Why Retail is a
Bright Spot in
Food Industry
M & A
March 21 , 2019
B r ian Todd
Pres ident
The Food Ins t i tu te
WWW.FOODINSTITUTE.COM
MISSION The Food Institute (FI) is the single source for
information, analysis and reporting for the food
industry ‘from farm to fork’.
FI provides balanced coverage of food trends through
multiple channels so that industry professionals
worldwide can tap in when and how they choose.
316 311
503
410
505
591
527
2012 2013 2014 2015 2016 2017 2018
Overall Food Industry M & A Slowed In 2018
Source: Proprietary data from The Food Institute.
Food Processors Account For 30% Of Deals
Retailers Make Up 17%!
30%
14%
15%
17%
5%
3%
16%
Food Processors
Investment Firms & Banks
Foodservice & Restaurants
Retailers
Diversified Firms
Wholesalers
Others
Proprietary Information: Food Institute LLC, Upper Saddle River, NJ
A Few Of The Findings
• ConAgra acquired Pinnacle Brands
• Ferrero acquired Nestles U.S. confections
• General Mills and Smuckers invest in pets
• Tyson buys lab-grown meat startups
Supermarket M&A Rebounded In ’18…
Proprietary Information: Food Institute LLC, Upper Saddle River, NJ
19
28
36
29
36
22
36
1999 2012 2013 2014 2015 2016 2017
On the Retail Side
Proprietary Information: Food Institute LLC, Upper Saddle River, NJ
•SUPERVALU UNFI
•Best Markets LIDL
•Flipkart Walmart
•Martins Spartan Nash
www.thefoodpartners.com
PRESENTED BY THE FOOD PARTNERS
Why Retail is a Bright Spot in M&A
March 2019
MERGERS & ACQUISITIONS
• Amazon’s acquisition of Whole Foods was the catalyst for several major competitors
radically altering their strategic plans
• Amazon and Walmart are like two elephants wrestling and all of the other retailers in the
U.S. are the grass
• In May 2018, Kroger and Ocado partnered to build 20 fulfilment centers in the U.S. which
will materially expand Kroger’s geographic market – improve efficiency – grow online
business without any material investment in brick and mortar
• In December 2018, Kroger announced it was offering autonomous vehicle grocery delivery
in Scottsdale and announced the expansion to Houston in March 2019
• In January 2019, Trader Joe’s ended its home delivery service in Manhattan – “Instead of
passing along unsustainable cost increases to our customers, removing delivery will allow us
to continue to offer outstanding value”
• In March 2019, the Wall Street Journal reported Amazon was expected to launch a new line
of brick and mortar grocery stores in major U.S. cities
• Ocado’s home delivery business in Great Britain for FY 2018 generated revenues of $1.9
billion – EBITDA was 5.6% of sales
Retail Landscape
2
MERGERS & ACQUISITIONS
• A number of players focusing on “the last mile” are losing money on every incremental
dollar of business – the question will be whether these players can generate sufficient
volume in a market to create a profitable business model
• Consumer tastes and preferences continue to shift rapidly for what, when and where they
buy food
• Winn-Dixie CEO’s vision for the company is as a conventional store operator – not a recipe
for success
• Food retailers in the U.S can be separated into two categories – those that are “relevant” and
have momentum and those that are operating “conventional” stores
• Majority of supermarket chains in the U.S. are focusing on eliminating non-core stores to
make material capital investments in the core business, including technology
• In 2018, U.S. retail grocer store count declined by 2.5% - it can be expected that this trend
will continue at the same level or increase the next five years
3
Retail Landscape
MERGERS & ACQUISITIONS
• The number of grocery wholesalers has declined from 48 in 2003 to 28 in 2019
• During the same time period, 29 grocery distribution centers closed
• UNFI’s acquisition of Supervalu is one of the most significant transactions in the grocery
distribution space since Fleming’s liquidation in 2003
Business combination surprised the industry
Caused a number of other grocery wholesalers to rethink their business model
4
Distribution Landscape
MERGERS & ACQUISITIONS
30 3019
42
27
43
22 24
39
8 1327
24
21
17
1720
113843
46
66
48
60
3944
50
0
10
20
30
40
50
60
70
80
90
100
2010 2011 2012 2013 2014 2015 2016 2017 2018
Portfolio Corporate
1,192918 770
877 1,335
3,400
230
907
582
2,0692,253
4,170
991
651384
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
2010 2011 2012 2013 2014 2015 2016 2017 2018
Stores Sold Stores Sold Through Large Transactions[1]
6
21
13
31
47
70
15
8618 19
13
25
0
10
20
30
40
50
60
70
80
2010 2011 2012 2013 2014 2015 2016 2017 2018
5
- Source: Company reports, news articles, The Food Partners
