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PwC Deals

US Retail and Consumer


Deals insights Q2 2016

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Executive summary
The retail and consumer sector continued its positive
momentum into Q2 2016 with 282 announced deals its
highest level in the past four quarters and a 5% increase
over Q1 2016. While the number of mega deals (transactions
exceeding $1.0 billion) during the quarter dropped from
seven to four mega deals when compared with Q1 2016,
there were 11 mega deals in the first half of 2016 compared
with nine mega deals in the first half of 2015.
Contrary to this quarters increase in deal volume, deal
value dropped to $18.0 billion a decline of 44% and 25%
as compared with Q2 2015 and Q1 2016. This was the lowest
deal value recorded in the sector in the past eight quarters
and was driven by both a fewer number of mega deals with
lower deal values and a decrease in EBITDA multiples. The
four mega deals announced in the quarter had a total value
of $9.3 billion compared with five mega deals totaling $23.2
billion in value in Q2 2015 and seven mega deals totaling
$17.6 billion in value in Q1 2016. EBITDA multiples averaged
10.3x in the quarter, a decline from 11.3x in Q1 2016. Deal
value during the quarter was led by deals in the household
and personal products subsector as evidenced by the largest
transaction of Q2 2016, which is the pending Henkel AG & Co.
KGaA's acquisition of Sun Products Corporation for
$3.6 billion.
Looking ahead, we see positives results with respect to
mega deal value led by the pending $10.4 billion acquisition of
WhiteWave Foods Co. by Danone, which was announced on
July 7th, 2016.
Retail and consumer deal volume and value
2015

2016
310
300

300

290
301

280

292

282
265

258

270
260

269
257

250

$81.7 $18.7 $69.4 $31.9 $52.8 $76.7 $24.0 $18.0

240
230

Q3

Q4

Q1

Q2

Announced deal value

Source: Thomson Reuters

Q3

Q4

Q1

Q2

Announced deal volume

Number of deals

Deal value ($ in billions)

2014
90
80
70
60
50
40
30
20
10
0

Retail and consumer deal volume


continued its positive trajectory,
reaching its highest level in the past four
quarters. Despite challenges from global
economic uncertainties, factors such as
continued shareholder activism and
renewed interest in private equity bode
well for companies in the sector.
Dominic Ricketts,
US Retail and Consumer Deals Leader

Retail and Consumer market outlook


Key factors expected to impact the retail and consumer
deals market for the remainder of 2016 may include
the following:
Global economic uncertainties driven by continued
financial market volatility around the world, the
upcoming US presidential election, the Feds future
decisions regarding interest rates, and the Brexit vote
and resulting policy decisions over the next few years.
Shareholder activism will continue to put pressure
on management teams at many US listed companies,
but management's current focus (for multinational
companies) will be the potential impact, if any,
of the Brexit vote on their EU businesses.
Selling activity among private equity firms will likely
increase as they review their portfolios for businesses
that they have held for two years or more with the
intent to bring to market those assets with strong
market positions, good financial performance, and
unique business models as they seek outsized returns
for businesses with measurable rarity value.
Companies will continue to monetize real estate
holdings through non-recourse financing, saleleasebacks and, more recently, spin-offs of real
estate and REIT conversions. Given the large
footprint of stores and operations, we expect these
transactions to continue to be prevalent within the
retail and consumer sector.

Optimize Deals
US Retail and Consumer
Deals Insights
Q2 2016 update

Optimize deals

Key themes in the quarter


Mega deals are down

Deal volume by transaction size

44%

$0-$50m

33%
15%
15%
18%
20%

$50-$100m
$100-$250m

Q1 2016

10%

$250-$500m
$500m-$1b

Four mega deals announced in Q2 2016. This was a


marked slowdown from Q2 2015 and Q1 2016, which
experienced five and seven mega deals, respectively.
Deal value for transactions valued in excess of a billion
dollars in Q2 2016 declined steeply to $9.3 billion, down
from $23.2 billion in Q2 2015 and $17.6 billion in Q1 2016.
Despite the fact mega deals are down, the number of
transactions in the $100 million - $1 billion range are
up, with 25 deals in Q2 2016 compared with 21 deals in
Q1 2016.

