Consumer Products and Retail Quarterly update Q3 2018 Deloitte Corporate Finance LLC | www.investmentbanking.deloitte.com Quarterly update | Q3 2018 | Consumer Products and Retail Consumer Products and Retail trends In this update 1,2,3 4,5 The Future is sparkling Smart(phone) shoppers • Consumer trends As fewer consumers are drinking soda, Online shopping via mobile devices is • Economic outlook filling the void (and then some) is expected to grow 16 percent, up sparkling water. Americans will drink from 12 percent in 2017. The trend is • Industry analysis approximately 821 million gallons of largely driven by users spending sparkling water in 2018, about three increased time on mobile devices, • Select M&A transactions times American consumption in 2008. forcing retailers to pivot their efforts • Appendix With sales of traditional sparkling water to reach consumers by way of mobile totaling $2.7 billion this year, alcoholic media. The trend has also led many sparkling water also continues to gain social media apps to build out their This update will focus on traction with 2018 annual sales totaling mobile commerce capabilities this news and trends in the $295 million, up from $11 million in year in advance of what is expected 2016. The increase in sales has spurred to be a strong Christmas season for following areas: an increase in M&A activity, with one retailers. This trend is especially true for Generation Z, with half of the notable transaction in 2018 being • Food & Beverages Hiball, a growing caffeinated sparkling demographic planning to complete water, recently being acquired by 100 percent of their shopping online • Products & Durables with a smartphone. Anheuser-Busch. • Restaurant & Food Luxury remains Vogue6,7 Meat alternatives that bleed8,9 Services The luxury fashion and accessories Continued customer interest in • Specialty Retail sector has experienced 42 percent alternative proteins, driven by growth since 2017, making luxury health-, environmental-, and apparel one of the top performing socially-conscious individuals has sectors in the consumer space. driven growth in the sector as Companies in the sector have demand for in-home consumption of continued to show meat alternatives has grown 24 an ability to respond to cultural percent since 2015. New meat Who we are trends, retaining an authentic and alternatives have increased in original feel that has allowed them popularity as newer technology has to grow while still demanding a made it possible to create Deloitte Corporate Finance premium for their name brand alternatives to burgers, chicken LLC is a leading global strips, and steaks consisting of lab- products. Going forward, the future middle market M&A success of these companies will grown meat and high-tech vegetable likely depend on the effectiveness of mashes with new “bloody” versions, advisor. The firm’s their outreach and early marketing including beet juice, in attempts to professionals have to younger generations. appeal to carnivores. extensive knowledge of and transaction experience In the news in the Consumer Products August 16, 2018 10 – Boardroom Salon LLC (d/b/a Boardroom Salon for and Retail space. Men) announced the closing of an investment by affiliates of Lightbay Capital (Lightbay) for an undisclosed amount. Under the terms of the transaction, LightBay will own a majority stake in the company, with Co-Founders Bruce and Heather Schultz retaining significant ownership. As a result of the investment, Boardroom expects to accelerate its growth plans by significantly expanding the number of salons and markets in Contacts which it operates. Deloitte Corporate Finance LLC served as the sole financial advisor to Boardroom Salon LLC. Lorin DeMordaunt July 30, 201811,12 – On July 30, 2018, US Foods Inc. (NYSE: USFD) Managing Director (US Foods) announced the acquisition of Services Group of America’s Food [email protected] Group of Companies (SGA’s Food Group of Companies) for +1 (704) 333-0591 $1.8 billion in an all cash deal representing a 2018(E) EBITDA multiple of 14.6x, or 8.6x when adjusted for tax step-up and run-rate synergies. US Foods management expects to benefit from roughly $260 million in Matt Preece estimated present value of cash tax benefits and approximately $55 Managing Director million in annual run-rate cost synergies by the end of fiscal 2022. The [email protected] acquisition will significantly increase US Foods’ reach across key markets +1 (704) 731-7186 in the attractive growing Northwest region of the U.S. and adds one of