a list of any abnormal or one off expenses in the last 4 prior financial years, including a detailed description of the nature of the expense incurred IM High Not started Expenses that have been incurred to the business however do not relate to the business activities of Project Block. These amounts will be assessed and adjusted to formalise the true earnings of the business 2.15 Income Tax Returns Income tax returns for the last 4 financial years IM High Not started 2.16 BAS, FBT, PAYG FBT, BAS Statements and PAYG Statements for the last 3 years IM Low Not started 2.17 Bad Debt Details about bad debts across the last 4 financial years and FY YTD, If any IM Medium Not started 3. Customer/Product/Competition 3.01 Customer Contracts Copy of standard customer contract / agreement IM High Not started Please detail any terms for customers regarding rebates credit terms, pricing, discounts 3.02 Customer Revenue Breakdown Breakdown of revenue by customer for the last 4 financial years and current FY YTD IM Medium Not started Preference for excel 3.03 Product Revenue Breakdown Breakdown of revenue by product for the last 4 financial years and current FY YTD IM Medium Not started Preference for excel 3.04 Product Volume Breakdown Details of unit volumes sold per product per month for the last 4 financial years and current FY YTD IM Medium Not started Preference for excel 3.05 Master Product/Category List Please provide a detailed current master product/category list. Please also detail how these products are grouped into their respective categories in the IM Medium Not started financials, if applicable 3.06 Product Margin Please provide, if available, margins by product/category IM Medium Not started Preference for excel 3.07 Licenses All Government / Regulatory Licenses required to operate the business IM Medium Not started 3.08 Major Competitors Listing of major competitors in the market IM Low Not started 3.09 SWOT Analysis Please provide a SWOT analysis of Project Block (Strengths of the business, weaknesses of the business, Opportunities available, threats to the IM Low Not started business) 3.10 Growth Initiatives Please provide detail as to all of the growth initiatives available to the business if resources (money, time, staff) were unlimited (E.g. website update, IM Medium Not started marketing, product pivot, etc) 4. Human resources 4.01 Master staff schedule Comprehensive listing of all current staff including, name, date of birth, date of commencing employment, employment type (salary/wage), annual IM High Not started remuneration, hourly rates, superannuation, payroll tax, additional package inclusions, accrued entitlements (AL, LSL etc) and description of their role(s) within the business. Please also include any detail around applicable bonuses.
Summary of critical employees (what they do, experience, how long with Project Block, etc) 4.02 Organisational structure Diagram outlining the organisation structure and lines of reporting IM High Not started 4.03 Employment contracts Copies of all signed employment agreements for current staff DD High Not started 4.04 Offer letters Copy of template offer letter issued to new employees DD Low Not started 4.05 Staff awards/EBA Copies of any relevant industry awards IM Medium Not started 4.06 Union activity Copies of any current/draft EBA if applicable. Please also detail any union activity within the current workforce DD High Not started 4.07 Induction materials Copies off all induction materials provided to new staff DD Low Not started 4.08 Code of conduct Copy of staff code of conduct policy DD Low Not started 5. Supplier/third party contracts 5.01 Key supplier summary Summary spreadsheet showing in descending order key suppliers by $ value for LTM period and including a description of the suppliers product/service IM Medium Not started 5.02 Supplier Terms / Contracts Detail/copies of terms of any supplier terms/agreements/contracts in relation to the inputs of the manufacturing process IM Medium Not started 5.03 Import/Input Costs Details about the manufacturing & input costs for manufacturing per product (what materials are required, quantity, cost, etc.) IM Medium Not started 6. Marketing collateral and social media 6.01 Marketing documents Data dump/copies of all graphical and written information used to promote the products/business IM Medium Not started 6.02 Marketing Collateral Digital copies of all current brochures/marketing collateral, including any media (online/newspaper/tv) published about the organisation since inception IM Medium Not started
6.03 Social media summary Summary of activity across all social media networks, including numbers of members/followers IM Low Not started 6.04 Marketing campaigns Summary of all recent marketing campaigns on either social media or other marketing mediums, including success rate, and detail as to how this is IM Low Not started Management have indicated this is very limited. The intent of this tracked request is to show that 6.05 Awards Any documentation or collateral of the organisation or its staff winning awards since inception IM Medium Not started 7. Legal, properties and assets 7.01 Property summary Summary table of all current properties including site name, lease expiry, options remaining, annual rent, conditions (outgoing etc), landlord and lettable IM High Not started area 7.02 Property lease agreements Copies of all current lease agreements including any addendums or other written communications with landlords DD Medium Not started 7.03 Asset lease agreements Copies of all asset lease agreements for all equipment and any other leased equipment IM Low Not started 7.04 Intellectual property Copies of all documents relating to the ownership of intellectual property including business names, trademarks, domain names etc DD Low Not started 7.05 Complaints register Register of all complaints (customer, staff or suppliers) for the last 4 financial years and FY YTD DD Medium Not started 7.06 Litigation Details of any current or pending litigation DD Medium Not started 7.07 Insurance Copies of all current insurance policies including details of any current, historical or pending claims IM Low Not started 7.08 Work health and safety Details of any current historical WorkCover/WorkSafe claims IM High Not started 7.09 Hazards and injuries Copy of hazard/indecent register for the last 4 financial years and FY YTD IM High Not started 7.10 Other Permits / Licenses / Accreditations Please provide copies of any other permits/licences/industry accreditations/industry standards required to operate, or currently held, by Project Block IM Medium Not started
7.11 Procedures Please provide copies of all relevant procedures, specifically relating to the operations of the business DD Low Not started 8. IT 8.01 IT structure Provide a diagram showing the interaction of the organisations software and systems DD Low Not started 8.02 Software summary Summary of all key software/subscriptions used within the organisation IM Low Not started 8.03 Security and disaster recovery Details of security procedures in place and disaster recovery plan DD Low Not started Project Block Valuation
Sample Valuation Analysis Valuing Project Block
Middle market companies are generally valued using two common methods. For Project Block, we have used a blend of both the transaction and trading multiples approach in our analysis. These methods are highlighted below.
Valuation Methodology Valuation Methodology Explanation Valuation Comments
Trading multiples A relative valuation method used to compare the current Public trading comparables can be difficult to incorporate when valuing a privately owned and (public company value of the business to other similar businesses whose operated business, such as Project Block. comparables) equity is listed on public stock exchanges, and as such whose information is publicly available. The most common Larger listed companies tend to operate in many parts of the supply chain across many comparable is looking at the current value of a business as a industries, and produce a wider range of products. As well, listed companies tend to trade at function of its earnings (commonly via a business’ EV / higher multiples compared to privately owned companies due to the enhanced size and EBITDA or EV / EBIT multiple). scalability, greater access to capital, a diversified strategy and increased liquidity. As a result, when assessing trading multiples we often apply discount factors to correct for these differences.
Transaction Multiples Another form of relative valuation is utilising recent The transaction multiples provide a better view of value as it includes both public and private (precedent M&A comparative sales of similar companies (M&A transactions). company transactions. There is also a stronger alignment to the characteristics of Project Block transactions) Similar data is captured to public trading comparables, such based on the size of these transactions and the operations of the businesses. as earnings multiples. Depending on each situation, discount factors (and premiums) can be applied to adjust for company-specific risks and differences.
2 Public Company Analysis: Trading Multiples - Detail
Outlined below are the trading multiples (EV/ Sales and EV/EBITDA) of selected comparable listed companies.
Trading Multiple – EV / Sales (LTM) and EV / EBITDA (LTM) Business Overview
Market Cap Enterprise Ticker Business Description - 5.0x 10.0x 15.0x 20.0x 25.0x ($m) Value ($m)
1.1x Bega Cheese manufactures, processes and distributes dairy and other food related products in Australia, it operates ASX:BGA ASX:BGA $1,782.5 $1,641.8 two segments: Branded and Bulk. The Branded segment manufactures bulk ingredients into value added consumer 16.5x products, while the Bulk segment manufactures dairy ingredients, nutritional and bio nutrients products.
2.2x Campbell Soup manufactures and markets food and beverage products, it operates two segments: Meals & NYSE:CPB Beverages and Snacks, in United States and Canada. The Meals & Beverage segment provides ready-to serve NYSE:CPB $19,231.4 $26,098.9 11.6x soups, broth, stocks, non-dairy beverages and pasta. While the snacks segment retails a range of cookies, crackers, bakery and frozen products. Popular brands include Kettle, Pretzel Crisps and Lance. 2.7x NYSE:GIS General Mills manufactures and markets branded consumer foods worldwide, it offers a wide range of food products 12.1x NYSE:GIS $49,802.8 $65,295.6 such as cereals, soup, meal kits, snack bars, nutrition bars and more. It owns more than 100 brands across six continents, popular brands include Nature Valley, Yoplait, Cheerios, Bisquick and Oatmeal Crisp. 2.2x NYSE:K Kelloggs manufactures and markets ready-to-eat cereals and convenience foods globally. It sells products such as 12.8x NYSE:K $29,028.3 $39,947.8 crackers, pastries, cereal bars, ready-to-eat cereals, waffles and more. Popular brands include Kashi, Nutri-Grain, Pop-Tarts, LCMs. It sells its products through retailers or directly. 3.9x Nasdaq:MDLZ Mondelez International focuses on manufacturing, marketing and selling of snack food and beverages worldwide. It 17.7x Nasdaq:MDLZ $114,873.1 $138,393.2 sells products such as biscuits, crackers, chocolates, cheese, crackers and more. It owns popular brands such Cadbury, Toblerone, belVita, Oreo and more. 4.1x SWX:NESN Nestle is a food and beverages company that sells products globally, it offers products such as baby foods, cereals, 20.2x SWX:NESN $460,388.8 $506,733.9 coffee, healthcare nutrition, pet and frozen foods. Some of the well-known brands it owns include Nespresso, KitKat, Nesquik, Milky bar, Milo and more. 2.4x NYSE:POST Post Holdings operates as a consumer packaged goods holding company in the United States and internationally, 13.0x 17.9 x NYSE:POST $9,418.7 $18,169.8 through its five segments: Post Consumer Brands, Weetabix, Foodservice, Refrigerated Retail and BellRing Brands. It sells through grocery stores, mass merchandise customers, club stores, ecommerce channels and other retailers. 4.6x NYSE:HSY The Hershey company manufactures and sells confectionary products and pantry items such as chocolate, non- 17.1x 17.9 x NYSE:HSY $46,425.7 $51,082.1 cholate confectionary, chewing gums, bars, protein bars and other snacks. Its popular brands include Reese's, Kisses, ONE Bar, Twizzlers.