Q2 2016

16%
3%
9%
10%
7%

$1b+

Source: Thomson Reuters


Note: Deals included in this chart are those that have disclosed value.

Transaction multiples

EV/Revenue

3.0

2014
24.2x

2015

25.0x

16.5x

2.5
2.0

EBITDA multiples decline and reach lowest


level in two years

30.0x

2016

11.4x
11.0x

1.5

20.0x

11.3x

15.0x

13.8x

10.3x

15.0x
10.0x

1.0

EV/EBITDA

3.5

5.0x

0.5
1.5x

2.9x

1.6x

2.2x

1.3x

1.4x

1.8x

1.9x

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

0.0

EBITDA multiples decreased in Q2 2016 compared with


Q1 2016, which represents signs of continued uncertainty
in the market.
Revenue multiples increased slightly in Q2 2016
compared with Q1 2016.
Note: Historical multiples reflect updates based on
restated/new filings and additional market information
available in the current quarter.

0.0x
EV / Revenue

EV / EBITDA

Source: Capital IQ

Private equity activity deal volume and value


2015

2016

PE deal value ($ in billions)

60
50
79
40

80

76

65

72

69
59

30

63

20
10
$17.4 $11.6 $55.0 $2.5

$3.9 $19.6 $3.1

$1.5

0
Q3

Q4

Q1

Q2

Announced PE deal value

Source: Thomson Reuters

Q3

Q4

Q1

90
80
70
60
50
40
30
20
10
0

Q2

Announced PE deal volume

PE deal volume

2014

Private equity continues to be slow


Private equity volume as a percentage of total deal
volume was 22%, down from 26% in Q2 2015, and flat
with 22% in Q1 2016.
Private equity value as a percentage of total deal
value was 8%, flat with 8% in Q2 2015 and down from
13% Q1 2016.
There were nine private equity deals with disclosed
values announced in the quarter, amounting to a total
of $1.5 billion, indicating a 52% decrease in deal value
as compared with Q1 2016.
The largest contributor to private equity was the pending
$572 million acquisition of WKI Holdings Co. Inc., a
manufacture and wholesaler of housewares, by GP
Invests Acquisition Corp.

Optimize Deals
US Retail and Consumer
Deals Insights
Q2 2016 update

Optimize deals

Appendix: Highlights of Q2 2016 deal activity


Cross-border deal volume increases, led by
Europe and Asia-Pacific

Announced deal value by target region* for Q2 2016

Cross-border activity increased slightly during Q2 2016


compared with Q1 2016, and also increased slightly on a
year-over-year basis. Cross-border activity represented 36%
of deal volume and 52% of deal value.
Outbound deal activity comprised 57% of cross-border
deal volume, and 28% of cross-border deal value in Q2
2016. Of cross-border deals, Europe was the dominant
region for US outbound activity in terms of volume (47%),
but Asia-Pacific led in outbound investment by value (57%).
Inbound deal activity in Q2 2016 comprised 43% of
cross-border deal volume, and 72% of cross-border deal
value. Of cross-border deals, the inbound activity was led
by European investors for deal volume and value (34%
and 83% respectively).

Asia-Pacific is the main focal


point of US investment abroad.

0%
Canada

3%

85%

8%

Europe

United
States

AsiaPacific

0%

Africa/Middle
East/Central Asia

3%
Latin
America

Source: Thomson Reuters


*Target region calculations include both domestic deals and crossborder deals.