the most well-regarded regional distributors to the company. Footnotes: (i) Over the year ended June 30. (ii) Over the year ended July 14. www.investmentbanking.deloitte.com | Page 2 Quarterly update | Q3 2018 | Consumer Products and Retail MacroeconomicMacroeconomic andand ConsumerConsumer ProductsProducts andand RetailRetail Sectorsector Outlookoutlook US gross domestic product1 US Treasury yield curve2 $20.0 5.0% 3.5% (nominal vs. real) 3.0% 4.0% $15.0 2.5% 3.0% 2.0% ate r $10.0 hange c 1.5% rillions 2.0% t in Interest ercent $ 1.0% $5.0 p 1.0% YoY 0.5% $0.0 0.0% 0.0% GDP ($ in trillions) YoY % growth (adj. for inflation) Real yield (%) Nominal yield (%) US unemployment rate3 ISM non-manufacturing index and consumer confidence index4 10.0% 600 64.0 135.0 550 62.0 125.0 500 60.0 115.0 8.0% 450 58.0 105.0 400 56.0 95.0 housands) nemployed onfidence t u ( c 350 anufacturing 54.0 85.0 % 6.0% m laims 300 on- c 52.0 75.0 n 250 50.0 65.0 Consumer ISM Jobless 4.0% 200 48.0 55.0 ISM non-manufacturing Initial jobless claims Unemployment rate (%) US per capita disposable income5 Monthly total US retail sales6 $46.0 $420.0 $44.0 $410.0 $44.0 $400.0 $42.0 $390.0 $40.0 $380.0 $40.0 illions $370.0 b $ in thousands$ in $38.0 in $360.0 $ $36.0 $350.0 $340.0 $34.0 $330.0 $32.0 $320.0 www.investmentbanking.deloitte.com | Page 3 Quarterly update | Q3 2018 | Consumer Products and Retail Consumer Products and Retail sector breakdown and trading statistics1 Last twelve months NTM Median Median LTM Median Median Number of % of 52 EV/ EV/ EV/ Sector revenue EBITDA EBITDA enterprise companies Week high Revenue EBITDA EBITDA CAGR (3 Yr) ($M) margin value ($M) Beauty & cosmetics 12 84.2 % 2.6 % $830.6 15.0 % $9,965.2 1.7 x 11.9 x 11.5 x Food & beverage 10 87.7 (1.1) 2,526.9 19.2 20,272.0 2.4 12.9 11.9 Home & garden 10 75.6 4.0 734.8 15.8 8,274.4 2.0 11.3 11.7 Restaurant & food services 18 86.3 3.1 379.7 12.8 3,630.6 1.5 13.0 11.7 Apparel & specialty retail 11 78.6 4.8 361.8 13.3 4,945.9 1.4 9.8 9.2 Consumer products index 61 85.3 % 2.7 % $518.5 14.6 % $5,360.6 1.7 x 11.3 x 11.1 x Public comparables three-year stock market performance2 S&P 500 index 52.26% NASDAQ Composite index 73.56% Consumer index* 21.34% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% (10.0%) S&P 500 index NASDAQ Composite index Consumer index *Consumer index companies listed on pages 6 and 7 in the Appendix. www.investmentbanking.deloitte.com | Page 4 Quarterly update | Q3 2018 | Consumer Products and Retail Select recent Consumer Products and Retail M&A transactions1 Enterprise EV/ Announce date Target/acquiror Target business description value EBITDA ("EV") Core Nutrition Sep-18 Core Nutrition, LLC produces organic beverages and bottled water. $477.7 N/A Keurig Dr Pepper Inc. Sonic Corp. Sonic Corp. operates and franchises a chain of quick-service drive- Sep-18 2,270.0 15.6 ARG Holding Corporation in restaurants in the United States. Thom Browne, Inc. Aug-18 Thom Browne, Inc. desgins and markets apparel for men. 500.0 N/A Ermenegildo Zegna Holditalia S.p.A. Zoe's Kitchen Zoe's Kitchen, Inc., through its subsidiaries, develops and operates Aug-18 298.3 16.6 Cava Group, Inc. a chain of fast-casual restaurants. The Boardroom Salon, LLC The Boardroom Salon Company, LLC provides hair services for men, Aug-18 N/A N/A LightBay Capital including cutting, styling, shaving, and spa services. MVMT Watches Inc. MVMT Watches Inc. manufactures and sells watches, sunglasses, Aug-18 200.0 N/A Movado Group, Inc. and accessories. Pizza Crust Business of Tyson Foods, Inc. produces partially-baked Pizza Crust Business of Tyson Foods, Inc. Aug-18 and self-rising pizza crusts for frozen pizza manufacturers and N/A N/A Peak Rock Capital foodservice customer. Jamba, Inc. Jamba, Inc., through its subsidiary, Jamba Juice Company, owns, Aug-18 204.7 56.8 FOCUS Brands Inc. operates, and franchises Jamba Juice stores. Food Group of Companies of Services Group of America represents Food Group of Companies of Services Group of the combined operations of Amerifresh, Inc., Ameristar Meats, Inc., Jul-18 America 1,800.0 N/A Food Services of America, Inc., GAMPAC Express, Inc., and Systems US Foods, Inc. Services of America, Inc. SUPERVALU INC., together with its subsidiaries, operates as a SUPERVALU Inc. Jul-18 grocery wholesaler and retailer in the United States and 2,907.1 6.8 United Natural Foods, Inc. internationally. Rise Baking Company Rise Baking Company produces and retails bakery products, Jul-18 N/A N/A Olympus Partners including breads, cookies, and bars.