- Includes announced but not yet closed transactions
[1] Albertson’s, Safeway and Delhaize acquisitions in 2013, 2014 and 2015, respectively
Portfolio Versus Corporate Transactions Mergers and Acquisitions
• The number of stores sold annually since
2010 has fluctuated between
approximately 400 and 1,000 (excluding
the Albertson’s, Safeway and Delhaize
acquisitions in 2013, 2014 and 2015,
respectively)
Average Stores per Transaction Stores Sold
Transactions
MERGERS & ACQUISITIONS
14
5
7
1
6
3 3
1
3
4
0
2
4
6
8
10
12
14
16
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
6 - Sources: The Food Partners, Capital IQ, news releases
Supermarket Bankruptcy Detail Number of Supermarket Bankruptcies by Year
• The number of supermarket bankruptcies
has remained steady over the past several
years – although slightly up in 2018
• Since 2010, 5 companies with over 100
stores have filed for bankruptcy
A&P, Fresh & Easy, Haggen, Southeastern
Grocers and Tops
• Average chain size is 18 stores (for
bankruptcies under 100 stores)
Company Date Filed
No. of
Stores
State
Filed Status
Seasons Kosher Supermarket 9/16/2018 8 NY Emerged
Schuette Stores 9/7/2018 2 IL Liquidated
Southeastern Grocers 3/27/2018 582 DE Emerged
Tops Holding II 2/22/2018 169 NY Emerged
Marsh Supermarkets Holding 5/11/2017 44 DE Sold
Central Grocers 5/2/2017 n/a IL Sold
Thorne's Markets 1/20/2017 4 OH Closed
Fairway Group Holdings 5/3/2016 15 NY Emerged
Fresh & Easy 10/30/2015 97 DE Liquidated
Haggen 9/9/2015 164 DE Sold
The Great Atlantic & Pacific Tea 7/19/2015 297 NY Liquidated
Dahl's Foods 11/10/2014 10 IA Sold
Associated Wholesalers 9/9/2014 n/a DE Sold
Farmers Foods (Highland Springs and Webb) 6/2/2014 2 VA Closed
C&K Market 11/19/2013 60 OR Emerged
Fresh & Easy Neighborhood Market 9/30/2013 167 DE Sold
Midwest Gourmet Foods (Fox & Obel) 9/19/2013 1 IL Unknown
Mi Pueblo San Jose 7/22/2013 21 CA Emerged
Belle Foods 7/1/2013 57 AL Sold
Pro's Ranch Markets 5/29/2013 11 CA Sold
Liborio Market 4/13/2012 8 CA Liquidated
Michael’s Fresh Market 12/30/2011 7 IL Unknown
Associated Grocers of Maine 8/26/2011 n/a ME Dismissed
Azteca Ranch Market 8/1/2011 n/a CO Liquidated
Moo & Oink 8/24/2011 4 IL Liquidated
Andronico's Market 8/22/2011 7 CA Sold
A.G. Ferrari Foods 3/30/2011 13 CA Sold
Rizk-Co-Zann Foods Corporation 3/10/2011 1 PA Dismissed
The Great Atlantic & Pacific Tea 12/12/2010 336 NY Emerged
Empresas Cordero Badillo 11/12/2010 n/a PR Emerged
Grand Mart International 10/19/2010 6 MD Sold
Supermercado del Pueblo 4/1/2010 4 NV Unknown
Star Food International 1/5/2010 3 CA Unknown
Bankruptcies
MERGERS & ACQUISITIONS
7
Looking Forward at Retail
• Southeastern Grocers may be a repeat of A&P
• At least one regional chain is currently for sale
• In 2019, we anticipate 300 to 500 stores will be sold
• Store closures continue at an accelerated pace
• The rise in interest rates has had a minor impact on buyers’ appetite for the “right” stores
• EBITDA multiples paid by buyers should remain stable
• The consolidation of the retail grocery sector will strengthen the overall health of remaining
retail base
MERGERS & ACQUISITIONS
• In specific markets the increase in the minimum wage appears to have resulted in fewer
people qualifying for government assistance resulting in a decline in same store sales – where
did the sales go
• Investing gross margin to maintain or grow top line sales did not prove to be successful
strategy for most of 2018
• Price investment in the fourth quarter of 2018 and first quarter of 2019 had a positive
impact on same store sales for many independents
• Focus on fresh and local products
• The difference between undertaking a minor or major store remodel is a balancing act to
maximize value and the long-run viability of a store
• Five year goal is to be the survivor in every market served
8
The Future: Defining a Strategy for Independent Retailers
MERGERS & ACQUISITIONS
• In 2019, meal solutions do not come in a box delivered to your house like last year
They are now delivered by an Uber driver
• Why do consumers pay a premium for a meal solution in a box that they can get at the
grocery store when they could buy the ingredients and Google how to prepare it in a new
and interesting way
• We have two kinds of customers, those that shop at our stores and those that shop at our
competitors’ stores
• In the new world order, every supermarket in this country is a limited assortment store
because on line shopping provides an endless aisle
• The best quote for 2018
“I have two more sons in the business then I need”
“How many sons do you have?”
