FOOD AND BEVERAGE INDUSTRY UPDATE │ FEBRUARY 2015 www.harriswilliams.de Harris Williams & Co. Ltd is a private limited company incorporated under English law having its registered office at 5th Floor, 6 St. Andrew Street, London EC4A 3AE, UK, registered with the Registrar of Companies for England and Wales under company number 7078852. Directors: Mr. Christopher Williams, Mr. Ned Valentine, Mr. Paul Poggi and Mr. Thierry Monjauze, authorised and regulated by the Financial Conduct Authority. Harris Williams & Co. Ltd Niederlassung Frankfurt (German branch) is registered in the Commercial Register (Handelsregister) of the Local Court (Amtsgericht) of Frankfurt am Main, Germany, under registration number HRB 96687, having its business address at Bockenheimer Landstrasse 33-35, 60325 Frankfurt am Main, Germany. Permanent Representative (Ständiger Vertreter) of the Branch Niederlassung: Mr. Jeffery H. Perkins. FOOD AND BEVERAGE INDUSTRY UPDATE │ FEBRUARY 2015 WHAT WE’RE SEEING CONTENTS MARKET UPDATE . INDUSTRY VITAL SIGNS . EQUITY MARKET OVERVIEW M&A deal activity in the food and beverage sector has remained robust to start . M&A MARKET OVERVIEW 2015. Year-to-date there has been over $8.5 billion of announced transaction . DEBT MARKET OVERVIEW value. The “better-for-you” segment continues to garner interest from strategic . RECENT M&A ACTIVITY acquirers, with Mondelez International announcing the acquisition of Enjoy Life . PUBLIC COMPARABLES Foods. There were also two notable large, strategic deals highlighting continued . EARNINGS CALENDAR interest from strategic acquirers in pursuing transactions that are either GROUP OVERVIEW transformative in nature or help to consolidate more mature markets, such as Harris Williams & Co. is a leading cereal. J.M. Smucker agreed to acquire Big Heart Pet Brands from KKR, Vestar, advisor to the food and and Centerview for $5.8 billion. Post announced its intention to acquire MOM beverage market. Our significant Brands for $1.2 billion. HW&Co. anticipates an active marketplace for the experience covers a broad range of end markets, industries, and remainder of the year as both strategic and private equity buyers continue to business models. This particular pursue attractive assets. report focuses on trends and metrics in the following areas: . Agribusiness WHAT WE’VE BEEN DOING . Baked and Prepared Goods . Beverages SALE OF ENJOY LIFE FOODS TO MONDELEZ INTERNATIONAL . Branded and Private Label . Dairy Overview . Distribution On February 13, Enjoy Life Foods completed its sale to Mondelez International, . Ingredients Inc. The acquisition will provide Mondelez with a fast-growing, better-for-you . Meat and Protein snack platform supported by a strong, well-recognized brand. Mondelez plans . Natural and Organic to operate Enjoy Life as an independent, wholly-owned subsidiary. Processing . Produce . Restaurant and Retail Company Description . Snacks Enjoy Life Foods produces a variety of gluten-free snacks, free from the eight most common allergens - wheat, dairy, peanuts, tree nuts, egg, soy, fish and CONTACTS shellfish. The Company’s products include cookies, cereals, snack bars, fruit mixes, plentils and grab-and-go packs. Enjoy Life pioneered the Free-From Glenn Gurtcheff Managing Director market, which is estimated to be about $2 billion. [email protected] +1 (612) 359-2702 Key Value Drivers for Enjoy Life Tim Alexander Managing Director . Leading, extendable pure-play brand that is [email protected] viewed as the “trustmark” in the industry. +1 (612) 359-2716 . Growing market fueled by increased awareness for Ryan Budlong Director food allergies and intolerances. [email protected] . Passionate, growing consumer base. +1 (415) 217-3409 has been acquired by Brant Cash . Superior product offering that is free from gluten Director and the common allergens, is verified non-GMO, [email protected] and does not sacrifice taste. +1 (612) 359-2709 . Appeals to consumers with food allergies as well as Ryan Freeman Vice President those looking for healthy-lifestyle options. [email protected] +1 (612) 359-2703 . Proven track record of successful product introductions. Matt Whebbe Vice President . Compelling growth platform fueled by a rapidly [email protected] growing customer base and ability to deliver great +1 (612) 359-2727 products, with revenue growth of 40% YOY since Andy Warczak 2011. Vice President [email protected] +1 (612) 359-2714 www.harriswilliams.de PAGE | 1 FOOD AND BEVERAGE INDUSTRY UPDATE │ FEBRUARY 2015 WHAT WE’VE BEEN DOING CONT. CLOSED HW&CO. TRANSACTIONS a portfolio company of a portfolio company of has divested selected assets to has acquired has been acquired by has been acquired by and has been acquired by a portfolio company of a