EV / Sales EV / EBITDA 3 Public Company Analysis: Underlying Data
Public Company Data Share Price Progression +/- (from 1/1/2020)
LTM ($m) LTM Industry Stability Indicator 160.0 Ent. EV / EV / EV / Company Value Sales EBITDA EBIT Sales EBITDA EBIT ($m) 140.0
1,641.8 1,459.8 99.7 60.9 1.1x 16.5x 27.0x 120.0
26,098.9 11,708.3 2,256.8 1,838.8 2.2x 11.6x 14.2x 100.0
65,295.6 24,143.5 5,402.4 4,634.0 2.7x 12.1x 14.1x 80.0
39,947.8 18,333.7 3,119.2 2,495.9 2.2x 12.8x 16.0x 60.0 Bega Cheese Limited Campbell Soup Company 138,393.2 35,622.5 7,813.8 6,310.7 3.9x 17.7x 21.9x General Mills, Inc. Kellogg Company 40.0 Mondelez International, Inc. Nestlé S.A. Post Holdings, Inc. The Hershey Company 506,733.9 124,061.6 25,031.8 21,309.1 4.1x 20.2x 23.8x 20.0 COVID-19 pandemic 18,169.8 7,474.8 1,392.9 896.3 2.4x 13.0x 20.3x 0.0
51,082.1 11,057.0 2,978.8 2,581.5 4.6x 17.1x 19.8x
606.1 618.4 (65.2) (85.7) 1.0x (9.3x) (7.1x) Commentary The share price progression indicates the sharp decline, stabilisation and recovery of the
134.8 49.1 0.5 (1.6) 2.7x 275.2x (81.8x) sector, with majority of tracked companies returning positive performance for the period reviewed. We suspect prices recovered quickly as there was still strong demand for these dairy, consumer staple food products during lockdown periods. 40.7 38.1 (4.9) (6.5) 1.1x (8.3x) (6.3x) The most comparable publicly traded businesses are Bega Cheese, Freedom Foods and The Food Revolution Group who are the closest in size or specific industry to Project Block. 4 Transaction Analysis Listing – Comparables
Multiples in the market remain strong despite difficult trading environments and profit impacts. In assessing the market and collating information regarding comparable acquisitions, the list below shows those which were both relevant, and had sufficient data published to allow for analysis to occur. Importantly, while the data suggests a wide range for EV / EBITDA multiples, the relevant metrics are for those in the food & beverages sector with a sub $500m EV, and in particular those focused in Australia or other western countries.
Sales EBITDA Enterprise Target Acquirer Date Geography EV / Sales EV / EBITDA ($m) ($m) Value ( $m)
Certain Assets of Vitner's brand Utz Quality Foods, LLC 2021 United States 32.5 4.4 32.5 1.0x 7.4x
Gastronomica Roscio s.r.l. Dea Capital Alternative Funds SGR SpA 2020 Europe 47.1 8.1 101.6 2.2x 12.5x
System Frugt A/S Midsona AB (publ) (OM:MSON B) 2020 Europe 88.3 5.5 46.5 0.5x 8.4x
Superior Cake Products, Inc. Sara Lee Frozen Bakery 2019 US and Canada 62.7 10.2 94.7 1.5x 9.3x
Productos Alimenticios Gallo S.L. IPA Capital, S.L.U. 2019 Europe 321.9 - 365.4 - 10.0x
Natra, S.A. World Confectionery Group S.à r.l. 2019 Europe 607.3 54.3 464.8 0.7x 8.1x Synlait Milk Limited (NZSE:SML) The a2 Milk Company (New Zealand) Limited 2017 Australia 601.4 77.6 44.7 1.2x 9.1x
Patties Foods Limited PEP Services Pty Ltd 2016 Australia 245.0 27.7 256.4 1.1x 9.2x
5 Comparable Company Analysis – Summary Using the results from both the trading and transaction multiples analysis (provided below), we have provided a valuation range for Project Block
► The lower end of the valuation range has been determined by taking the average of the Q1 data points of both trading and transactional data. ► The upper end of the valuation range has been determined by taking the average of the Q3 data points of both trading and transactional data. ► A 30% discount is applied to the multiples as Project Block as it is a small private company (compared to the data set)
Valuation Range:
Lower Mid Upper EV / 1.1x 1.2x 1.4x Sales EV / 7.5x 8.1x 8.7x EBITDA
*Refer to Appendix for summary of comparable sales data 6 Summary of Information
Summary of the comparable valuation data EV / Revenue Multiples Results
► The graphs to the right provide a summary of the comparable trading and transaction ranges Trading 1.5x 1.8x ► We have also included an indicative value range (in red) which gives a further refined multiple range for EV / EBITDA and EV / Sales – this sits between 7.5 – 8.5 times EV / EBITDA which is a more accurate metric to use (compared to EV/Sales).
► Given Project Block has a FY21 normalised EBITDA of $7.6m, we have estimated Transactional 0.7x 0.9x the valuation for various sale structures (partial, 50% and full divestment). Indicative Range
- 0.2x 0.4x 0.6x 0.8x 1.0x 1.2x 1.4x 1.6x 1.8x 2.0x Discount / Estimated proceeds from Shareholding Value range Premium for Sale – assuming Project Transaction Multiples Results control Block EBITDA of $7.6m
Trading 8.6x 10.9x Sale of 33% of 7.5 – 8.5 times -20% $15.0m - $17.1m Project Block EBITDA
Sale of 50% of 7.5 – 8.5 times 0% $28.5m - $32.3m Project Block EBITDA Transactional 6.4x 6.5x Indicative Range Sale of 100% of 7.5 – 8.5 times Project Block 20% $68.4m - $77.5m EBITDA - 2.0x 4.0x 6.0x 8.0x 10.0x 12.0x
7 Indicative Valuation
Through analysis of transaction comparables, Nash Advisory have arrived at an indicative valuation of $68.4m to $77.5m (7.5x-8.5x EV/EBITDA)
Indicative valuation Comments
► An EV / EBITDA multiple of 7.5x - 8.5x results in a total enterprise value of $68.4m – $77.5m
► To arrive at this valuation, we have identified the most appropriate transaction comparables from the extended list in the Appendix $77.5m ► The summary statistics of this dataset identified a potential range for the EV / EBITDA multiple of Project Block
► We have applied Project Block’s FY21 normalised EBITDA of $7.6m to the lower and upper end of this range
► This EV/EBITDA multiple reflects a 30% discount for the size of the Project Block business
► However, a 20% control premium is applied to this valuation $68.4m reflecting the control premium if 100% of Project Block was to be sold
8 Appendix Appendix - Listed Peers Analysis
Project Block’s listed peers are currently trading at a median forward EBITDA multiple of 13.5x. A discount is applied when comparing private companies to public companies for the purposes of this valuation due in large part to the listed peers’ more diverse product type, larger business size, business diversification (operating across several parts of the supply chain), increased liquidity and/or broader geographic presence.