“Two!”
9
Quotes of the Year
0
Food Institute M&A Webinar
Topic: Retail a Bright Spot in M&A?
Presenter: Karen Martin
March 21, 2019
1
Presenter Biography
Karen specializes in mergers & acquisitions in the Food, Consumer & Retail
sector. For over 25 years, she has focused on mergers and acquisitions and
corporate finance for public and private companies. Prior to joining BMO Capital
Markets, Karen was with Banc One Capital Markets, Inc. for ten years. For the
last 16 years, Karen focused exclusively on the food, consumer & retail sectors.
BMO Capital Markets includes nearly 100 M&A professionals globally. Karen
leads the firm’s M&A activity in the Food and Food-Retail sectors. Karen has
advised on various types of transactions, including outright sales, corporate
divestitures, acquisitions, capital raises and take-over defense.
Some of the transactions on which Karen advised include the recapitalization of
Mastronardi Produce, KeHE Distributor’s acquisitions of both Tree of Life and
Nature’s Best, SaveMart Supermarkets’ acquisition of Albertsons Northern
California stores, the sale of Wilson Farms for BRS, the sale of Albertsons fuel
center business, the sale of Fleischmann’s Vinegar to Green Plains, the
acquisition of Glacier Water Company by Primo Waters, the sale of Red Arrow
Products to Kerry Group plc, the sale of Associated Brands to Treehouse Foods
and the take-over defense and ultimate sale of Vincor Wines.
Karen has an MBA from the University of Chicago Booth School of Business and
a Bachelor of Arts from DePauw University.
Karen Martin
Managing Director
Mergers & Acquisitions
BMO Capital Markets Corp.
115 South LaSalle Street
35th Floor West
Chicago, IL 60603
Tel.: (312) 461-3626
Cell: (312) 961-0207
KAREN MARTIN
2 Source: Financial Times, New York Times, Statista, Wall Street Journal
The Demise of Retail Captures Headlines…
“AMAZON IS TAKING OVER THE WORLD”
63 65
80 85
90 95 97
101
9%3%
23%
6% 6% 6%2% 4%
Jun-16 Sep-16 Mar-17 Jun-17 Sep-17 Jun-18 Oct-18 Dec-18
% Growth
(U.S. Prime members in millions)
AMZN Q2 official data not
released, projections not in ER
Amazon climbs as beneficiary of
‘retail apocalypse’ -Financial Times 10-Apr-17
Amazon Hits $1,000,000,000,000
in Value -New York Times 4-Sep-18
Walmart to Close 269 Stores as
Retailers Struggle -New York Times 15-Jan-16
Retail Sales are Weakest in 35
Years -Wall Street Journal 4-Dec-08
JCPenney’s Retail Revolution Has
Failed -Wall Street Journal 4-Dec-08
2008 2018
THE CHANGING CONVENIENCE STORE INDUSTRY
3
23.5
16.8
11.2
4.6
4.4
4.1
3.8
3.6
3.6
3.4
2.8
2.8
2.4
2.3
2.3
2.2
US
Canada
Australia
UK
Japan
Netherlands
France
Switzerland
Median
Spain
China
Italy
Taiwan
Thailand
German
South Korea
(1,871)
(536)
(527)
(274)
(257)
(250)
(250)
(154)
(120)
(108)
(106)
(102)
(100)
(100)
(99)
(97)
Rite Aid
Stripes C-Stores
Toys R Us
