www.harriswilliams.de Harris Williams & Co. Ltd is a private limited company authorised and regulated by the Financial Conduct Authority, incorporated under English law with its registered office at 5th Floor, 6 St. Andrew Street, London EC4A 3AE, UK, registered with the Registrar of Companies for England and Wales under company number 7078852. Directors: Mr. Ned Valentine, Mr. Paul Poggi, Mr. Thierry Monjauze and Mr. Aadil Khan. Harris Williams & Co. Ltd Niederlassung Frankfurt (German branch) is registered in the Commercial Register (Handelsregister) of the Local Court (Amtsgericht) of Frankfurt am Main, Germany, under registration number HRB 96687, having its business address at Bockenheimer Landstrasse 33-35, 60325 Frankfurt am Main, Germany. Permanent Representative (Ständiger Vertreter) of the Branch Niederlassung: Mr. Jeffery H. Perkins. CONSUMER AND RETAIL INDUSTRY UPDATE │ JUNE 2017
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CONSUMER AND RETAIL | HARRIS WILLIAMS & CO. CONSUMER UPDATE 2 CONSUMER AND RETAIL INDUSTRY UPDATE JUNE 2017 Given the imbalance in supply and demand referenced above, buyers across
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www.harriswilliams.de
Harris Williams & Co. Ltd is a private limited company authorised and regulated by the Financial Conduct Authority, incorporated under English law with its registered office at 5th Floor, 6 St. Andrew Street,London EC4A 3AE, UK, registered with the Registrar of Companies for England and Wales under company number 7078852. Directors: Mr. Ned Valentine, Mr. Paul Poggi, Mr. Thierry Monjauze and Mr. Aadil Khan.
Harris Williams & Co. Ltd Niederlassung Frankfurt (German branch) is registered in the Commercial Register (Handelsregister) of the Local Court (Amtsgericht) of Frankfurt am Main, Germany, under 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.
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:
The consumer sector continued to evolve during the past quarter as brands, retailers,and e-commerce companies continue to adapt to shifts in consumer preferences andbuying habits. Over the past three months, we have continued to see this play out inboth M&A activity and valuations. The traditional brick and mortar retailers continue toventure outside of historical business lines and acquire additional e-commerce DNA withdeals announced by the likes of Walmart, PetSmart, and Target among others. At thesame time, traditional e-commerce companies are pursuing brick and mortar strategiesto either solve perceived last mile issues or better control the overall consumer and brandexperience (e.g. Amazon’s purchase of Whole Foods). These channel changes as wellas the continued evolution of consumer tastes have created opportunities acrossmultiple segments within products, food, restaurant, and consumer services categories.During Q2 17, Harris Williams closed six consumer deals with companies that arebenefitting from evolution in the consumer market.
As highlighted in the chart below, consumer deal volume in 2017 has been lower thanthe same period the prior year. While Q2 data has not been fully compiled, the list ofclosed deals to date and our conversations with potential buyers (both strategic andfinancial) would indicate volume will remain at a comparable level to Q1. This lowervolume coupled with ample capital from strategic and financial buyers continues tocreate an environment that is favoring sellers. While some aggregated data showvaluations may have moderated, our experience is that for well positioned, growingconsumer companies that are capitalizing on the evolving consumer landscapecontinue to draw aggressive valuations and extremely favorable contract terms.
Given the imbalance in supply and demand referenced above, buyers across all segments (strategic/financial/patientcapital, domestic/international) have been very active – and increasingly proactive – in targeting assets of interest. Sellersin this market increasingly have options to be able to evaluate who the right partners are for the next chapter in thecompany’s growth. The fact that sellers are not required to compromise on value is reflected in the exit activity amongstprivate equity groups. As seen in the chart below, sales to financial buyers have swung back to be on par with strategicbuyers as they have become every bit as (if not more) competitive with strategic buyers on most assets in this market.
The ultimate driver of activity and change in the consumer space is the end consumer themselves. The past 3 monthscontinue to reflect the themes in the sector that have been building for several quarters/years – more disposable incomedriving aspirational purchases (ie. higher price point products), investing in health and wellness for themselves, their kids andtheir pets (this trend plays out in a variety of categories from fitness, product, food, etc), valuing experiences and servicesover products in some categories, and valuing convenience in their purchasing habits. These trends play out in the dealactivity and are reflected in the expansion/contraction in volume in certain segments.
Apparel and Accessories Durables Media Non-Durables Other Restaurants, Hotels and Leisure Retail
CONSUMER PRIVATE EQUITY EXIT ACTIVITY1
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Noteworthy Transaction Description
Amazon Acquiring Whole Foods
Amazon announced that it has agreed to acquire Whole Foods for $13.7 billion. The deal highlights
Amazon’s expanding presence in retail as the company makes its first significant move into over 450
brick-and-mortar locations.
Target Investing in Casper
As acquisition talks fizzled between the two parties, Target countered with a $75 million investment in
Casper. As the leading investor in Casper, Target will now offer Casper’s mattresses, pillows, sheets
and more in its stores and on its website.