Project Block listed peers analysis - EBITDA trading multiples
25.0x
20.2x 20.0x 18.4x 17.7x 17.7x 17.4x 16.5x 17.1x
15.0x 13.7x 12.8x 13.2x 13.0x 12.0x 12.1x Median = 14.8x 11.6x 11.7x 11.4x Median = 13.5x
10.0x
5.0x
0.0x Bega Cheese Campbell Soup General Mills Kellogg Mondelez International Nestle Post Holdings The Hershey Current EBITDA Multiple Forward EBITDA multiple
10 Appendix - Listed Peers Valuation Data
Below is a list of valuation metrics for Project Block’s listed peers Headquarters Last Share LTM Forward Forward TEV/ FY20 TEV/ FY21F TEV/FY20 TEV/FY21F Ticker Company Price Market cap Net Debt Total EV LTM Rev EBITDA LTM EBIT EBITDA EBIT EBITDA EBITDA EBIT EBIT $AUD $AUDm $AUDm $AUDm $AUDm $AUDm $AUDm $AUDm $AUDm x x x x ASX:BGA Bega Cheese Limited Australia 5.99 1,782.5 (140.7) 1,641.8 1,459.8 99.7 60.9 137.0 71.4 16.5x 12.0x 27.0x 23.0x
NYSE:CPB Campbell Soup Company United States 63.47 19,231.4 6,937.5 26,098.9 11,708.3 2,256.8 1,838.8 2,229.8 1,823.4 11.6x 11.7x 14.2x 14.3x
NYSE:GIS General Mills, Inc. United States 81.65 49,802.8 14,383.7 65,295.6 24,143.5 5,402.4 4,634.0 4,754.2 3,931.4 12.1x 13.7x 14.1x 16.6x
NYSE:K Kellogg Company United States 85.25 29,028.3 10,433.2 39,947.8 18,333.7 3,119.2 2,495.9 3,023.5 2,338.5 12.8x 13.2x 16.0x 17.1x NasdaqGS:MDLZ Mondelez International, Inc. United States 81.78 114,873.1 23,819.7 138,393.2 35,622.5 7,813.8 6,310.7 7,799.0 6,408.7 17.7x 17.7x 21.9x 21.6x
SWX:NESN Nestlé S.A. Switzerland 163.46 460,388.8 45,902.8 506,733.9 124,061.6 25,031.8 21,309.1 27,472.8 22,343.1 20.2x 18.4x 23.8x 22.7x
NYSE:POST Post Holdings, Inc. United States 148.02 9,418.7 8,917.4 18,169.8 7,474.8 1,392.9 896.3 1,592.2 1,045.0 13.0x 11.4x 20.3x 17.4x NYSE:HSY The Hershey Company United States 224.28 46,425.7 4,727.2 51,082.1 11,057.0 2,978.8 2,581.5 2,938.9 2,547.9 17.1x 17.4x 19.8x 20.0x ASX:FNP Freedom Foods Group Limited Australia 0.40 112.2 493.9 606.1 618.4 (65.2) (85.7) ------ASX:MBH Maggie Beer Holdings Limited Australia 0.39 136.7 (1.9) 134.8 49.1 0.5 (1.6) - - 275.2x - - - The Food Revolution Group ASX:FOD Limited Australia 0.03 28.9 11.8 40.7 38.1 (4.9) (6.5) ------Min 11.6x 11.4x 14.1x 14.3x Q1 12.8x 11.9x 15.6x 17.0x Average 44.0x 14.5x 19.6x 19.1x Median 16.5x 13.5x 20.0x 18.7x Q3 17.7x 17.5x 22.4x 21.9x Max 275.2x 18.4x 27.0x 23.0x
11 Appendix - Recent Transactions with EV / EBITDA
The next two slides provide a broad set of transaction comparables with a reference point for EV / EBITDA. Revenue EBITDA EV / Date Acquirer Target Target Region Target Description EV ($M'AUD) EV / EBITDA ($M'AUD) ($M'AUD) Revenue 2021 Utz Quality Foods, LLC Certain Assets of Vitner's brand United States Manufactures and sells various snack foods 32 32.5 4.4 1.0x 7.4x 2020 Dea Capital Alternative Gastronomica Roscio Europe Manufactures chilled and frozen meals 101.6 47.1 8.1 2.2x 12.5x Funds SGR SpA 2020 Malfors Promotor A.B. Cloetta AB (publ) (OM:CLA B) Europe Manufacturer of confectionary and chocolate products 1,442.2 926.8 131.1 1.5x 10.7x 2020 Midsona AB (publ) System Frugt A/S Europe Processes and packs fruits, nuts and dried snacks 46.5 88.3 5.5 0.5x 8.4x (OM:MSON B) 2020 Coca-Cola Europacific Coca-Cola Amatil Limited Australia Produces and sells beverages 9655 4,791.1 855 2x 14x Partners PLC (ENXTAM:CCEP) 2019 KKR & Co. Inc. Arnott's Biscuits Holdings US and Canada Manufactures snacks and soups 3,237.08 - - - (NYSE:KKR) 6.5x 2019 Sara Lee Frozen Bakery Superior Cake Products, Inc. US and Canada Produces and supplies sweet baked goods 94.74 62.67 10.2 1.5x 9.3x 2019 IPA Capital, S.L.U. Productos Alimenticios Gallo Europe Manufactures pastas and pasta sauces 365.35 321.9 - - 10.0 S.L. 2019 Saputo Inc. (TSX:SAP) Dairy Crest Group Limited Europe Manufactures branded dairy products and flavoured snack bars 2,233.49 851.61 216.36 2.6x 10.1x 2019 World Confectionery Natra, S.A. Europe Manufactures chocolate products and cocoa products 464.79 607.26 54.29 0.7x 8.1x Group. 2018 Ziolopex Sp. z o.o Colian Holding S.A. Europe Manufactures a range of confectionery products 374.11 30.48 0.7x 9.2x 2018 Conagra Brands, Inc. Pinnacle Foods Inc. US and Canada Manufactures and distributes branded convenience food products 14,903.65 4,105.37 857.99 3.5x 16.5x (NYSE:CAG)
This is an indicative list only. Nash Advisory selected the most relevant of these transactions to value Project Block 12 Appendix - Recent Transactions with EV / EBITDA
Revenue EBITDA EV / Date Acquirer Target Target Region Target Description EV ($M'AUD) EV / EBITDA ($M'AUD) ($M'AUD) Revenue 2017 Campbell Soup Company Snyder's-Lance, Inc. US and Canada Manufactures and distributes snack food products 7,999.86 2,844.42 358.9 2.7x 21.7x (NYSE:CPB) 2017 The Hershey Company Amplify Snack Brands, Inc. US and Canada Manufactures better-for-you snack products 2,001.98 473.77 105.09 4.1x 18.5x (NYSE:HSY) 2017 Groupe Lactalis S.A. Stonyfield Farm, Inc. US and Canada Produces and sells organic yogurt 1143.8 483.66 - 2.4x 20x 2017 Tyson Foods, Inc. AdvancePierre Foods Holdings US and Canada Manufactures ready to eat meals 5,920 2,063 334 2.8x 17.0x (NYSE:TSN) 2017 Post Holdings, Inc. Weetabix Limited Europe Produces and sells wholegrain breakfast cereals 2,366 693 202 3.4x 11.7x (NYSE:POST) 2017 The a2 Milk Company Synlait Milk Limited Australia Manufactures and sells dairy products 44.74 601 77 1.2x 9.1x (New Zealand) Limited (NZSE:SML) 2017 Saputo Inc. (TSX:SAP) Warrnambool Cheese And Australia Produces and sells dairy products 83 672 41 1.0x 16.6x Butter Factory Company Holdings Limited 2016 Utz Quality Foods, LLC Golden Enterprises, Inc. US and Canada Produces and distributes snack products 192 185 11 1.1x 16.3x 2016 PEP Services Pty Ltd Patties Foods Limited Australia Manufactures and markets frozen food products 256 244 27 1.1x 9.2x
This is an indicative list only. Nash Advisory selected the most relevant of these transactions to value Project Block 13 Appendix - Recent Transactions without EV / EBITDA
The next two slides provide a broad set of transaction comparables without a disclosed EV / EBITDA Revenue EBITDA EV / Date Acquirer Target Target Region Target Description EV ($M'AUD) EV / EBITDA ($M'AUD) ($M'AUD) Revenue 2021 Barambah Organics Pty Five:am Life PTY LTD Australia Produces and distributes yogurt and other dairy products - 4.08 - - - Ltd. 2021 Herba Foods SLU Indo European Foods Ltd United States Manufactures and sells premade meals 36.6 - 0.2x - 2021 S-Ventures Plc Ohso Chocolate Limited Europe Manufactures and sells Belgian chocolates - - - 1.3x - 2021 Neptune Wellness Sprout Foods, Inc. United States Manufacturers and sells organic foods 73.8 36.2 - 2.0x - Solutions Inc. (TSX:NEPT) 2021 Patties Foods Limited Leal Developments Pty Ltd Australia Produces and sells ready to eat meals - - - - - 2021 Mondelez International, Gourmet Food Holdings Pty Ltd Australia Produces and sells a range of packaged food products 458 - - - - Inc. (NasdaqGS:MDLZ) 2020 Arnott's Biscuits Limited Cereal and Snacks operations Australia Produces and sells snacks and cereals 20 - - - - of Freedom Foods Group Limited 2020 Bega Cheese Limited Lion-Dairy & Drinks Pty Ltd Australia Produces and sells food, dairy, and beverage products 534 1,689 - - - (ASX:BGA) 2020 SPC Ardmona Limited The Kuisine Company Pty Ltd Australia Produces frozen prepared meals and finger-food - - - - - 2020 Tanarra Capital Pty Ltd Barambah Organics Pty Ltd. Australia Produces organic dairy products - - - - - 2020 Extramile Trading Pty Ltd Marsh Dairy Products Pty Ltd Australia Wholesaler and distributor of dairy products - - - - - 2020 Houston's Farm Pty Ltd Sunfresh Salads Pty Ltd Australia Produces salads and side dishes 40 - - - - 2020 Barry Callebaut AG GKC Foods (Australia) Pty Ltd Australia Produces chocolate and chocolate related products - - - - - (SWX:BARN) 2019 Froyo Robotics Pty Ltd Lumi Impossibly Good Pty Ltd Australia Manufactures dairy-free fruit-based ice creams - - - - - This is an indicative list only. Nash Advisory selected the most relevant of these transactions to value Project Block 14 Appendix - Recent Transactions without EV / EBITDA
Revenue EBITDA EV / Date Acquirer Target Target Region Target Description EV ($M'AUD) EV / EBITDA ($M'AUD) ($M'AUD) Revenue 2019 Groupe Lactalis S.A. Lemnos Foods P/L Australia Manufactures cheeses and dairy products 48 - - - - 2019 Bega Cheese Limited Hummingbird Superfoods Pty Australia Manufactures breakfast blended foods - - - - - (ASX:BGA) Ltd 2019 Global Brands Australia Celebrity Slim Brand Australia Manufactures weight loss shakes - - - - Pty Ltd 2019 Yarra Valley Snack Foods Consolidated Businesses of Australia Manufactures natural snack foods - - - - - Pty. Ltd. URC Oceania Company Limited 2019 Lamb Weston Holdings, Ready Meals Pty Ltd Australia Manufactures ready made frozen meals 168 - - - - Inc. (NYSE:LW) 2019 Nisshin Seifun Group Inc. Allied Pinnacle Pty Limited Australia Manufactures specialty baked goods 950 - - - - (TSE:2002) 2018 Lamb Weston Holdings, Marvel Packers Pty Ltd Australia Manufactures frozen potato chips 90 - - - - Inc. (NYSE:LW) 2018 Krispy Kreme Doughnut Krispy Kreme Australia Pty Australia Produces and sells doughnuts - - - - - Corporation Limited 2018 MAdE Establishment Pty Yotopia Pty Ltd Australia Produces and processes frozen flavored yogurt - - - - - Ltd 2018 Quadrant Private Equity Darrell Lea Confectionery Co. Australia Produces confectionary products 200 81 - - - Pty Limited Pty. Ltd. 2017 Australia Zhiran Co. Pty Brownes Foods Operations Pty Australia Produces and distributes dairy products - - - - - Ltd Ltd. 2017 Bega Cheese Limited Peanut Company of Australia Australia Purchasing and processing of peanuts 35 528 -0.3 0.67x - (ASX:BGA) Limited 2017 Allegro Funds Pty Ltd Everest Foods PTY LTD Australia Manufactures and distributes ice cream and related products 30 - - - -
This is an indicative list only. Nash Advisory selected the most relevant of these transactions to value Project Block 15 Project Block Buyers Universe
SAMPLE BUYERS LIST Potential Buyer Universe
Project Block (FMCG business) is likely to draw interest from a range of international and local trade buyers. Nash Advisory would present the opportunity to acquire Project Block to Tier 1 public and private potential acquirers