Mattress Firm
Best Buy
Radio Shack
The Bon Ton
Sears / Kmart
Signet Jewelers
Ascena Retail
Charming Charlie
Gymboree
Payless Shoesource
The Children's Place
Orchard Supply
Perfumania
…But the Death of Retail is Greatly Exaggerated…
RETAIL STORE CLOSURES IN 2018 ARE HIGHLY CONCENTRATED(1)
1. IHL Group (based on company reports), reflects those planned for 2018 as of Aug-18
2. International Council of Shopping Centers’ Country Fact Sheets (2018), represents median of the top 15 countries with greatest per capita retail square
footage
/
RETAIL SQUARE FOOTAGE PER CAPITA(2)
Malls built at 4x rate
of population growth
since 1975
U.S. has over 6x space
per capita than median
U.S. retail was poised for pain due to excess capacity regardless of Amazon
THE CHANGING CONVENIENCE STORE INDUSTRY
4
The Retail Landscape Is Undergoing a Transformation
48% 2017
42% 2014
USERS WHO HAVE PURCHASED ON A SMARTPHONE(1)
22% Baby Boomers
66% Millennials
47% Gen Xers
10% Seniors
HISTORICAL AND PROJECTED POPULATION BY GENERATION POPULATION PERCENTAGE BY RACE AND ETHNICITY
85%
4% 11%
1%
61%
18% 13%
6%
47%
29%
13% 9%
--
20%
40%
60%
80%
100%
Non-HispanicWhite
Hispanic African American Asian American
1960 2017 2050E
Source: Public sources, Pew Research, Sage Policy Group, street research, U.S. Census Bureau
66.9 61.3
79.3
71.4
58.7 55.9
69.4
48.0
19.0
--
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
Millennial Gen X Baby Boomer
2015 2035 2050(millions)
GROWTH IN BUYING POWER OF CONSUMERS BETWEEN 2014-2019 WHAT DO MILLENNIALS VALUE?
Non-Hispanic
White
(9.7%)
Hispanic
32.1%
African
American Asian
American
23.4%
29.2%
Bang for Buck 1.
Quality 2.
Digital Integration 3.
Bang for Buck 1.
Quality 2.
Digital Integration 3.
1st
THE CHANGING CONVENIENCE STORE INDUSTRY
5
1.1%
5.9%
14.8% 16.9%
21.9%
28.2%
2.9%
10.8%
28.0%
31.9% 34.1%
46.0%
Food & Beverage Consumables Clothing & Accessories Sporting Goods Electronic & Appliances Toys & Games
2013A 2018E
Digital Integration in Food Retail is Small and Growing
E-commerce only in beginning stages of
potential encroachment on c-stores sales, as
opposed to hardlines and softlines
Cigarette volume demand decrease not fully
realized with temporary masks of manufacturer
price increases and cigarette-specific taxes
2-3% volume decrease over the past
decade
Retailers facing lower effective tax rates,
where they once paid the highest effective tax
rate of any industry
Companies have experienced one-time
favorable EPS increases and additional
employee bonuses
TBD
Source: BMO Economics, BLS, IHL, Moody’s, street research, US Census
Beginning Stages of C-
Store E-Commerce 1.
Only in early stages of encroachment as
opposed to hardlines and softlines
Masked Cigarette Volume
Decreases 3.
Higher prices driven by taxes and
manufacturers hiding 2-3% volume
decrease over past decade
The JOBS Act 2.