PetSmart Acquiring ChewyPetSmart has agreed to make the biggest e-commerce acquisition in history, putting a deal in place
to snatch up fast-growing pet food and product site Chewy.com for $3.35 billon.
Kohlberg Acquiring Newell Brands’ Winter
Sports Business
Kohlberg & Company has agreed to acquire Newell Brands’ winter sports business for $240 million.
The transaction is expected to close in early Q3 2017 and includes Völkl, K2, Marker, Dalbello,
Madshus, Line, Full Tilt, Atlas, Tubbs, Ride, and BCA.
Coach Acquiring Kate Spade
In an effort to resonate more with younger consumers, handbag maker Coach is buying its smaller
rival, Kate Spade & Co., for $2.4 billion. The deal is expected to close in Q3 2017 and puts M&A rumors
to rest.
Cornell Capital Acquiring World KitchenCornell Capital acquired World Kitchen bringing new commitment to World Kitchen’s product
innovation and growth strategy for iconic brands such as Pyrex, Corelle, and CorningWare.
CVC Capital Partners Acquiring PDC Brands
CVC Capital Partners acquired PDC Brands from Yellow Wood Partners – financial terms were not
disclosed. CVC looks to grow PDC Brands domestically and abroad by leveraging their deep sector
experience and global resources.
Samsonite Acquiring eBagsSamsonite International has acquired eBags for $105 million. Samsonite made the acquisition of
eBags as a way to strengthen its own e-commerce business to sell directly to consumers.
Wal-Mart Acquiring Bonobos
Wal-Mart has reached a deal to acquire Bonobos for $310 million marking a major step for Wal-Mart
as the company invests in an upscale fashion business. This acquisition further demonstrates the
company’s ongoing digital innovation strategy.
Spectrum Acquiring PetmatrixSpectrum Brands has agreed to acquire Petmatrix for $255 million. Petmartix is a manufacturer and
distributor of dog food products with brands including Dream Bones and Smart Bones.
Authentic Brands Group Acquiring Majority
Stake in Frye
Authentic Brands Group has acquired a 51% stake in Frye from Global Brands Group. The acquisition
marks as the first time ABG and Global Brands have co-owned a brand. The groups plan to expand
Frye to new product categories and grow its global retail presence with new standalone stores.
Ares Acquiring DevaCurlAres Management has agreed to acquire DevaCurl from Tengram Capital for an undisclosed
amount. DevaCurl is a leading professional and prestige hair care brand dedicated to curly hair.
HARRIS WILLIAMS & CO. CONSUMER UPDATE
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CONSUMER AND RETAIL
INDUSTRY UPDATE │ JUNE 2017
In addition to our deals, Q2 had several noteworthy announced or closed consumer deals that reflect the changeshappening in the sector – several of these are noted below:
WHAT WE’RE READING
For the Wealthiest Americans, Amazon Prime has Become the Norm
“Households that made more than $112,000 per year, on the other hand, are nearing saturation, with 82 percent inpossession of Amazon Prime memberships, according to a survey of 5,500 U.S. teens about whether their families had Primememberships. The insight comes from a ongoing Jaffray survey on what brands teens consume and what trends teensfollow. It bases income on average household income for each teen’s zip code.
Recode
The Mall of the Future Will Have No Stores
“In all, retailers have announced 2,880 store closings from January to April 6 of this year, more than twice as many as in thesame period a year earlier, according to Credit Suisse .For the full year, the investment bank anticipates more than 8,600stores to close. Analysts predict that 400 or so of the roughly 1,100 malls in the U.S. will close in the coming years.”
• Arrangers have launched a $260 million covenant-lite B term loan for Melissa & Doug, with commitments due byWednesday, June 21. Price talk on the seven-year loan is making the rounds at L+500, with a 1% LIBOR floor and anOID of 99. Lenders are offered six months of 101 soft call protection.
• Accounts have received allocations of a $205 million first-lien term loan for Rough Country. Golub Capital was solelead arranger. The covenant-lite term loan due 2023 (L+450, 1% LIBOR floor) priced in line with talk and broke to a99.5/100.25 market, from issuance at 99. The loan backs the buyout of the company by Gridiron Capital. First-lienfinancing also includes a $20 million, five-year revolver. An $85 million, second-lien term loan was privately placed.Carlyle Private Credit led the second-lien tranche. Dyersburg, Tenn.–based Rough Country is a provider of after-market auto products, focused on lift and level kits catered to off-road enthusiasts.
• The term debt of clothing retailer Eddie Bauer has been marked at 45.5/50 in the wake of the private release of a2017 budget which forecast a profit of half the previous forecast. Eddie Bauer placed a $225 million, six-year termloan (L+525) at 98.5 in May 2014. Proceeds from the loan were used to refinance secured notes and fund apayment to sponsor Golden Gate Capital. Goldman Sachs, Guggenheim, and MCS Capital Markets werearrangers.