Nash Advisory believes that shareholder value and transaction certainty will be maximised with an acquirer which is a strong fit with the below criteria: 1. Trade player with strong alignment with product/manufacturing operations – The acquirer has an existing understanding of Project Block product offering and customer base, they are comfortable to take ownership with founders exiting. This will preclude the majority of Private Equity (“PE”) buyers from participating in the process. PE buyers with existing platform assets in the sector may be interested in acquiring Project Block 2. High level of financial capacity – Buyer is well capitalised and the acquisition of Project Block is likely to be earnings accretive (trading multiple arbitrage) 3. Historically acquisitive at SME level – Demonstrated historical interest and capability to execute transactions below $100m in value 4. Existing operations in Australia – Project Block is less likely to be attractive to international companies looking for a platform asset to acquire for the purpose of Australian market entry. It is more likely that strategic acquirers have existing operations in Australia for which Project Block will be a bolt-on acquisition. This also allows for greater realisation of synergies
Example Tier 1 Public acquirers Example Tier 1 Private Companies
Note: Bidders are illustrative only. Nash Advisory agree target bidders in consultation with Project Block prior to approaching parties. Potential Buyer Universe
Shareholders should consider the characteristics of both trade and private equity (“PE”) buyers who may participate in the divestment process
Trade Small PE Big PE
Strategic rationale to ► Project Block is complementary to their rolling global acquisition ► Invest in Project Block, increase scale and earnings over 3 – 5 ► Will only be interested in acquiring Project Block if they have an acquire Project strategy years existing platform asset in the sector Block ► Access to manufacturing facilities with unused capacity ► Exit the business to a global trade acquirer at a multiple which is ► The acquisition creates an immediate value increase through higher than what could be achieved today multiple arbitrage (e.g buy at 5x, consolidate, sell at 8x) ► High potential for synergies
► Some potential for synergies
Valuation ► Typically, trade can pay the highest value due to the level of ► Cannot overpay on entry as they have relatively high return ► Must have a significant value arbitrage between acquisition synergies and capital available expectations on exit metrics for Project Block and their platform asset
Speed of transaction ► Large trade acquirers will have dedicated M&A teams. However, ► Can move quickly on opportunities that are attractive ► Will move very quickly if they believe that the business is a fit with they will typically move slowly relative to PE buyers existing portfolio assets ► Will take some more time to complete a transaction relative to big
► Will likely have a rigid investment process requiring global board PE due to increased negotiation requirements (e.g shareholder ► Typically this buyer group will protest against participating in a approval (depending on size). These parties will have limited agreements) competitive process for a bolt-on acquisition. They may try to put flexibility in meeting timelines timing pressures back onto Project Block
Management/ ► Require competent business management team ► Will need a senior executive team capable of creating and ► Require competent business management team founder / owner executing on strategic growth plan ► Founder / owner exit is manageable ► Founder / owner exit is manageable buy may require some requirements ► Will need management to have financial exposure to the business contractual protections for the buyer (e.g earnouts or deferred (‘skin in the game’) payments)
Potential transaction ► Most likely: 100% clean exit on completion with a short ► Most likely: 50% - 70% divestment on completion with a ► Most likely: 100% exit on completion but subject to a small - structure transitional period commitment for 2 – 3 years to drive earnings growth. Secondary medium earnout payment and a 12 month transitional period exit event to a trade player in 3 – 5 years time at a substantially ► Possible structure: 100% exit on completion but subject to a high valuation small earnout payment and a 12 month transitional period Example Tier 1 International Buyers
Selected tier 1 potential investors are outlined on this page. We believe these parties are likely strategic acquirers for Project Block
Tier 1 acquirer Buyer Type Alignment of Products Financial capacity Past Acquisitions
Public Trade ► Owns Uncle Tobys, an Australian manufacturer of breakfast cereals, snacks and oats ► Switzerland listed with market ► Xiamen Yinlu Foods Group (2018) capitalisation of $A441.6b ► Terrafertil (2018)
► Trading at ~17.9x forward EBITDA
Public Trade ► Owns Gourmet Food Holdings, an Australian manufacturer of packaged seafood and premium ► NYSE listed with market capitalisation of ► Gourmet Food Holdings Pty Ltd (2021) crackers $A113.1b ► Perfect Bar, LLC (US) (2019)
► Also owns a diverse range of international snacking brands ► Trading at ~17.6x forward EBITDA
Public Trade ► Owns Nature Valley, one of Project Block’s largest competitors ► NYSE listed with market capitalisation of ► Carolina Administracao e Partcipacoes $A49.4b Societarias Ltda (2015) ► Owns more than 100 brands on six continents
► Trading at ~13.7x forward EBITDA ► Annie’s Inc (2014)
Public Trade ► Owns a wide range of snack foods, including muesli bars ► NYSE listed with market capitalisation of ► ONE Brands LLC (2019) $A46.0b ► May be willing to expand into healthy muesli bars and wholefoods ► Amplify Snack Brands (2017)
► Trading at ~17.3x forward EBITDA
Public Trade ► Owns several bar brands and can strengthen its healthy snacks portfolio ► NYSE listed with market capitalisation of ► Chicago Bar company LLC (2017) $A29.1b ► Mass Food company SAE (2015)
► Trading at ~13.3x forward EBITDA
Public Trade ► Owns a portfolio of snack brands such as Kettle, Pretzel Crisps and Lance ► NYSE listed with market capitalisation of ► Kelsen Group (2013) $A19.3b ► Plum (2013)
► Trading at ~11.8x forward EBITDA
Public Trade ► Owns several nutritional and protein bar brands such as Premier protein, Power bar and Joint Juice ► NYSE listed with market capitalisation of ► Snack It Forward LLC (2021) $A9.6b ► Weetabix (2017)
► Trading at ~11.6x forward EBITDA
Note: Bidders are illustrative only. Nash Advisory will agree a potential bidders list with you ahead of market approach Example Tier 1 Buyers
Selected local tier 1 potential investors are outlined on this page. We believe these parties are likely strategic acquirers for Project Block.
Tier 1 acquirer Buyer Type Description Relevant Transactions
Private Trade ► Produces and supplies organic and gluten free snack foods in Australia ► Consolidated Businesses in Australia and New Zealand of URC (2019) ► Offers extruded snacks, vegetable/potato/corn chips, nuts and fruit and seeds
► Operates as a subsidiary of Tyrells Potato Crisps Ltd.
Private Trade ► Manufacturer and distributor of various healthy food brands ► True Capital invested A$49M into Soulfresh in Dec 2019
► Brands include; Nutty Bruce, Lo Bros. Kombucha, The Milk Thief and more
Private Trade ► Manufacturer of nutritious snacks, primarily muesli and roasted nut bars ► N/A
► Exports to over 32 countries
► Direct trade acquirer and Project Block’s largest competitor
Private Trade ► Develops, produces, markets, sells and distributes food products ► Yumi’s Quality Foods Pty Ltd. (2018)
► Offers cereals, sliced and gourmet breads, muffins, bakery snacks, cakes, and animal products ► KR Castlemaine Foods Pty Ltd. (2008)
Private Trade ► Produces and sells breakfast cereal, spreads and vegetarian foods ► N/A
► Rumoured to have Freedom Foods to purchase cereal and snack division, before Arnotts made the purchase
Private Equity / ► Manufacturer of snack food items ► 180Degrees Ltd (2021) Trade ► Active in acquisitions in the food industry ► Cereal and snack operations of Freedom Foods (2020)
► Currently owned by KKR private equity
Private Equity ► Private equity with significant experience in the health foods industry Private Equity ► International firm with a specific Asia-Pacific team Company
Note: Bidders are illustrative only. Nash Advisory will agree a potential bidders list with you ahead of market approach Project Block Working Capital Analysis
Sample Working Capital Analysis Monthly Balance Sheet
Monthly Balance Sheet Working Capital Summary FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 From 01/07/2017 01/07/2018 01/07/2019 01/07/2020 01/07/2021 To 30/06/2018 30/06/2019 30/06/2020 30/06/2021 31/08/2021
Working Capital Analysis
Receivables $381,214 $416,246 $114,234 $5,660 $275,856 Inventory $984,073 $238,875 $246,107 $476,699 $292,263 Prepayments - $154,271 ($387) $1,520 $676 GST Receivable - - - - - Total Assets $1,365,287 $809,391 $359,953 $483,880 $568,795
Payables $62,943 $37,848 $108,464 $18,504 $121,064 GST Payable $33,293 $102,121 $11,795 $45,780 $44,954 Super Expense Payable $11,093 $4,277 $39,320 $13,957 $5,721 Other Liabilities ($7,287) $74,241 $39,605 $5,930 $16,856 Total Liabilities $100,042 $218,487 $199,185 $84,171 $188,595
Net Working Capital $1,265,245 $590,904 $160,768 $399,708 $380,200
2 Working Capital Analysis
Monthly Balance Sheet
Working Capital Summary From To
Working Capital Analysis Target Working Capital Completion Working Capital Adjustment 12-month rolling average 31/08/2022
Receivables $217,589 $275,856 $58,267 Inventory $301,739 $292,263 ($9,476) Prepayments $1,617 $676 ($941) GST Receivable - - - Total Assets $520,945 $568,795 $47,851
Payables ($69,280) ($121,064) ($51,784) GST Payable ($66,625) ($44,954) $21,671 Super Expense Payable ($15,436) ($5,721) $9,715 Other Liabilities ($28,324) ($16,856) $11,468 Total Liabilities ($179,666) ($188,595) ($8,930)
Net Working Capital $341,279 $380,200 $38,921 <-- Positive adjustment in favour of the Sellers