Retail industry relishing one time EPS
increases and cash influxes, as they paid
the highest effective tax rate of any
industry before the JOBS Act
Philip Morris Shares Suffer… on
Declining Cigarette Volume -WSJ 25-Apr-18
Confirm sources
E-COMMERCE PENETRATION BY CATEGORY
THE CHANGING CONVENIENCE STORE INDUSTRY
eCommerce Transformation
- Walmart is quickly building its eCommerce units and expects 40% growth in online in 2019
- Instacart continues to grow and raised another $600MM in fresh capital in Oct.’18 – valuation expands to $7.6B
- Albertsons, Target, Kroger have acquired meal kit and online companies
- During 2018, Amazon Prime members exceeded 100 million – over 45% of American households
Industry observers estimate online grocery grows to 20% by 2025
6
Shift in How Products are Ordered and Received
CHANGING FOOD DISTRIBUTION LANDSCAPE
Joint Bookrunner December 2016
$990 million
Senior Secured Credit Facilities
Food Manufacturer
Distributor
Retailer
Retailer
3rd
Party
3rd Party
TRADITIONAL SHOPPING
CLICK AND COLLECT / BOPUS
RETAILER DELIVERY
3RD PARTY DELIVERY
DIRECT TO CONSUMER (DTC) / ONLINE
FULFILLMENT
Traditional brick and mortar shopping currently accounts for
~97% of food and beverage purchases; expected to reduce to
~92% in 2023
6 in 10 online grocery shoppers have used
click and collect
Enjoy freedom (not required to sit at home
waiting for delivery) and ability to select their
specific products (i.e. produce and meats)
Mintel GROCERY RETAILING, US - NOVEMBER 2017 12
Delivery is direction industry is
moving
Last mile delivery proving expensive
for retailers particularly for grocers
Economical delivery solution for retailers
Fees can be a deterrent for potential
shoppers as well as
Don’t trust shopper
Amazon is the dominant disruptor with online fulfillment in
the food space – AmazonFresh, Prime, Marketplace
E-commerce has opened up the potential for CPG’s to go
DTC eliminating costs but risk upsetting retail partners
Amazon and other online fulfillment
companies as well as DTC food
manufacturers are potential disruptors to food
retail; however, if willing and capable to
adapt, distributors can play a critical role in
helping manufacturers go direct to consumer
Source: Equity research, Mintel
7
14%
13%
9%
9%
21%
15%
29%
21%
18%
72%
51%
49%
47%
43%
37%
33%
33%
27%
14%
36%
42%
44%
36%
48%
38%
46%
55%
100%
Department Stores
Bar / Restaurants
Fast Food
Food / Grocery
Drug Stores
Specialty Hardgoods
Specialty Softgoods
Mass Merchandisers
Convenience Stores
Superstores / WH Clubs
Decrease Steady Increase
Yet Bricks and Mortar Continue
E-commerce only in beginning stages of
potential encroachment on c-stores sales, as
opposed to hardlines and softlines
Cigarette volume demand decrease not fully
realized with temporary masks of manufacturer
price increases and cigarette-specific taxes
2-3% volume decrease over the past
decade
Retailers facing lower effective tax rates,
where they once paid the highest effective tax
rate of any industry
Companies have experienced one-time
favorable EPS increases and additional
employee bonuses
TBD
Source: BMO Economics, BLS, IHL, Moody’s, street research, US Census
Beginning Stages of C-
Store E-Commerce 1.
Only in early stages of encroachment as
opposed to hardlines and softlines
Masked Cigarette Volume
Decreases 3.
Higher prices driven by taxes and
manufacturers hiding 2-3% volume
decrease over past decade
The JOBS Act 2.
Retail industry relishing one time EPS
increases and cash influxes, as they paid
the highest effective tax rate of any
industry before the JOBS Act
Philip Morris Shares Suffer… on
Declining Cigarette Volume -WSJ 25-Apr-18
Confirm sources
2017 % OF NET STORE OPENINGS VS. CLOSINGS
Even Amazon announced a new, small format grocery chain to be rolled out in 2019
THE CHANGING CONVENIENCE STORE INDUSTRY
- Amazon announced a new grocery chain to
be rolled out starting in 2019 with a smaller
format and strong health & beauty
departments, primarily for urban markets
8
In An Already Tough Food Retail Environment
Cost Pressures
- Freight costs are increasing costs all along the supply chain
- Minimum wages are increasing across the US with several larger
retailers going to $15/hour
- Healthcare coverage and other employment expenses are
increasing faster than general inflation
- Competitive pressures have driven retailers to use new
technology to reduce supply chain costs
Competitive Threats
- Aldi’s and Dollar Stores continue to frustrate conventional
grocers’ pricing strategies
- Lidl hasn’t reached their 100 store goal for 2018 (they now
have “over 60” stores). In March ‘19, Lidl announces new
CEO for US, formerly with Aldi’s in the UK.
- Good Food Holdings (Bristol Farms, Metropolitan Markets)
sale to Emart, out of South Korea
Changing Store Footprint
- New stores are getting smaller (Hyvee, Meijer and others
have announced smaller formats)
- Innovative partnerships – Kohl’s and Aldi’s co-locations
- Some grocers are using closed stores for eCommerce
fulfillment
- While the data is only anecdotal, many independents are
closing marginal stores as they near lease expirations. Some
are replacing conventional formats with limited assortment,
hardware or even pet-supply stores
Slippery Consumer
- Snacking trend impacts where and when food is consumed
- Buying behavior remains a barbell: premium and discount
- Health/wellness/convenience driving diversification of product
offering into fresh/prepared foods / foodservice, a potentially
money-losing proposition
9
Is Retail a Bright Spot in M&A?
• There’s excess capacity that needs to come out of the system given the outlook for consumer buying behavior
• Consider the death of the shopping mall – food is not immune
• Retail locations will be sold – but to whom? Look to other channels with use for traditional grocery footprints (25,000 square feet+)
as future buyers of food retail
• Smaller formats will increase
• There are ‘future-enabling’ transactions yet to be identified
• Management teams have been re-focused
• That’s the current M&A conversation
• Companies are starting to realize “it’s just food”
• Breaking down silos / barriers because the delivery method is changing
• Partnerships, not transactions, are likely in the near-term as the long-term, sustainable game isn’t over; particularly last-mile
solutions
• In food retail, M&A changed over the last couple years; not just scale wins anymore
• Out of the box thinking like Target – Shipt
• Acquisitions that are enabling for the future
The investor market – both public and private – has likes and dislikes
10 Source: FactSet; as of 19-Mar-19
Retail Food Sector Underperforms Overall Market
FOOD RETAIL DISCUSSION
EV / NEXT TWELVE MONTHS EBITDA
• Relative to the overall market valuation of 11.4x, the broad food retail sector is lower value
• Traditional grocery players Kroger and Ahold ranging 6-7x
• Specialty with Sprouts and Vitamin Cottage is fairing better at 9.5x and 7.3x, respectively
• Casey’s valuation reflective of the growth and margin in c-stores
11 Source: Capital IQ, FactSet; as of 19-Mar-19
FOOD RETAIL DISCUSSION
Focus on Top Line Growth…
2018A - 2019E SALES GROWTH
2018A - 2019E EBITDA GROWTH
Traditional Grocers Natural and Organic Grocers
National Regional
Mass Grocers C-Stores
10.0%
3.2%
7.1%
1.3%
3.9%
2.4% 2.6%
7.2%
5.9%
0.6%
2.2% 2.6%
0.4%
2.9% 2.1%
(0.5%)
6.7%
8.8%
Specialty
12
6.6%
3.8%
5.2% 4.4%
6.8% 5.8%
6.4%
4.2%
6.0% 6.1%
3.8%
5.0% 4.4%
6.8%
5.8% 6.2%
4.2%
6.1%
33.6%
15.1%
n.a.
21.7%
27.0%
n.a
24.3%
13.0%
21.0%
33.9%
15.3%
26.6%
21.6%
27.0%
n.a
24.3%
13.0%
21.4%
Source: Capital IQ, FactSet; as of 19-Mar-19
FOOD RETAIL DISCUSSION
…While Investment for the Future Occurs
2018A / 2019E GROSS MARGIN
2018A / 2019E EBITDA MARGIN
Traditional Grocers
National Regional
Mass Grocers C-Stores Specialty
13 Source: Capital IQ; as of 19-Mar-19
FOOD RETAIL DISCUSSION
Relative Valuation is the Market’s View on Winners
EV / EBITDA MULTIPLES
Traditional Grocers
National Regional
Mass Grocers C-Stores Specialty
9.7x
5.2x
7.3x
6.3x 6.6x 5.9x
10.8x
16.3x
10.2x
8.9x
5.1x
7.1x
6.1x 6.5x 5.8x
10.6x
15.3x
9.2x
EV / 2019E EBITDA
EV / 2020E EBITDA
14
11.3x 10.7x 9.2x
7.8x 7.2x 5.7x 5.2x
4.2x 3.6x
10.6x
7.9x 7.7x 7.0x 6.9x 6.1x 5.5x
(US$ millions)
Source: FactSet; as of 7-May-18, public sources
Note: Traditional Grocers Index includes: Ingles, Smart & Final; Specialty Grocers Index includes: Whole Foods, Sprouts, Fresh Market, Natural Grocers.
SECTOR UPDATE & GELSON'S STANDALONE ANALYSIS
Limited, Scaled Retail M&A with Compressed Multiples
PRECEDENT TRANSACTIONS & PUBLIC TRADING LEVELS SHOW COMPRESSION IN GROCERY MULTIPLES
Chart showing precedent transactions
with multiples (and mean/median) for
2010 – 2013 period
- Include target, acquirer, EV, year
Target Target
A
Safeway
(Canada) Gelson’s
Harris
Teeter
Nash
Finch
United
Super-
markets
Target B New
Albertsons
Winn-
Dixie
Whole
Foods Delhaize Roundy’s
Target
C
Fresh
Market
Target
D Safeway
Acquirer Acquirer
A Sobey’s TPG Kroger
Spartan
Stores
New
Albert-
sons
Acquirer
B
AB
Acquisition BI-LO Amazon Ahold Kroger
Acquirer
C Apollo
Acquirer
D Albertson’s
EV $300 $5,800 $394 $2,469 $771 $385 N/A $3,300 $464 $13,710 $11,892 $792 $1,312 $1,312 $1,280 $9,067
Year 2012 2013 2013 2013 2013 2013 2011 2013 2012 2017 2015 2015 2016 2016 2016 2014
Target A / Acquirer A: Earthfare / Oak Hill
Target B / Acquirer B: Haggan / Comvest
Target C / Acquirer C: Cardenas / KKR
Target D / Acquirer D: Save-a-Lot / Onex
Period 2010 - 2013 Period 2014 – 2019 YTD
Overall
Mean: 7.2x
Median: 7.2x
Overall
Mean: 7.4x
Median: 7.0x
Selected Specialty / Regional
Mean: 8.5x
Median: 8.4x
Selected Specialty / Regional
Mean: 7.0x
Median: 7.0x
Denotes Selected Specialty / Regional transactions
• Downward pressure on sector valuation, particularly traditional grocery
• Dearth of large strategic consolidators for traditional assets
15 Source: FactSet; as of 19-Mar-19
Food Distribution is a Valuation Bright Spot
FOOD DISTRIBUTION DISCUSSION
EV / NTM EBITDA
• Relative to the retail market, the broad food distribution sector is meaningfully higher value
• UNFI/SVU stands out as linked to more traditional grocery and operational challenges
• Foodservice players experiencing strong valuations given trends of food away from home
• Convenience stores in distribution in line with overall market valuation
16 Source: Capital IQ, FactSet; as of 19-Mar-19
FOOD DISTRIBUTION DISCUSSION
Stronger Growth in Foodservice Distribution than Retail
2018A - 2019E SALES GROWTH
2018A - 2019E EBITDA GROWTH
3.3% 4.0%
5.9%
8.0%
3.1%
6.5% 6.4%
8.9%
11.7%
8.5%
17
5.9% 4.7%
2.5%
5.5%
1.1%
18.9% 17.7%
13.2%
23.5%
5.4%
Source: Capital IQ, FactSet; as of 19-Mar-19
FOOD DISTRIBUTION DISCUSSION
…At Similarly Tight Margins
2019E GROSS MARGIN
2019E EBITDA MARGIN
18
TargetSkor Food
GroupTarget 1
J.T. Davenport
& Sons
Queensgate
Foodservice
Qzina Specialty
FoodsTarget 2
Allen
BrothersTarget 3
Del Monte
Capitol MeatTarget 4 Target 5 Brakes Group
Pine State
Trading
Company
Jenny Service
CompanyTarget 6 Target 7 Target 8
Services Group
of America
Acquirer Colabor Group Acquirer 1 Core-MarkThe Chefs'
Warehouse
The Chefs'
WarehouseAcquirer 2
Chef's
WarehouseAcquirer 3
Chef's
WarehouseAcquirer 4 Acquirer 5 Sysco Core-Mark PFG Acquirer 6 Acquirer 7 Acquirer 8 U.S. Foods
Date 2011 2012 2012 2013 2013 2013 2013 2014 2015 2015 2015 2016 2016 2016 2017 2017 2018 2018
7.6x 6.8x
6.3x 6.3x
7.2x
9.2x
7.0x
8.0x
10.0x
6.9x
8.6x
12.0x
8.0x
7.0x
10.8x 10.5x
11.9x 12.5x
Target Target 1SunOpta (Canadian
Distribution Assets)Nash Finch Tony's Fine Foods Target 2 Target 3 Target 4 Target 5 Target 6 Unified Grocers Target 7
Associated Grocers
of FloridaSuperValu
Acquirer Acquirer 1 UNFI Spartan Stores UNFI Acquirer 2 Acquirer 3 Acquirer 4 Acquirer 5 Acquirer 6 SuperValu Acquirer 7 SuperValu UNFI
EV (mm's) $190 $67 $797 $195 $188 $225 $850 $230 $218 $375 $89 $180 $2,900
Date Dec-09 May-10 Jul-13 May-14 Jul-14 Oct-14 Nov-15 Dec-15 Nov-16 Apr-17 Aug-17 Oct-17 Jul-18
7.7x 7.5x 8.1x
10.0x
11.8x
10.0x 10.6x
10.0x 9.5x
9.0x 8.1x
9.2x
7.1x
EV / EBITDA
M&A ENVIRONMENT
Stronger Activity in Food Distribution M&A
Pre-emptive Process: Finalize & sign
commitment papers with Tier 1 Buyer, commence
syndication process, and close & fund transaction
Broad Process: Finalize & sign commitment
papers with buyer, commence syndication
process, and close & fund transaction
Broad Process: Deliver commitment papers to
prospective buyers
GROCERY DISTRIBUTION
FOODSERVICE / OTHER DISTRIBUTION
Source: Company filings, press releases, BMO Capital Markets estimates, and CapIQ
Note: Some multiples based on rumored bid range.