IPO volume and value by quarter


2014

2015
7

2016
8

7
6

1,500

1,000

2
1

500

2
0

0
Q3

Q4

Q1

Q2

Announced deal value

Source: Thomson Reuters

Q3

Q4

Q1

Q2

Announced deal volume

Number of IPOs

Deal value ($ in millions)

2,000

IPO activity re-emerges in Q2 2016


There were three retail and consumer IPOs in the quarter,
raising $1.6 billion, comprising only 8% of the overall IPO
market volume for the quarter, but an impressive 25% of
the value. This was primarily driven by the $1 billion IPO of
US Foods Holding Corp., the second largest IPO of the year.
The retail and consumer sector outperformed the Q2 2016
return of the S&P 500 (up 2%) with average end of period
returns of 7%. Further, we saw heightened activity by
private equity in the quarter, backing two of the three
retail and consumer IPOs.
The retail and consumer pipeline increased from 15 at the
end of Q1 2016 to 17 companies on file as of the end of Q2
2016, with five of those companies filing for the first time
during the period compared with no new filers in the
previous quarter.

Optimize Deals
US Retail and Consumer
Deals Insights
Q2 2016 update

Optimize deals

Appendix: Highlights of Q2 2016 deal activity


Household and personal products and food
and beverage deals drive the sector

Sub-sector deals by volume and value


Q2 2016

Q2 2016 <1%

3%

15%

9%
3%
10%

12%

10%
16%

7%
282

$18.0B

24%

<1%

20%

1%
7% 8%

51%

3%
Agribusiness (crops, fertilizer, animal processing)
Apparel, footwear and accessories
Food and beverage (including alcohol)
Grocery, drug, discount, and mass
Household and personal products
Internet / e-commerce
Other consumer products
Restaurants
Specialty retail / other (electronics, home improvement, auto repair, etc)

Deal value in the retail and consumer sector was driven by


household and personal products, which surged to 51% of
total deal value in Q2 2016 from 3% in Q2 2015. However,
it accounted for only 7% of the total deal volume in Q2 2016.
In terms of deal volume, food and beverage accounted for
the highest share at 24% in Q2 2016, up from 22% in Q2
2015. It was closely followed by other consumer products
at 20% share in Q2 2016, up from 18% in Q2 2015.
Apparel, footwear and accessories and restaurants
accounted for 10% share each of the total deal value
in Q2 2016.

Source: Thomson Reuters

Announced deal volume and value by sub-sector


# of deals

Deal value ($ in millions)

Household and personal products

$9,119

21
Food and beverage (including alcohol)

$2,871

67
Restaurants

$1,729

21

Apparel, footwear and accessories

$1,724

35

Specialty retail/other (electronics, home improvement, auto repair, etc.)

$1,706

43

Other consumer products*

56

$508
Grocery, drug, discount and mass

23

$211
Agribusiness (crops, fertilizer, animal processing)

$85
Internet/e-commerce

$60

Source: Thomson Reuters


*Other consumer products includes products such as appliances,
furniture, and consumer electronics.

Key announced transactions


Household and personal products Henkel AG & Co
KGaAs announcement to acquire Sun Products
Corporation, a laundry products manufacturer,
for $3.6 billion.
Household and personal products Johnson & Johnsons
acquisition of Vogue International Inc., a manufacturer and
wholesaler of personal care products, for $3.3 billion, which
closed in Q3 2016.
Restaurants The Reimann family (through its JAB group
of companies) and BDT Capital Partners announcement to
acquire Krispy Kreme Doughnuts Inc., for $1.4 billion.
Specialty retail/other First Cash Financial Services Inc.s
announcement to acquire Cash America International Inc.,
an owner and operator of pawnshops, for $1.0 billion.
Household and personal products MacAndrews & Forbes
Inc. (through its wholly owned subsidiary, Revlon Inc.)
agreed to acquire Elizabeth Arden Inc., for $870 million.
Apparel, footwear, and accessories Hanesbrands Inc.s
announcement to acquire Pacific Brands Limited, an
Australian wholesaler and retailer of consumer clothing,
for $817 million.
Food and beverage An investor groups (comprising
Coca-Cola Co. and Coca-Cola FEMSA SAB de CV)
announcement to acquire Unilever PLCs AdeS soy
beverage business in Latin America for $575 million.