3 Outputs
4 Outputs (cont.)
5 Project Block Flyer
Sample Flyer SAMPLE FOR ILLUSTRATIVE PURPOSES ONLY
Acquisition Opportunity – Premium health food brand with impressive EBITDA margins
Project Block Opportunity Highlights Opportunity to acquire a leading health food Iconic Australian brand with a loyal following business with local manufacturing capabilities and premium reputation and rapidly growing online sales. Strong financial profile, generating $29.7m of sales and $7.6m normalised EBITDA ► Iconic Australian brand renowned for exceptional flavour profile and outstanding nutritional value Long history of organic growth; 18.3% revenue CAGR from FY05 – FY20 ► State-of-the-art manufacturing and distribution facility that produces an annual ROA (EBITDA / Total Assets) of 38% High customer retention; ~77% of online ► Highly diversified revenue base with the top product customers are repeat purchasers generating only 8% ($2.4m) of total sales Omnichannel retailer; ~50% of sales to ► Loyal and repeat customer base who buy direct through the supermarkets, ~33% online and ~17% to business's website independents
► Hyper-personalised shopping experience driving a 20.4% CAGR in online sales over the last four years Strong History of Organic Growth
► Consistent revenue growth spurred by increasing like for like $30m sales and the growing popularity of healthy food and snacks $25m $20m ► Strong and lasting relationships with Australia’s food duopoly (Coles & Woolworths) who have sold Project Block’s products $15m for over 15 years $10m $5m ► An organic brand with limited spend on advertising. The main $0 products never go on sale with promotions reserved only for FY06 FY08 FY10 FY12 FY14 FY16 FY18 FY20 the launch of new products Total Revenue and Underlying EBITDA ► Significant industry tailwinds, multiple growth levers and a $35m 30.0% number of operational quick wins to supercharge the business $30m 25.0% $25m Key Wholesale Customers 20.0% $20m 15.0% $15m 10.0% $10m $5m 5.0% If you wish to receive the Information Memorandum $0 0.0% FY16 FY17 FY18 FY19 FY20 FY21 for Project Block, please sign the Confidentiality Deed for execution and return to Nash Advisory. Total Revenue Normalised EBITDA Normalised EBITDA Margin ($AUDm) FY16 FY17 FY18 FY19 FY20 FY21 For further information, please contact: Revenue $21.06 $23.9 $26.2 $27.6 $28.9 $29.7 Nash Advisory Level 5, 356 Collins St Gross Profit $10.5 $12.2 $13.4 $14.2 $15.0 $15.8 Melbourne Normalised EBITDA $3.7 $4.3 $5.3 $6.3 $7.0 $7.6 T: 1300 206 314 Gross Margin % 50.0% 51.0% 51.0% 51.3% 52.0% 53.0% E: [email protected] Normalised EBITDA % 17.8% 17.9% 20.3% 22.7% 24.2% 25.5% SAMPLE FOR ILLUSTRATIVE PURPOSES ONLY Project Block Information Memorandum
Sample Information Memorandum Project Block Sample Information Memorandum
Strictly Confidential 1 Disclaimer
This document has been created for illustrative purposes only and is not intended to represent any specific business, either in the public or private markets, domestically or internationally. Any resemblance is purely coincidental. The information used to prepare this document has been created for the sole purpose of providing an illustrative example of how an Information Memorandum prepared by Nash Advisory may be presented, and is intended only for use as an example.
In practice, documents prepared by Nash Advisory may differ slightly or materially from this and may include some, all or none of the analysis contained herein.
No reliance should be placed on the accuracy or completeness of the information in this document.
2 Contents
1. Executive Summary 4 2. Business Overview 10 3. Operational Insights 19 4. Growth Opportunities 22 5. Financial 25
3 Section 1 Section 2 Section 3 Section 4 Section 5 Executive Summary Business Overview Operational Insights Growth Opportunities Financials The Company
Introduction Project Block has been providing health food products to Australians for over 15 years. Founded in 2005, the company has grown to become a trusted national brand with an unparalleled product quality.
Operations Since its inception, the company has focused on producing the highest quality health foods with sustainably sourced ingredients. Whilst others in the industry have favoured genetically modified ingredients to achieve consistency and dependability, Project Block has elected to source naturally grown ingredients directly from Australian farmers.
The business operates from a $14m state-of-the-art manufacturing facility and distribution warehouse south of the CBD. These two facilities are next door to each other and are in close proximity to ports, major rail and freight highways.
The Future The three equal shareholders of the business are nearing retirement age and are looking towards the next phase of life. The foundation established by the founders sets out an exciting opportunity to acquire an operating business with strong growth prospects.
5 Process and Key Dates
Nash Advisory Pty Ltd has been appointed by the company to act as the financial adviser in respect of the sale of the Project Block business
Key Milestones Date Key Contacts
IM delivered Week 1 Lucas Couper Nash Advisory Managing Director Level 5, 356 Collins Street T: 1300 206 314 Melbourne VIC 3000 Australia Non-binding indicative offer due Week 5 E: [email protected] www.nashadvisory.com.au
Bidder due diligence Week 13 Sean O’Neill Managing Director Binding bid due Week 15 T: 1300 206 314 E: [email protected]
Signing and closing Week 20
Dates are indicative and subject to change
6 Acquisition Highlights
Robust financial profile generating $29.7m in sales and $7.6m in normalised EBITDA
Long history of impressive organic growth; 18.3% revenue CAGR over the last ten years
Excellent ROA of 38% (EBITDA / Total Assets) in the last financial year
Omnichannel retailer with rapidly growing online sales; 20.4% CAGR in online sales over the last 4 years
Strong industry tailwinds and multiple growth levers to supercharge the business
Experienced, multi skilled and highly driven management team ready to drive profitability for a new owner
7 Business Highlights
The business is showing consistent y.o.y growth, growing margins and is expanding their profitable online sales as a proportion of overall revenue.
Consistent revenue and EBITDA growth | FY16 – FY21 Rapidly growing online sales ($) as a percentage of total sales (%)
$35m 30% 35% $9.8m
$29.7m $30m $28.9m 30% $27.6m 25.5% 25% $26.2m 24.2% $7.5m 22.7% $25m $23.9m 25% 20.3% 20% $21.1m $5.6m $20m 17.9% 20% 17.8% $4.7m 15% $15m 15% $3.4m
10% Sales Total of Percentage $10m 10% $7.6m $6.3m $7.0m $5.3m $4.3m 5% $5m $3.7m 5%
$0 0% 0% FY16 FY17 FY18 FY19 FY20 FY21 FY17 FY18 FY19 FY20 FY21 Total Revenue Normalised EBITDA Normalised EBITDA Margin
8 Why do Consumers Choose Project Block?
Consumers buy Project Block products because they are natural, flavoursome and genuinely healthy. These products are carefully manufactured to exceed benchmarks in nutritional value while maintaining a strong flavour profile.
Purchasing decisions are based on:
100% Australian, Project Block is renowned for its uncompromising commitment to quality. All ingredients are grown in Australia and suppliers are carefully selected based on their natural and ability to exceed best-practice, sustainable farming methods. Consumers are aware of Project Block’s rigorous quality control and choose to buy Project Block sustainably farmed products, in part, to support Australian farmers and suppliers. ingredients
Exceptional flavour Consumers also purchase Project Block products due to a flavour profile superior to competing products. Over fifteen years have been spent perfecting the profile manufacturing process to ensure Project Block is the market leader for taste and flavour.
High nutrition content Project Block’s products not only taste great, but are meticulously crafted to achieve the perfect balance of healthy fats, carbohydrates and proteins. Health-
(% RDI) conscious consumers purchase Project Block products because they know each product boasts exceptional nutritional value for them and their families. Suppliers
9 Section 1 Section 2 Section 3 Section 4 Section 5 Executive Summary Business Overview Operational Insights Growth Opportunities Financials The Project Block Journey
Over the last fifteen years, Project Block has grown to become one of the leaders in its industry, outperforming and ultimately surviving a number of new market entrants.