portfolio company of a portfolio company of a portfolio company of has been acquired by has been acquired by has been acquired by has been acquired by has been acquired by and WHAT WE’RE READING MONDELEZ ACQUIRES ENJOY LIFE BRANDS On February 16th Mondelez International announced it’s acquisition of Enjoy Life Brands, a private snacking company in the growing “free from” segment. Enjoy Life gives Mondelez a boost to their portfolio by giving them a brand on trend with healthy-lifestyle options as well as a growing incidence and awareness of food allergies and intolerances. Enjoy Life’s products are free from wheat, dairy, peanuts, tree nuts, egg, soy, fish and shellfish – which account for about 90% of all food allergies. Access to the full article here. NESTLÉ USA TO REMOVE ARTIFICIAL FLAVORS AND COLORS FROM CHOCOLATE CANDY Nestlé announced on February 17th that they would be removing artificial flavoring and colors from it’s chocolate candy products. The move comes as a response to a shift in consumer preferences, with customers desiring food with simpler ingredients. Recent surveys from Nielsen show more than 60% of Americans say no artificial colors or flavors is important to their decisions in purchasing food products. Access to the full article here. REGULATORS MAY DELAY APPROVAL FOR SYSCO-U.S. FOODS DEAL After the Performance Food Group agreed to buy assets from both Sysco and U.S. Foods in order to assist the two companies get approval to merge the FTC has sent subpoena to a third party, signaling that they are not done reviewing the proposed merger. At this point it is unclear whether or not the FTC is preparing to clear the merger, or is seeking more information that can be used to block the deal. Access to the full article here. PAGE | 2 FOOD AND BEVERAGE INDUSTRY UPDATE │ FEBRUARY 2015 KEY CONSUMER TRENDS FOR 2015 . Better-For-You – The Free-From food categories are expected to continue exhibiting strong growth, as consumers become increasingly health conscious and more aware of food-related allergies. With this broad trend for healthier food alternatives, restaurant menus are expected to serve-up more small plate menu options than ever before. Clean Label – Clean and clear label claims are expected to increase in 2015 as companies look to differentiate their products with labels such as non- GMO, organic, additive-free, etc. Going Local – Consumers are demanding more transparency when it comes to proteins and produce. To cater to a more discerning palate, foodservice operators are responding with offerings featuring locally sourced meat, seafood, and vegetables as a point of differentiation. Private Label Trends – The private label market in the U.S. has yet to fully mature, with saturation levels below those in Europe. Packaged Facts projects retail sales of private label food and beverages to grow at a 4% CAGR, reaching $122 billion by 2018.(1) . Specialty Food Trends – The $120 billion U.S. snack industry is seeing increased demand for protein-packed snacks. This trend is driving sales in categories such as jerky, which experienced 13% year-over-year sales growth in 2014; up 46% since 2009.(2) . Frozen Foods Segment to Heat Up – After several years of declining sales, the frozen foods segment is expected to climb from $22 billion in 2014 to $23 billion in 2019. Natural and organic initiatives are adding appeal to the category previously plagued by negative perceptions of quality, taste, and healthfulness.(3) . Foodservice Trends – The premium fast casual segment is poised for growth heading into 2015. In 2013, the segment grew at a rate of 11%, significantly outpacing a flat QSR segment. Foodservice products are being influenced by trendy grocery items. For instance, fast food giant Taco Bell began testing Greek yogurt parfaits as a breakfast offering, while Fazoli’s appeased restaurant –goers with a seasonal Nutella cheesecake.(4) . M&A Trends – 2014 activity was robust, with deal volume and aggregate deal values at or near record levels. This momentum is expected to translate into a strong 2015, as strategic and financial buyers continue to put capital to work in high-quality food and beverage assets. KEY MARKET SIZE PROJECTIONS GLOBAL GLUTEN-FREE PRODUCTS MARKET SIZE(5) U.S. PRIVATE LABEL MARKET SIZE(1) ($ in millions) ($ in billions) $6,500 $6,200 $125 $122 $6,000 $120 $5,500 $115 $5,000 $110 $4,500 $4,204 $105 $104 $4,000 $3,500 $100 $3,000 $95 2014E 2018P 2014E 2018P (1) Packaged Facts (2) Specialty Food Association (3) Food Business News (4) Foodservice Equity & Supplies PAGE | 3 (5) Food Product Design FOOD AND BEVERAGE INDUSTRY UPDATE │ FEBRUARY 2015 VITAL SIGNS COMMODITY PRICE INDICES1 200 Wheat: (23.9%) 150 Soybeans: (28.1%) Corn: 100 (34.1%) Crude Oil: