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. Ned Valentine, Mr. Paul Poggi, Mr. Thierry Monjauze and Mr. Aadil Khan, 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. CONSUMER AND RETAIL INDUSTRY UPDATE │ FEBRUARY 2016
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CONSUMER AND RETAIL · and social media are having a profound impact on consumer purchase decisions both online and in stores. Social media provides a means for retailers and brands
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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. Ned Valentine, Mr. Paul Poggi, Mr. Thierry Monjauze and Mr. Aadil Khan, 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 registrationnumber 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. JefferyH. Perkins.
CONSUMER AND RETAIL
INDUSTRY UPDATE │ FEBRUARY 2016
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www.harriswilliams.de
In today’s retail environment, mobile technology, easy access to digital information,and social media are having a profound impact on consumer purchase decisions bothonline and in stores. Social media provides a means for retailers and brands to rapidlyreach a broad audience with a two-way path of communication. By leveraging socialmedia, retailers can analyze large amounts of data to better understand theirconsumers and adapt to ensure they provide the best offering and experience to drivesales and loyalty.
Although the benefits are apparent across channels, many retailers continue to limittheir analysis to e-commerce when evaluating the impact of technology on consumerpurchasing behavior. They have been slow to react to the digital influence in brick-and-mortar locations, where over 93% of retail sales take place today. It is estimatedthat digital content influenced $1.7 trillion (49%) of in-store sales in the U.S. compared toonly $0.3 trillion (14%) a couple years prior. Shoppers are not using digital as much forprice comparisons as they used to – rather they are using digital for (i) inspiration fortheir purchases, (ii) product research, and (iii) deals, resulting in higher conversion andoverall spending. Retailers are beginning to learn the benefits of leveraging mobiletechnology, digital information, and social media across each vertical of their business,and are realizing the necessity of strong grass-roots digital and social campaigns.
HARRIS WILLIAMS & CO. CONSUMER UPDATE
1
GROUP OVERVIEW
Harris Williams & Co. is a leadingadvisor to the Consumer market. Oursignificant experience covers a broadrange of end markets, industries, andbusiness models. This particular reportfocuses on trends and metrics in thefollowing areas:
Today’s consumer remains constantly connected to the digital world, whichunderscores the importance of strong digital and social campaigns for brands andretailers. Additionally, online reviews have become one of the most important factorsin a consumer’s purchasing decision and can be a powerful tool to drive loyalty.Approximately 80% of consumers interact with brands or products through digitalavenues prior to arriving at a physical store and consumers who use social mediaduring their shopping process are ~4x more likely to spend more on purchases, placingless of an importance on the physical shopping experience for retailers.
It is important to understand how digital and social media impacts variousdemographics and product categories to get a true understanding of digitalinfluence. Two specific groups, Millennials and Hispanic and Latino Americans, usedigital more often to shop and approximately 50% of each group’s purchases areinfluenced by digital research and interaction. These groups make up a largeproportion of American consumers, further intensifying the need to have a solid onlinepresence and experience for retailers and brands. Consumers are also using digitalacross product categories in different manners. Within health / wellness, homefurnishings, and baby/toddler categories, consumers are heavily reliant on socialmedia use leading up to a purchase, with close to two-thirds of consumers consultingreviews prior to making a purchase decision.
14%
36%
49%
64%
0%
10%
20%
30%
40%
50%
60%
70%
2012 2013 2014 2015
% of In-Store Sales Influenced by Digital
18%
21%
29%
31%
32%
33%
40%
56%
0% 10% 20% 30% 40% 50% 60%
Entertainment
Food/Beverage
Apparel
Electronics
Automotive
Health/Wellness
Home Furnishings
Baby/Toddler
% That Use Social Media Leading Up to a Purchase
RETAILER TRENDS: THE VALUE OF DIGITAL TECHNOLOGY AND SOCIAL MEDIA
RETAILERS AND BRANDS ARE REACTING – TAKEAWAYS FROM NRF’S 2016 BIG SHOW
Collaboration is the New Competition: Steve Lowry, Westfield Co-CEO, highlighted the company’svision to bring together the physical and digital retail worlds into one dynamic retail environment.Lowry believes that sharing the vast data that is now available on consumer shopping habits mustbe shared across organizations to create a richer shopping environment, as shopper expectationsand desires are being driven more and more by moments of inspiration in an always-on retaileconomy. Westfield has made a significant investment in its digital experience to include a smartglobal network that links all of its centers and allows retailers to plug into shared customers acrossmultiple touchpoints.
NRF 2016 Big Show: Retailers and Brands Highlighted the Need to Keep Up with Digital Influenceson Consumer Shopping Habits
Changing the Way Consumers Live: Under Armour CEO Kevin Plank announced Under Armour’sConnected Fitness initiative which is designed to give consumers a chance to track, analyze, andshare health and fitness activity through a mobile device. While historically focused on its coreproduct line, Under Armour completed the acquisition of fitness apps MapMyFitness, Endomondo,and MyFitnessPal, which has created a network of over 160 million users through which UnderArmour can track and leverage data. Plank cited that Under Armour has evolved from a focus on“changing the way athletes dress to changing the way athletes live” in order to become a bettercompany for its consumers as the demand for connected technologies increases.
RETAILERS UNDERSTOOD THE POWER OF VIRAL CAMPAIGNS TO CONNECT IN 2015
Burberry live-streamed amenswear fashion show viaPeriscope, creating recordcustomer engagement andover 100 million impressions.
Lowe’s launched six secondDIY Vine videos, with 33,000Vine followers and morethan 44 million loops. UsingVine to appeal to a youngerdemographic, Lowe’spositioned its brand toattract a younger audiencethey had not reachedbefore.
TOMS recently launched acampaign to donate a pairof shoes every timesomeone posted anInstagram photo of theirbare feet. The campaignwas used to demonstrateTOMS commitment to itscause and connect with itsconsumers.
Nordstrom created a 14,000square foot art installationon the roof of its Seattleflagship store anddistributed the photo viaInstagram to announce itsannual sale. The postgenerated significantexcitement and buzzaround the sale and withinthe community.
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KEY TRADING STATISTICS (DETAIL BEGINS ON PAGE 7)
PUBLIC MARKETS OVERVIEW
PUBLIC COMPANY SECTOR PERFORMANCE (12-MONTH % CHANGE IN STOCK PRICE)
COMMENTARY ON RECENT CONSUMER AND RETAIL DEBT TRANSACTIONS1
KEY RETAIL CREDIT STATISTICS
1) Source: S&P Capital IQ LCD
• Keurig Green Mountain (BB-/Ba3) secured a $1.8 billion loan with the help of European interest, reduced from theinitial target of $2.6 billion. Price talks on the term debt are set at L+450 with a 0.75% floor and offered at 98. The loanis pegged to yield 5.7% to maturity. Parties familiar with the situation indicated that the size of overall debt proved tobe a key hurdle that facilitated the downward pressure on the deal.
• Manitowoc Foodservice was able to finalize the term loan backing its spin-off from Manitowoc Co. The covenant-litedebt priced at L+475, with a 1% floor and a 98 offer price. The seven-year loan offers a yield to maturity of 6.26, andwill fund into escrow 30 days after allocation. Senior secured leverage runs about 4.1x on a pro forma basis for thetransaction, with total leverage of 5.9x.
• After three iterations, Mattress Firm was able to cross the finish line in securing a term loan backing its acquisition ofSleepy’s, as investors were concerned over the all-first-lien capital structure. Originally $730 million, the deal wasdownsized to $665 million, and cleared at L+525 with a 1.0% floor and a 97 offer price. The final deal yieldedapproximately 7.11% to maturity, while moving the whole loan structure out of the covenant-lite realm.
• Caliber Collision is looking for an increase, via arranger Antares Capital, on its existing senior term loan. The proposalwould take the senior facility to $685 million up from the initial $574 million, while also adding a $100 million delayeddraw term loan for the next 12 months. The deal is underwritten by a total-net-leverage test, and the existing $60million 10.5% second-lien note held by Penfund remains standing.
Price at As a % of Market Cash & Enterprise LTM P/E
($ in millions, except per share data) Ticker 2/15/16 52-wk High Cap Debt Equiv. Value (EV) Revenue EBITDA 1 Year 3 Years Gross EBITDA Multiple Revenue EBITDA Revenue EBITDA
Last Twelve Months (LTM) EV / LTM EV / 2016ERevenue Growth LTM Margins
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PUBLIC COMPARABLES
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INDUSTRY UPDATE │ FEBRUARY 2016
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Price at As a % of Market Cash & Enterprise LTM P/E
($ in millions, except per share data) Ticker 2/15/16 52-wk High Cap Debt Equiv. Value (EV) Revenue EBITDA 1 Year 3 Years Gross EBITDA Multiple Revenue EBITDA Revenue EBITDA
Last Twelve Months (LTM) LTM Margins EV / LTM EV / 2016ERevenue Growth
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PUBLIC COMPARABLES
CONSUMER AND RETAIL
INDUSTRY UPDATE │ FEBRUARY 2016
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Price at As a % of Market Cash & Enterprise LTM P/E
($ in millions, except per share data) Ticker 2/15/16 52-wk High Cap Debt Equiv. Value (EV) Revenue EBITDA 1 Year 3 Years Gross EBITDA Multiple Revenue EBITDA Revenue EBITDA
Last Twelve Months (LTM) Revenue Growth LTM Margins EV / LTM EV / 2016E
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PUBLIC COMPARABLES
CONSUMER AND RETAIL
INDUSTRY UPDATE │ FEBRUARY 2016
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Price at As a % of Market Cash & Enterprise LTM P/E
($ in millions, except per share data) Ticker 2/15/16 52-wk High Cap Debt Equiv. Value (EV) Revenue EBITDA 1 Year 3 Years Gross EBITDA Multiple Revenue EBITDA Revenue EBITDA
LTM MarginsLast Twelve Months (LTM) EV / 2016ERevenue Growth EV / LTM
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PUBLIC COMPARABLES
CONSUMER AND RETAIL
INDUSTRY UPDATE │ FEBRUARY 2016
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Price at As a % of Market Cash & Enterprise LTM P/E
($ in millions, except per share data) Ticker 2/15/16 52-wk High Cap Debt Equiv. Value (EV) Revenue EBITDA 1 Year 3 Years Gross EBITDA Multiple Revenue EBITDA Revenue EBITDA
Last Twelve Months (LTM) Revenue Growth LTM Margins EV / LTM EV / 2016E
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PUBLIC COMPARABLES
CONSUMER AND RETAIL
INDUSTRY UPDATE │ FEBRUARY 2016
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Price at As a % of Market Cash & Enterprise LTM P/E
($ in millions, except per share data) Ticker 2/15/16 52-wk High Cap Debt Equiv. Value (EV) Revenue EBITDA 1 Year 3 Years Gross EBITDA Multiple Revenue EBITDA Revenue EBITDA
Discount Stores & Mass Merchants
Big Lots Inc. BIG 36.25 70.9% 1,796 335 62 2,070 5,200 351 0.9% (0.7%) 39.8% 6.8% 13.2x 0.40x 5.9x 0.39x 5.5x
EV / 2016ELast Twelve Months (LTM) Revenue Growth LTM Margins EV / LTM
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PUBLIC COMPARABLES
CONSUMER AND RETAIL
INDUSTRY UPDATE │ FEBRUARY 2016
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Price at As a % of Market Cash & Enterprise LTM P/E
($ in millions, except per share data) Ticker 2/15/16 52-wk High Cap Debt Equiv. Value (EV) Revenue EBITDA 1 Year 3 Years Gross EBITDA Multiple Revenue EBITDA Revenue EBITDA
2/7/2016 Apollo Education (NasdaqGS:APOL) Glenview Capital Management, LLC; Fidelity Management & Research Company; Robeco Boston Partners; T. Rowe Price Associates, Inc.; Aronson+Johnson+Ortiz, LPNajafi Companies P
2/5/2016 LeapFrog Enterprises Inc. (NYSE:LF) Blue Pacific Partners, LLC; Franklin Templeton Investments Corp.Vtech Holdings Ltd. (SEHK:303) P
2/5/2016 efsAUDIO Inc. - Compass Biotechnologies Inc. (OTCPK:COBI)
2/4/2016 Large Car Wash Operation - First Colombia Gold Corp. (OTCPK:FCGD)
2/4/2016 LMC Right Start, Inc. Liberty Interactive Corporation (NasdaqGS:QVCA) giggle, Inc.
2/2/2016 Rona Inc. (TSX:RON) Capital d'Amérique CDPQ Inc.; Invesco Canada Ltd.; First Asset Investment Management Inc.; Fonds régional de solidarité FTQ Montérégie; Caisse de dépôt et placement du Québec; Fonds de solidarité FTQLowe's Companies Canada, ULC P
2/2/2016 mophie, inc. mStation Corporation; Beringea LLC; Grosvenor Capital Management Customized Fund Investment GroupZAGG Inc (NasdaqGS:ZAGG) P
2/2/2016 Blumenthal Lansing Company, LLC - CSS Industries Inc. (NYSE:CSS)
2/1/2016 Vitamin World, Inc. NBTY, Inc. Centre Lane Partners, LLC P
1/29/2016 Creative Embroidery - -
1/28/2016 TicketBreak Ltd. MapleCore Ltd. Ticketfly, Inc.
1/28/2016 All Star Vending & Coffee Service LLC - Canteen Vending Services, Inc.
1/28/2016 Ellsworth Handcrafted Bicycles, Inc. Iso Nano International LLC -
1/28/2016 GetGoing, Inc. Y Combinator; Data Collective; TA Ventures; InVenture PartnersBCD Travel B.V. P
1/28/2016 Really Good Stuff, Inc. - Excelligence Learning Corporation
Harris Williams & Co. has a broad range of industry expertise, which creates powerful opportunities.Our clients benefit from our deep-sector experience, integrated industry intelligence andcollaboration across the firm, and our commitment to learning what makes them unique. For moreinformation, visit our website.
Consumer
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OUR FIRM
CONSUMER AND RETAIL
INDUSTRY UPDATE │ FEBRUARY 2016
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HARRIS WILLIAMS & CO.
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SOURCES
S&P Capital IQ.
Thomson Financial.
Reuters.
S&P Capital IQ LCD.
Harris Williams & Co. (www.harriswilliams.com and www.harriswilliams.de) is a preeminent middle market investment bank focused on the advisory needs of clients worldwide. The firm has deep industry knowledge, global transaction expertise, and an unwavering commitment to excellence. Harris Williams & Co. provides sell-side and acquisition advisory, restructuring advisory, board advisory, private placements, and capital markets advisory services.
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. Ned Valentine, Mr. Paul Poggi, Mr. Thierry Monjauze and Mr. Aadil Khan, 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.
The information and views contained in this report were prepared by Harris Williams & Co. (“Harris Williams”). It is not a research report, as such term is defined by applicable law and regulations, and is provided for informational purposes only. It is not to be construed as an offer to buy or sell or a solicitation of an offer to buy or sell any financial instruments or to participate in any particular trading strategy. The information contained herein is believed by Harris Williams to be reliable, but Harris Williams makes no representation as to the accuracy or completeness of such information. Harris Williams and/or its affiliates may be market makers or specialists in, act as advisers or lenders to, have positions in and effect transactions in securities of companies mentioned herein and also may provide, may have provided, or may seek to provide investment banking services for those companies. In addition, HarrisWilliams and/or its affiliates or their respective officers, directors and employees may hold long or short positions in the securities, options thereon or other related financial products of companies discussed herein. Opinions, estimates and projections in this report constitute Harris Williams’ judgment and are subject to change without notice. The financial instruments discussed in this report may not be suitable for all investors, and investors must make their own investment decisions using their own independent advisors as they believe necessary and based upon their specific financial situations and investment objectives. Also, past performance is not necessarily indicative of future results. No part of this material may be copied or duplicated in any form or by any means, or redistributed, without Harris Williams’ prior written consent.