Business Milestones and Timeline $35m
$30m Acquired small competitor Winners of the SMB $25m Australian Sustainable Invested $14m in current Hired first Food Producer Award facility and distribution warehouse $20m dedicated sales rep Expanded product range outside of muesli Revenue $15m bars
Dip in FY12 & FY13 sales due to a new competitor $10m entering the market. Project Block later acquired this company (FY17) and has continued its impressive growth $5m
$0 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21
11 Product Categories
Project Block has a diverse product range that covers a large portion of the health foods industry, manufacturing ~75 SKU’s across the following product categories:
Muesli Bars Protein Bars Granola Porridge Oats
Biscuits Bliss Balls Trail Mix Nuts and Seeds
Dried Fruit Chips Dried Fruits Other
12 Product Categories – Total Sales
New product development and positive trends in consumer behaviour continue to generate sales growth across each product category. Growth in the granola range has outpaced all other product categories at 8% CAGR over the last three years. Growth in the remaining categories continues to be driven by changing consumer trends, with the business consistently outperforming the wider FMCG market (which consultancy firm McKinsey noted grew at between 1.5% - 2.5% net of M&A and FX and inflation).1
Sales by Product Category $12m Continued growth $10.9m from lead product $10.7m (see page 14) $10m $10.0m
$8m 8% CAGR over three years $6m $4.8m $4.5m $4.7m $4.5m $3.9m $3.9m $4.1m $4m $3.5m $3.7m Potential for a new owner to cross sell new products into $3.0m $3.1m $2.9m these categories $2m $0.8m $1.0m $0.7m $0.9m $0.8m $0.7m $0.7m $0.7m $0.7m $0.5m $0.5m $0 $0.1m Muesli bars Protein bars Granola Porridge oats Biscuits Bliss balls Trail mix Nuts and seeds Dried fruits
1 Perspectives on retail and consumer goods McKinsey Report 2019 FY19 FY20 FY21
13 Product Categories – A Deep Dive into Muesli Bars
Muesli Bars are central to Project Block and have been the foundation of the business since its inception.
Project Block generated $10.9m in revenue from muesli bar sales in FY20. This Top Selling Product Category represents 5.6 million individual muesli bars.
Significant EBITDA While only accounting for 37% of sales, muesli bars contribute to 47% of overall EBITDA. PROJECTContribution BLOCK MUESLI BARS
Over the last six years, muesli bar sales have increased at a 7.2% CAGR. Increased Strong Sales Growth demand for natural and organic products is driving growth across the entire business.
Project Block has a purpose-built manufacturing facility, capable of low and high volume Optimised Manufacturing production. The process is highly automated and can produce up to 8,000 bars / day, Process representing a total sales value of ~$62,000 / day.
14 Overview – Sales by SKU
Constant innovation and product development enables Project Block to stay ahead of consumer trends. Additionally, the business does not rely heavily on one product to drive sales, indicating a diverse and high quality business.
► Nine of the current top ten SKU’s have been on supermarket shelves for 4+ years, allowing the business to establish strong relationships with the major supermarkets and entrench brand recognition within customers.
► Having developed category leaders across the health food industry, Project Block has a strong connection and association as a health food company. In FY20, the top product SKU accounted for only 8% of total sales. This broad and diverse revenue base is highlighted in the pie chart below.
Sales ($) of the Top 10 SKU’s Total sales by Top SKU’s 8.4% $2.5m The majority of the top 10 SKU’s have been on supermarket 12 3.3% 10 shelves for 4 years or more 3.0% 10 $2.0m 2.4% 8 2.3% $1.5m 6 6 2.1% 5 5 5 6 2.1% 4.5 $1.0m 4 4 1.9% 4 1.8% Other 1.8% 2 $0.5m 2
$0 0 71% Muesli Muesli Protein Granola Porridge Biscuits Bliss Balls Muesli Protein Trail Mix Bars Bars Bars SKU 1 Oats SKU 1 SKU 1 Bars Bars SKU 1 SKU 1 SKU 2 SKU 1 SKU 1 SKU 3 SKU 2 FY19 FY20 FY21 Years on shelves Further detail is provided on page 16
15 Overview - Top SKU’s High Gross Margins
The top 10 products by sales are outlined below; each contributing very strong gross margin contribution to the business. These gross margins are higher than each of Project Block’s three main competitors, indicating the efficiency and profitability of this business.
Product Sales in FY21 % of FY21 Sales RRP Gross Margin Gross Margin Project Block Competitor 1 Competitor 2 Competitor 3 Muesli Bars SKU 1 $2,389,021 8.4% $7.80 56% Muesli Bars 56% 51% 48% 49% Muesli Bars SKU 2 $936,552 3.3% $7.80 56% Protein Bars 51% 46% 47% 48% Granola 49% 41% 44% 43% Protein Bars SKU 1 $867,478 3.0% $9.00 56% Oats 50% 50% 41% 47% Granola SKU 1 $691,007 2.4% $16.50 51% Biscuits 47% 46% 42% 43%
Oats SKU 1 $666,595 2.3% $8.50 48% Bliss Balls 50% 40% - - Trail Mix 56% 50% 49% 45% Biscuits SKU 1 $611,202 2.1% $6.20 49%
Bliss Balls SKU 1 $586,267 2.1% $7.50 50% Project Block earns higher margins than its competitors because:
Muesli Bars SKU 3 $534,224 1.9% $7.80 56% 1. Consistent demand and careful inventory management means products rarely go on sale Project Block’s reputation in the market allows its products to sell at a ~10% premium Protein Bars SKU 2 $519,707 1.8% $9.00 56% 2. One third of total sales are direct to consumer via the online store Trail Mix SKU 1 $516,397 1.8% $11.20 56% 3. Total $8,318,450 29.1%
16 Overview - Suppliers
Project Block has built strong working relationships with its key suppliers and has recently invested in diversifying its supply base.
► Over the past 5 years, Project Block has expanded its supplier base while maintaining rigorous quality control.
► All suppliers farm naturally grown ingredients with the view of exceeding best practice standards for sustainability.
► Consumers are shopping with an increasingly global perspective, factoring in more than ever the impact of their shopping habits on the environment. By focusing on their supply chain and other downstream impacts, Project Block can better adapt to, and retain, customers who are focused on these important metrics. Additionally, consumers are willing to pay a premium for sustainably sourced/produced products (Project Block products are generally priced ~10% more than its competitors).
► The business currently sources ingredients from a total of 38 suppliers, all within Australia. Having diversified away from key suppliers over the last three years, the business has benefited from reduced supply chain risk.
Historical Spend by Supplier & Length of Supply Supplier Diversification
Each of the top 5 suppliers has a length of supply 6+ years $2.5m 14 60% $8.4m $8.3m $3.8m $7.9m 12 $3.9m $2.0m 50% $2.6m $3.9m 10 40% $2.5m $1.5m 8 $2.4m 30% $1.0m 6 4 20% $0.5m 2 10% $0 0 0% Supplier 1 Supplier 2 Supplier 3 Supplier 4 Supplier 5 Top 5 Suppliers Top 10 Suppliers Top 15 Suppliers
FY19 FY20 FY21 Length of supply (years) FY19 FY20 FY21
17 Overview - Sales Channels
The business has been able to manage and balance the dominance of the major supermarkets by finding profitable, alternative sales channels.
► Project Block deploys advanced customer analytics to understand the specific needs of their end customer. Through the online store, Project Block offers a hyper personalised shopping experience, allowing it to develop a market leading online presence. This has seen online sales grow at 20.4% CAGR for the last four years.
► Unlike traditional retailers, Project Block customers generally spend more online than in store. There is significant potential for an acquirer to direct more attention towards the online function of this business, where margins are greater and customer spend is higher.
Sales by Channel Average Customer Spend by Channel
Online sales 20.4% CAGR over Customers spend on average $5.01 more when $12.0m $21.00 the last four years $18.21 buying through Project Block’s website 33% $10.0m $18.00 32% 34% 32% 31% $13.80 28% 27% 26% 25% $15.00 $13.01 $8.0m 23% $12.78 22% 20% 21% 20% $12.00 $6.0m 18% 18% $9.00 $4.0m $6.00 $2.0m $3.00
$0 $0.00 FY18 FY19 FY20 FY21 Online Coles Woolworths Independents Online Coles Woolworths Independents
18 Section 1 Section 2 Section 3 Section 4 Section 5 Executive Summary Business Overview Operational Insights Growth Opportunities Financial People - Organisational Structure
The day to day operations are led by a CEO and three General Managers. Project Block is currently hiring for an Online / Social Media Manager to join the team of 52 employees.
CEO
General Manager 1 General Manager 2 General Manager 3
Manufacturing (17) Distribution (8) Admin & HR (10) Sales (9) Marketing (4) Storage and Business Production Inventory Finance (4) Development Design (2) (12) Control (2) (3)
Wholesale Quality Administration Data & Packaging (3) Account Assurance (3) (4) Strategy (2) Executives (4)
Hiring for: Quality Control Administration HR (2) Outbound (2) Online / Social (2) (3) Media Manager
20 People – Key Staff
Project Block is led by an experienced and multi-functional management team who will drive growth and profitability for a new owner.
► The three shareholders have stepped away from the business and spend less than two hours per week consulting with the CEO
► All members of the management team have demonstrated a willingness to remain with the company post sale.
CEO GM – Manufacturing GM – HR / Admin GM – Sales and Marketing
The CEO is responsible for the strategic GM (I) has been with the company for GM (II) has been with the company for GM (III) has been with the company for direction of Project Block with a vision to seven years and oversees the six years, overseeing admin & HR. three years and oversees the sales and expand into overseas markets. manufacturing facility and distribution marketing teams. warehouse. GM (II) brings a sense of enthusiasm The CEO is highly experienced within the and energy to the team. GM (III) spends most of his time on the FMCG industry, having held senior GM (I) drives industry leading standards road, assisting with promotions and positions at a leading organic food in quality control and has an in depth meeting with potential wholesale company and global food and beverage understanding of the end to end customers giant. manufacturing process.