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PUBLIC COMPARABLES(1)
CONSUMER AND RETAIL
INDUSTRY UPDATE │ JUNE 2017
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Price at As a % of Market Cash & Enterprise LTM P/E
($ in m illions, except per share data) Ticker 6/11/17 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 / 2017ERevenue Growth LTM Margins
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PUBLIC COMPARABLES(1)
CONSUMER AND RETAIL
INDUSTRY UPDATE │ JUNE 2017
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Price at As a % of Market Cash & Enterprise LTM P/E
($ in m illions, except per share data) Ticker 6/11/17 52-wk High Cap Debt Equiv. Value (EV) Revenue EBITDA 1 Year 3 Years Gross EBITDA Multiple Revenue EBITDA Revenue EBITDA
Consumer Services and Retail Franchisors
GNC Holdings, Inc. Class A GNC 7.46 26.5% 532 1,515 40 2,008 2,516 319 (4.6%) (1.6%) 33.3% 12.7% NA 0.80x 6.3x 0.76x 3.8x
Last Twelve Months (LTM) LTM Margins EV / LTM EV / 2017ERevenue Growth
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PUBLIC COMPARABLES(1)
CONSUMER AND RETAIL
INDUSTRY UPDATE │ JUNE 2017
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Price at As a % of Market Cash & Enterprise LTM P/E
($ in m illions, except per share data) Ticker 6/11/17 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 / 2017E
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PUBLIC COMPARABLES(1)
CONSUMER AND RETAIL
INDUSTRY UPDATE │ JUNE 2017
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Price at As a % of Market Cash & Enterprise LTM P/E
($ in m illions, except per share data) Ticker 6/11/17 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 / 2017ERevenue Growth EV / LTM
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PUBLIC COMPARABLES(1)
CONSUMER AND RETAIL
INDUSTRY UPDATE │ JUNE 2017
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Price at As a % of Market Cash & Enterprise LTM P/E
($ in millions, except per share data) Ticker 6/11/17 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 / 2017ERevenue Growth EV / LTM
Price at As a % of Market Cash & Enterprise LTM P/E
($ in m illions, except per share data) Ticker 6/11/17 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 50.49 89.3% 2,233 116 66 2,283 5,185 381 (0.7%) (0.6%) 38.3% 7.3% 13.7x 0.44x 6.0x 0.43x 7.4x
EV / 2017ELast Twelve Months (LTM) Revenue Growth LTM Margins EV / LTM
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PUBLIC COMPARABLES(1)
CONSUMER AND RETAIL
INDUSTRY UPDATE │ JUNE 2017
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Price at As a % of Market Cash & Enterprise LTM P/E
($ in m illions, except per share data) Ticker 6/11/17 52-wk High Cap Debt Equiv. Value (EV) Revenue EBITDA 1 Year 3 Years Gross EBITDA Multiple Revenue EBITDA Revenue EBITDA
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.
INDUSTRY UPDATE │ JUNE 2017
CONSUMER AND RETAIL
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HARRIS WILLIAMS & CO.
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SOURCES
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 authorised and regulated by the Financial Conduct Authority, incorporated under English law with its registered office at 5th Floor, 6 St. Andrew Street, London EC4A 3AE, UK, registered with the Registrar of Companies for England and Wales under company number 7078852. Directors: Mr. Ned Valentine, Mr. Paul Poggi, Mr. Thierry Monjauze and Mr. Aadil Khan.
Harris Williams & Co. Ltd Niederlassung Frankfurt (German branch) is registered in the Commercial Register (Handelsregister) of the Local Court (Amtsgericht) of Frankfurt am Main, Germany, under registration number HRB 96687, having its business address at Bockenheimer Landstrasse 33-35, 60325 Frankfurt am Main, Germany. Permanent Representative (Ständiger Vertreter) of the Branch Niederlassung: Mr. Jeffery H. Perkins.
THIS REPORT MAY CONTAIN REFERENCES TO REGISTERED TRADEMARKS, SERVICE MARKS AND COPYRIGHTS OWNED BY THIRD-PARTY INFORMATION PROVIDERS. NONE OF THE THIRD-PARTY INFORMATION PROVIDERS IS ENDORSING THE OFFERING OF, AND SHALL NOT IN ANY WAY BE DEEMED AN ISSUER OR UNDERWRITER OF, THE SECURITIES, FINANCIAL INSTRUMENTS OR OTHER INVESTMENTS DISCUSSED IN THIS REPORT, AND SHALL NOT HAVE ANY LIABILITY OR RESPONSIBILITY FOR ANY STATEMENTS MADE IN THE REPORT OR FOR ANY FINANCIAL STATEMENTS, FINANCIAL PROJECTIONS OR OTHER FINANCIAL INFORMATION CONTAINED OR ATTACHED AS AN EXHIBIT TO THE REPORT. FOR MORE INFORMATION ABOUT THE MATERIALS PROVIDED BY SUCH THIRD PARTIES, PLEASE CONTACT US.
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, Harris Williams 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.