Optimize Deals
US Retail and Consumer
Deals Insights
Q2 2016 update

About PwCs
Deals Practice

Optimize deals
Authors
Chris LaPorta
Director, PwC's Deals Practice
646 471 7237
christopher.laporta@pwc.com
Danielle Brisky
Manager, Research & Analysis
415 498 7688
danielle.m.brisky@pwc.com

For a deeper discussion on


deal considerations, please
contact one of our practice
leaders or your local
Deals partner:
Dominic Ricketts
Partner, US Retail & Consumer Leader
PwCs Deals Practice
646 471 2301
dominic.ricketts@pwc.com
Caroline Tetelboum
Partner, PwCs Deals Practice
646 471 7491
caroline.tetelboum@pwc.com
Akshat Dubey
Principal, Deals Strategy
PwC Strategy& LLC
734 945 8971
akshat.dubey@strategyand.us.pwc.com
Chris Nolan
Managing Director, Global Deals
Origination
PwCs Deals Practice
646 471 7387
christopher.w.nolan@pwc.com
Bob Saada
Partner, US Deals Leader
PwCs Deals Practice
813 329 8211
bob.d.saada@pwc.com

Smart deal makers are perceptive enough to see value others have missed,
flexible enough to adjust for the unexpected, aggressive enough to win favorable
terms in a competitive environment, and circumspect enough to envision the
challenges they will face from the moment the contract is signed. But in a
business environment where information can quickly overwhelm, the smartest
deal makers look to experienced advisors to help them fashion a deal that works.
PwCs Deals group can advise retail and consumer companies and retail and
consumer-focused private equity firms on key M&A decisions, from
identifying acquisition or divestiture candidates and performing detailed
buy-side diligence, to developing strategies for capturing post-deal profits and
exiting a deal through a sale, carve-out, or IPO. With more than 9,800 deals
professionals in 75 countries, we can deploy seasoned teams that combine deep
retail and consumer industry skills with local market knowledge virtually
anywhere and everywhere your company operates or executes transactions.
Although every deal is unique, most will benefit from the broad experience we
bring to delivering strategic M&A advice, due diligence, transaction structuring,
M&A tax, merger integration, valuation, and post-deal services.
In short, we offer integrated solutions, tailored to your particular deal situation
and designed to help you extract peak value within your risk profile. Whether
your focus is deploying capital through an acquisition or joint venture, raising
capital through an IPO or private placement, or harvesting an investment
through the divesture process, we can help.
For more information about M&A and related services in the retail and
consumer industry, please visit http://www.pwc.com/optimizedeals or
http://www.pwc.com/us/retail-consumer

About thedata
The information presented in this report is an analysis of deals in the retail and
consumer industry where the target company, the target ultimate parent company,
the acquiring company, or the acquiring ultimate parent company was located in the
Unites States of America. Deal information was sourced from Thomson Reuters and
includes deals for which targets have a target mid industry code that falls into one
of the following mid industry groups: Apparel Retailing, Automotive Retailing,
Computers & Electronics Retailing, Discount and Department Store Retailing,
Food and Beverage Retailing, Food and Beverage, Home Furnishings, Home
Improvement Retailing, Household & Personal Products, Internet and Catalog
Retailing, Other Consumer Products, Other Consumer Staples, Other Retailing,
Textiles & Apparel, and Tobacco. Certain adjustments have been made to the
information to exclude transactions which are not specific to the retail and
consumer sector or incorporate relevant transactions that were omitted from
the indicated mid industry codes.
This analysis includes all individual mergers, acquisitions, and divestitures for
disclosed or undisclosed values, leveraged buyouts, privatizations, minority stake
purchases, and acquisitions of remaining interest announced between January 1,
2014 and June 30, 2016, with a deal status of completed, partially completed,
pending, pending regulatory, unconditional (i.e. initial conditions set forth by the
buyer have been met but deal has not been withdrawn and excludes all rumors and
seeking buyers). Additionally, transactions that are spin-offs through distribution to
existing shareholders are included.
Percentages and values are rounded to the nearest whole number which may result
in minor differences when summing totals.

2016 PwC. All rights reserved. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to
the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details.
Disclaimer:
This content is for general information purposes only, and should not be used as a substitute for consultation with professional
advisors.148535-2016 vc

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