21 Section 1 Section 2 Section 3 Section 4 Section 5 Executive Summary Business Overview Operational Insights Growth Opportunities Financials Growth Opportunities
With greater access to capital, an acquirer could better leverage the strengths of the existing business through achievable short-term improvements and targeted investments in growth.
Begin Targeted Advertising Develop the Online Store Expand Product Offering Enter Overseas Markets
Currently, most of the marketing is By further developing its online There is a lucrative opportunity to Project Block’s manufacturing completed as product promotions store and selling primarily direct to meet the uplift in demand for facility holds all relevant which limit revenue and alter the consumer, Project Block can fortified and functional foods. registrations and licenses to consumers price expectations. By eliminate supermarkets as the Project Block could leverage their export. The business is export establishing an online marketing middlemen, personalise the brand and reputation and expand ready and well positioned to meet strategy that utilises social media shopping experience and earn their product range to cater for this the growing demand from and SEO’s, an acquirer could higher margins. rapidly evolving market. international markets. radically increase sales.
23 Growth Opportunities
Project Block is capable of producing $12m+ EBITDA over the next 1-2 years through the implementation of the following growth initiatives. Management believe this is a conservative estimate, with a successful entry into overseas markets potentially increasing the EBITDA by 2 - 3x (Total EBITDA ~$15m - $20m).
Commentary: 1. Begin Targeted Advertising – Management have experimented with targeted advertising previously, however, did not have the capacity or expertise to do this properly. In saying that. the trial was positive enough for the business to begin the recruitment process for an online Marketing Manager. Considering the relatively low current spend on advertising, Project Block could significantly bolster earnings with the correct marketing strategy. 2. Develop the Online Store – Despite the recent growth in online sales, the websites interface is still quite complicated. Customers must create and activate an account before making a purchase and are unable to save card details for their next order. If the checkout process is simplified, management believe the business could generate an extra 15% in online sales. 3. Expand Product Offering – Market demand for fortified and functional foods is expected to continue its rapid growth, driven primarily by changes in consumer preferences. Utilising its existing manufacturing capabilities, Project Block could very simply cater for this market through the addition of a new “functional” range. This would add an additional revenue stream, broaden the customer base and further entrench Project Block as a leader in the health foods industry. 4. Enter Overseas Markets – Demand from Asian consumers for Australia's high standard food products is at an all time high. Management have recently obtained all permits required to export to Asia and are in the process of planning their market entry. Upon establishing a position within Asia, the CEO then has ambitions to expand into the US and UK. Implementing these growth initiatives could radically improve this business, raising the normalised EBITDA from $7.6m to ~$12.1m.
24 Section 1 Section 2 Section 3 Section 4 Section 5 Executive Summary Business Overview Operational Insights Growth Opportunities Financials Historical Profit & Loss (Normalised)
($000’s) FY18 FY19 FY20 FY21 FY22F FY20 – FY21 Revenue Sales $21,497 $23,212 $24,580 $25,854 $27,200 ► The financial performance of the business was strong in FY20, with an increase in total sales Rebates $4,719 $4,421 $4,338 $3,863 $3,901 of 2.8%. The continued organic growth of the business has taken total sales to $29.7m.
Other Income $72 $76 $78 $102 $86 ► FY21 was the strongest year in gross margin (53%), as the business continues to benefit Total Sales $26,216 $27,633 $28,918 $29,718 $31,487 from stronger purchasing power.
Growth Rate (%) 9.8% 5.4% 4.6% 2.8% 4.9% ► The normalized EBITDA margin has also increased during the period, rising from 24.2% to COGS 25.5% due to a reduction in wage as a % of revenue. COGS $12,846 $13,457 $13,881 $13,967 $14,502 FY19 – FY20 Total Cost of Sales $12,846 $13,457 $13,881 $13,967 $14,502 ► Revenue increased by 4.6% in FY19 to $28.9m, with like for like growth driving sales Gross Profit $13,370 $14,176 $15,037 $15,750 $16,685 Margin (%) 51.0% 51.3% 52.0% 53.0% 53.5% ► The EBITDA margin continued to increase, reaching 24.2% (up from 22.7%). The business diversified its supply chain over this period, leading to significant savings in COGS. Operating Expenses Advertising $603 $663 $665 $684 $655 ► Salary & wages also decreased as a result of warehouse automation making one FTE SG&A $1,127 $1,188 $1,301 $1,248 $1,310 redundant. Occupancy $577 $553 $578 $594 $624 Normalisation Overview Motor Vehicle $66 $69 $72 $74 $125 We have normalised the company expenses to reflect the ongoing maintainable operating profit levels: Salary & Wages $5,270 $4,974 $4,916 $5,052 $5,146 IT/Software $524 $580 $578 $594 $655 Normalisations ($000’s) FY18 FY19 FY20 FY21 Insurance $262 $276 $289 $297 $343 Non-employee shareholder wages 270 270 270 270 Total Operating Costs $8,429 $8,304 $8,401 $8,544 $8,857 Family Expenses 20 60 20 20
$7,73 One off Expenses 20 10 10 15 EBITDA $4,942 $5,872 $6,637 $7,207 $7,828 Above market rental expense 35 35 35 35 Normalisations 375 405 375 375 Private motor vehicle expenses 30 30 30 30 Normalised EBITDA $5,312 $6,277 $7,012 $7,582 $8,203 Property renovations 0 0 30 0 Margin (%) 20.3% 22.7% 24.2% 25.5% 20.6% Private Travel $5 $5 $10 $5 Total Normalisations $375 $405 $375 $375
26 Financial Highlights – Working Capital
As the business does not experience cyclical purchasing or sales patterns throughout the year, the working capital cycle remains relatively stable, subject to company inventory management policies. Working capital requirements in the business ranged from ~$220k to ~$1.4m between FY18 – FY21, and the average Net Working Capital requirement of the business between FY18 – FY21 was $655k.
Monthly Net Working Capital during FY18 – FY21
$2,000,000 $1,000,000
$900,000
$1,500,000 $800,000
$700,000
$1,000,000 $600,000
$500,000
$500,000 $400,000
$300,000
- $200,000
$100,000
($500,000) -
01/09/2018 01/07/2020 01/08/2017 01/09/2017 01/10/2017 01/11/2017 01/12/2017 01/01/2018 01/02/2018 01/03/2018 01/04/2018 01/05/2018 01/06/2018 01/07/2018 01/08/2018 01/10/2018 01/11/2018 01/12/2018 01/01/2019 01/02/2019 01/03/2019 01/04/2019 01/05/2019 01/06/2019 01/07/2019 01/08/2019 01/09/2019 01/10/2019 01/11/2019 01/12/2019 01/01/2020 01/02/2020 01/03/2020 01/04/2020 01/05/2020 01/06/2020 01/08/2020 01/09/2020 01/10/2020 01/11/2020 01/12/2020 01/01/2021 01/02/2021 01/03/2021 01/04/2021 01/05/2021 01/06/2021 01/07/2021 01/08/2021 01/07/2017 Receivables Inventory Prepayments GST Receivable Payables GST Payable Super Expense Payable Other Liabilities 12-month rolling average 18-month rolling average 24-month rolling average
27 Potential Synergies
There are numerous savings available to a large trade buyer post-acquisition, with potential savings of ~$1.5m, and a post-acquisition EBITDA of ~ $8.69m
Synergies 1. Admin. Cost – Existing administration team integrating workload, resulting in three less FTE 2. Warehousing Staff – Existing warehouse staff reduction post-integration, resulting in 4 less FTE 3. Systems streamlining – Systems for warehousing, deliveries and general administration will further reduce cost 4. Rent – Office rent cost saving if acquirer has existing office and warehouse space 5. Supply cost – Enhanced buying power resulting in better pricing
► Please note this can be much more significant (Up to $1.4m of savings if a large trade buyer has significant purchasing power - ~10% reduction on COGS) Collectively these synergies may add up to $1,500,000 to the EBITDA position for a potential acquirer.
28 29 Non-Binding Indicative Offers (NBIO)
Project Block – ILLUSTRATIVE EXAMPLES NBIO Summary
The next three slides summarise the three Non-Binding Indicative Offers (NBIO) that have been submitted for Project Block.
Private Equity Company
► The headline offer value from General Mills is $58m ► The headline offer value from Arnotts is $56m (7.8x ► The headline offer from Private Equity Company is $41.6m, (8.05x EBITDA). This sits at the upper end of our estimated EBITDA) representing a $52m EV (7.2x EBITDA) valuation for Project Block ► This offer is for 100% of the business ► This is for 80% of the business, with Project Block ► This offer is for 100% of the business shareholders to retain 20% ownership ► Arnotts have offered 80% cash upfront with a 20% earnout ► General Mills has offered 90% cash, 10% scrip conditional on the business achieving an $8.6m EBITDA in ► The offer is 100% cash, conditional on two key precedents: FY22. ► The offer has minimal transition requirements. General Mills ► All three shareholders are to work one day a week has indicated that they intend to retain all staff for a period ► Due to a competing facility, it is suspected that there would in an “advisory role” (remunerated accordingly) of 12 – 18 months while they assess the business be redundancies as a result of an acquisition by Arnotts requirements ► The CEO and three General Managers are to ► Although the offer is conditional on ACCC approval, we remain at Project Block in their current capacity ► Trade 1 have a deep acquisition pipeline and a dedicated envisage that this would be obtained with relative ease M&A team in house. There is a willingness to move quickly ► Private Equity Company has significant expertise within the and have the deal signed within six weeks ► Arnotts have requested 4 months for diligence. This is international food industry. From discussions with their significantly longer than with other parties and introduces investment team, we understand that the intention is to grow ► Despite the challenge of time differences, the engagement other risks into the sale (such as changes in market Project Block to a $200m valuation in 3-5 years. of Trade 1 during the process has been exceptional. This conditions, financing, business performance risks or level of engagement implies a high degree of deal customer risk). ► Private Equity Company have indicated a willingness to certainty retain most, if not all, staff post transaction
► Private Equity Company have also been very engaged in the process.