1. Multiple includes present value of $260 million in cash tax benefits.
= Specialty = Traditional
Overall Specialty
Mean 9.3x
Median 9.5x
Specialty Traditional
Mean 9.7x
Median 10.0x
Traditional
Mean 8.3x
Median 8.6x
Overall
Mean 8.7x
Median 8.0x
TargetSkor Food
GroupTarget 1
J.T. Davenport
& Sons
Queensgate
Foodservice
Qzina Specialty
FoodsTarget 2
Allen
BrothersTarget 3
Del Monte
Capitol MeatTarget 4 Target 5 Brakes Group
Pine State
Trading
Company
Jenny Service
CompanyTarget 6 Target 7 Target 8
Services Group
of America
Acquirer Colabor Group Acquirer 1 Core-MarkThe Chefs'
Warehouse
The Chefs'
WarehouseAcquirer 2
Chef's
WarehouseAcquirer 3
Chef's
WarehouseAcquirer 4 Acquirer 5 Sysco Core-Mark PFG Acquirer 6 Acquirer 7 Acquirer 8 U.S. Foods
EV (mm's) $34 $54 $38 $22 $33 $580 $30 n.a. $191 $112 $150 $3,100 $88 n.a. $335 n.a. $385 $1,800
Date Mar-11 Aug-12 Dec-12 Jan-13 May-13 Dec-13 Dec-13 Apr-14 Jan-15 Jun-15 Dec-15 Feb-16 Apr-16 Aug-16 Mar-17 Jul-17 Mar-18 Jul-18
7.6x 6.8x
6.3x 6.3x 7.2x
9.2x
7.0x 8.0x
10.0x
6.9x
8.6x
12.0x
8.0x 7.0x
10.8x 10.5x
11.9x 12.5x (1)
Target 1 (Tree of Life) / Acquirer 1
(KeHE)
Target 2 (Nature’s Best) / Acquirer
2 (KeHE)
Target 3 (Lipari) / Acquirer 3
(Sterling Investment Partners)
Target 4 (Mastronardi) / Acquirer 4
(MetalMark)
Target 5 (DPI) / Acquirer 5 (Arbor)
Target 6 (Caito) / Acquirer 6
(SpartanNash)
Target Target 1SunOpta (Canadian
Distribution Assets)Nash Finch Tony's Fine Foods Target 2 Target 3 Target 4 Target 5 Caito Unified Grocers Target 6
Associated Grocers
of FloridaSuperValu Target 7 Target 8
Acquirer Acquirer 1 UNFI Spartan Stores UNFI Acquirer 2 Acquirer 3 Acquirer 4 Acquirer 5 SpartanNash SuperValu Acquirer 6 SuperValu UNFI Acquirer 7 Acquirer 8
Date 2009 2010 2013 2014 2014 2014 2015 2015 2016 2017 2017 2017 2018 2018 2018
7.7x 7.5x 8.1x
10.0x
11.8x
10.0x 10.6x
10.0x 9.5x
9.0x
8.1x
9.2x
7.1x
10.5x ~11.0x
19
Retail will continue to be challenged on various fronts
Retail activity will suffer from lack of consolidators of traditional chains/formats
Will there be an Amazon – Casey’s – Sprouts- type deal in our future?
Watching the distributors’ M&A activity shows them adjusting to the changing retail landscape
Wrap Up
20
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