ILLUSTRATIVE EXAMPLES NBIO Comparison (1/2)
Private Equity Company Bidder General Mills (NYSE:GIS) Arnotts Private Equity Company Formal offer received ✓ ✓ ✓ Do they have the money? ✓ ✓ ✓ Headline valuation (TEV) $58m $56m $41.6m (Implied Total EV $52m) Sell down 100% 100% 80% • 80% cash upfront, 20% earnout conditional on an FY22 • 90% cash 10% scrip EBITDA of $8.6m • Normal level of working capital Valuation Conditions • Debt free and cash free basis • Debt free and cash free basis • Normal level of working capital • Normal level of working capital • $52.2m cash • FY21: $44.8m cash Proceeds to Shareholders • $41.6m cash • $5.8m scrip • FY22: $11.2m cash (Only if earnout is hit) • Less committed capex • Subject to customary post-completion adjustments including Less employee service entitlements working capital and net assets Less AASB16 lease liabilities Valuation adjustments • • • Less AASB16 lease liabilities • Less committed capex • Less any other debt like items identified • Less any other debt like items identified Valuation calculation EBITDA Multiple: 8.06x EBITDA Multiple: 7.8x EBITDA Multiple: 7.2x Offer structure Share sale Asset Sale Share sale • All 3 shareholders to work in an “advisory role” one day per • Satisfactory due diligence • Satisfactory due diligence week • Board approval Conditions precedent • Board approval • Staff retention including the CEO and three general • Regulatory approval (ACCC) • Regulatory approval (FIRB) managers • Financier approval • Satisfactory due diligence ILLUSTRATIVE EXAMPLES NBIO Comparison (2/2)
Private Equity Company Bidder General Mills (NYSE:GIS) Arnotts Private Equity Company Exclusivity Yes, 2 months Yes, 3 months Yes, 2 months No. of meetings to date 4 2 3 Timeline 6 weeks until signing 4 months until signing 2 months until signing Diligence Steps • Commercial • Commercial • Management • Accounting • Accounting • Commercial • Legal • Legal • Accounting • Legal Process engagement 10 8 8 score (0 – 10)
Nash Advisory recommend engaging with Private Equity Company and General Mills to solicit final round bids and based on feedback thereafter to select a single bidder to bring through to due diligence.
ILLUSTRATIVE EXAMPLES Project Block Term Sheet
Sample Term Sheet
__ day of _____, 20__
The Shareholders of Project Block CEO Project Block Pty Ltd
NON-BINDING INDICATIVE OFFER SAMPLE
Dear Board and CEO of Project Block,
Re: Non-Binding Indicative Offer (“Offer”) to invest A$30m (A$25m equity, A$5m debt) for 50% of Project Block Pty Limited (the “Proposed Transaction”)
Following our meetings and discussions with you, members of the management team and advisers, we are pleased to present the terms on which we are prepared to invest in Project Block Pty Ltd (the “Company”). We have a high level of confidence in being able to sign and complete this transaction in the next three months subject to confirmatory due diligence (accounting, legal, commercial and management). We have funding available in the form of immediately available cash and subject to finalisation of due diligence and approval from our Investment Committee, we will be able to proceed with the transaction. Our intent with this investment is to provide the capital injection required to allow the Company to pursue value creating acquisitions and organic growth initiatives, as well as providing hands on consultation and strategic advice as needed to support management on the growth journey ahead. We have forecast the amount required to achieve the short and medium term growth initiatives to be A$50m, which we have available in addition to the initial investment funds. We believe that we have put forward a compelling proposition backed by an experienced team with expertise in operating and growing successful businesses. Our overarching investment philosophy is one of partnership and alignment – we seek to work together with management and shareholders to grow value for shareholders, employees and key stakeholders. Should this Offer be acceptable to you, we will enter into due diligence over the next three months and in parallel, proceed to legal documentation.
Non-Binding Offer Highlights
▪ Our investment – Equity and Debt: We would invest A$25m into the Company for a 50% equity interest (ordinary shares). Additionally, we will also provide a A$5m loan to the Company: o Term: Earlier of 5 years and exit. o Interest: Reference rate plus 3.5% per annum o Repayment: Debt repayment schedule to be calculated as per a 5 year term, with no penalties for early repayment. o Security: The loan will be secured over the existing shareholders’ shares in the Company, with customary debt covenants to be put in place to protect operating cash flow during the term of the loan. These may include: ▪ Maximum dividend payout ratio ▪ Minimum level of cash flow available for debt service ▪ Maximum gearing (loan-to-value ratio) ▪ Value: Based on the information provided, we have valued the equity of the business at a pre-money valuation of A$50 million. In arriving at our valuation of the Company, we have considered the Company’s recent trading and financial performance, relevant trading multiples, and the opportunities and challenges ahead.
Project Block 1
▪ Working capital: Our Offer assumes an average level of working capital at completion of the Proposed Transaction based on the prior 12 months of trading, plus a minimum cash surplus to meet intra-month cash requirements for the subsequent 90 days.
▪ Funding for strategic acquisitions: We are supportive of providing further funding for the Company of up to A$50m (debt and equity) in order to make an accretive step-change acquisition.
▪ Management: We believe that alignment with key management is crucial given the forecasts provided by the Company are strong, and therefore, key management’s remuneration should include a strong equity component. We propose the establishment of an Employee Share Ownership Plan (ESOP), which includes remuneration for key management tied to the performance of the business.
Key Assumptions The following is a high-level list of the conditions that we expect to formalise into the legal agreements which will govern the investment:
▪ We would target signing and completion in the next three months. ▪ We require a period of exclusivity from the date of signing of this NBIO, for a period of three months, with this being extended should all parties agree. ▪ Between now and the completion date we would expect the financial performance of the company to continue to track positively. ▪ The shareholders would agree an integration (100 day) plan and 3-year business plan prior to the signing of the Proposed Transaction. ▪ The Shareholders’ Agreement to include: o customary drag and tag rights for shareholders; o pre-emptive rights; o director appointment rights; o reserve matters requiring unanimous approval, including annual budget, business plan, acquisitions / divestments, the appointment and termination of key management personnel.
Due Diligence Process and Costs We are in a position to conduct our proposed due diligence program efficiently with minimal disruption to the Company. We would aim to complete a standard due diligence process focussed on commercial, financial, tax, legal and environmental due diligence. Our proposed due diligence review would encompass: • Review of the Company’s audited financial accounts and management accounts, including current financial year to date performance. • Legal due diligence, including review of material contracts, leases and other legal agreements; • Employment due diligence; • IT and systems; • Management meetings and site visits (head office as well as selected warehouses)
Timeline
▪ [ACQUIRING PARTY] will commence due diligence as soon as possible after signing of this Offer. We have already discussed this NBIO with our external advisors and they are available to commence work as soon as possible and expect this phase of due diligence to take 6-8 weeks. ▪ We would work with your management team to agree a 100 day and 3-year strategic business plan.
Project Block 2
▪ Lawyers would be engaged to work on the subscription agreement and shareholders’ agreement which would be provided to your lawyers within 1 month of signing of this NBIO.
We have a high degree of confidence in being able to meet this timeline and would be pleased to partner with you and the existing shareholders on this opportunity. Once again, thank you for your time and consideration to date.
This Agreement has been executed on the ___ day of ______, 20__.
Regards
…………………………………. ………………………………
Authorised Representative, [ACQUIRING PARTY] Witness, [ACQUIRING PARTY]
Project Block 3 Project Block Settlement Schedule
Sample Settlement Schedule Project Block - Funds Flow
Total Equity Value (EV) $50,000,000
Equity Investment $25,000,000 Total $25,000,000
Equity % Acquired 50% Debt Investment $5,000,000
Total Investment Amount $30,000,000
Adjusted EV & Vendor Payments Upfront Purchase Price $25,000,000 +/- Working Capital Adjustment Amount $38,921 Adjusted EV $25,038,921 Estimated Completion Net Debt Amount ($153,000) Equity Value $24,885,921
Working Capital Adjustment Amount Working Capital at Completion $380,200 Less: Target Working Capital $341,279 Estimated Working Capital Adjustment Amount $38,921
Net Debt Breakdown Credit Cards ($25,000) Overdraft Facility ($120,000) Annual Leave Accrual ($133,000) Long Service Leave Accrual ($280,000) Total Debt ($558,000)
Savings Account $150,000 Rental Bond $30,000 Cheque Account $225,000 Total Cash $405,000 Estimated Completion Net Debt Amount ($153,000)
Funds Flow Mechanism Payment Direction
Funds Flow at Completion
Step 1: Payment to Trust Account Entity From Entity To AUD Amt Date Account Name Bank BSB Account # Swift Code Reference Cash payment to Lawyers Trust Account Purchaser Vendor Trust Account (Lawyer) $24,885,921 31/12/2022
Step 2: Payment to Parties Entity From Entity To AUD Amt Date Account Name Bank BSB Account # Swift Code Reference Cash Payment to Vendors (after fees) Vendor Trust Account Vendor Account $24,885,921 31/12/2022 Corporate Advisory Fees (Incl. GST) Vendor Trust Account Corporate Advisor [TBC] 31/12/2022 Legal Fees (Incl. GST) Vendor Trust Account Law Firm [TBC] 31/12/2022 Total Payments $24,885,921 *less advisor fees