the key concept · 2016-08-17 · 2 key capital irish retail food drink total retail food sales in...

irish retail food & drink1 key capital

THE KEY CONCEPT IRISH RETAIL FOOD & DRINK

The provenance of Irish products is world renowned. Nowhere is this more evident than in Irish branded foods. Like Italian fashion or German manufacturing, Irish food is rapidly becoming synonymous with quality and consistency. This reputation has allowed many Irish firms to leverage what would otherwise be a compromised position (small firm, small market, small product range) into a privileged one (boutique firm, exotic market, artisan products). This is no accident. The collective efforts of Irish food manufacturers and trade groups (via Bord Bia and programs such as Origin Green), combined with an evolving marketplace (increasing global food demand, international capital flows) has, quite literally, opened up a whole new world for Irish branded food.

This is not to say that Irish branded food is not without its challenges. Irish companies must still navigate the same difficulties as food manufacturers the world over: pricing pressure from international multiples, a constant need to innovate and deliver new products, and the never ending search for new markets, to name but a few.

The importance of overcoming these challenges cannot be overstated. Total sales in the Irish food and drinks sector, including exports, were c. €26bn in 2014,

comprising c. 14% of Irish GDP, a figure that is only expected to increase as the growing middle class in the developing world seeks out a greater variety of higher quality products. This is no easy task. Irish food manufacturers will require scale, resources, and financing to prosper in a competitive market at home and to succeed in much larger markets abroad. “Brand Ireland” will certainly give them an advantage, as will the recent influx of international capital to our shores, but to succeed Irish branded food manufacturers will need to start thinking and acting strategically. One need look no further than the recent travails of the Irish dairy sector – a market hailed as the next great Irish success story less than a year ago, but which is struggling to capitalise on its newfound opportunities – to understand the importance of brands and the dangers of commoditisation in the global marketplace. Building a brand, defending a brand, and ultimately growing a brand to best in class, is no longer the sole domain of marketing and advertising departments. Success in the 21st century branded food marketplace will require strategic vision, a global mindset, access to capital, and expert on-the-ground knowledge of foreign markets. And that’s just to start.

INTRODUCTION

Our Findings

The Irish retail food sector is wide ranging. It is populated by new, enterprising companies (e.g. Glenilen Farm, Kestrel Foods), prominent indigenous brands with global ambitions (e.g. Glenisk, Ribworld) and conglomerates with a stable of household brands (e.g. Valeo). Common to each, however, is a set of circumstances and market conditions that is shaping the nature of the industry. Our findings show that:

(1) The industry is thriving. Our Irish Market Analysis and Benchmarking Analysis show that Irish food firms successfully navigated the recession and are now poised to exploit global opportunities;

(2) However, Margin Pressure from Irish and UK multiples is creating a tremendous burden on Irish branded food resulting in a shift towards (i) Private Label Manufacturing and (ii) a continuous need for Product Innovation;

(3) Firms are seeking Routes to Market to both mitigate these pressures and to capitalise on the global demand for food;

(4) This is being facilitated by an influx of International Capital seeking profitable Irish operating companies, thus fuelling increased M&A activity and providing much needed non-bank capital to the branded food sector.

Global Food and Beverage Retail Sales at Current Prices (Rebased to 2009)Source: Key Capital Research, Euromonitor

H2 2015

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SIGNIFICANT OUTPERFORMANCE

IN DEVELOPING MARKETS IN THE

PAST 5 YEARS

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(1)Latin America(2)Middle East & Africa(3)Australia

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Total retail food sales in Ireland, defined as Fresh Food, Dairy, Beverages excluding Alcohol, and Packaged Food excluding Dairy, were €10.4bn in 2014. This represents an increase of 31.4% for the period under review (2001 to 2014) and a CAGR of 2.1%, a modest result which reflects the nature of retail food, much of which is comprised of consumer staples and as such tends to track inflation, which is evidenced in the chart below. Similarly, annual growth through 2019 for the sector is forecast to be 2.3%.

Certain segments, namely those that contain more discretionary or non-perishable items, experienced faster growth over the period. For instance, Packaged Foods, which includes everything from baby food to breakfast cereals and is the largest segment by sales (€4.8bn or 46.3% of total sales in 2014), grew 41.3% over the period. This should come as no surprise given the sheer number of products on Irish shelves today, much of it driven by private label production (see page 8).

Surprisingly, Beverage sales including alcohol declined by 8.6% over the period, perhaps reflecting people’s more abstemious attitude during the recession. Meanwhile, excluding

alcohol, certain beverages, considered small luxuries in difficult economic conditions, such as Hot Drinks (42.1% growth) and Juices & Bottled Water (66.2% growth), thrived over the same period.

Dairy declined significantly during the recession, with total sales falling 7.9% between 2008 and 2012, but is forecast to grow at the highest rate through 2019 (3.0% CAGR). This is likely due to expectations surrounding the lifting of milk quotas, but should be considered with caution given the performance of the sector since quotas were lifted earlier this year.

Interestingly, sales of Fresh Foods increased during the recession, likely reflecting people’s penchant for preparing more meals at home, however, this growth is expected to tail off through 2019, with only 0.4% annual growth projected, indicating that this trend might reverse itself as consumers again turn to dining out.

An analysis of each of these sectors, broken out by sub-category, is provided on the following page. Given the size and variety of products included in Packaged Foods, we have broken the sector down further into three sub-categories: Convenience Foods, Snack Foods & Sweets, and Processed Foods.

Irish Retail Grocery Sales Growth at Current Prices, excluding AlcoholSource: Key Capital Research, Euromonitor

2014 Irish Retail Grocery Sales at Current Prices, excluding AlcoholSource: Key Capital Research, Euromonitor

IRISH MARKET ANALYSIS

Convenience Foods

Processed Foods

Dairy Beverage Fresh FoodSnack Foods & Sweets

THE INFORMATION IN THIS SECTION IS BASED ON EUROMONITOR DATA AND COMPRISES RETAIL FOOD SALES IN IRELAND (BRANDED AND PRIVATE LABEL), REGARDLESS OF ORIGIN. In this way, this can be thought of as a retail food “GDP”. An analysis of all retail food sales by Irish companies regardless of destination (e.g. “GNP”) can be found on page 4.

Total Beverages, excl. Alcohol, €1.7bn, 16.7%

Total Packaged Foods, excl. Dairy, €4.8bn, 46.3%

Total FreshFood, €2.7bn,

25.9%

Total Dairy,€1.2bn,11.1%

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IRISH FOOD AND BEVERAGE RETAIL SALES (REBASED TO 2001)

Packaged Food – Convenience FoodsSource: Key Capital Research, Euromonitor

Packaged Food – Processed FoodsSource: Key Capital Research, Euromonitor

BeveragesSource: Key Capital Research, Euromonitor

Packaged Food – Snack Foods & SweetsSource: Key Capital Research, Euromonitor

DairySource: Key Capital Research, Euromonitor

Fresh Food Source: Key Capital Research, Euromonitor

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Industrial Turnover Index – Ireland

The graph below shows movements in food industry turnover across the various sectors in Ireland since 2010, and provides an indication of how the various sectors have performed as they’ve emerged from the recession. The data includes Irish food sales regardless of destination, e.g. including exports, and in this way reflects the performance of the industry worldwide, which is of increasing importance to Irish food manufacturers as they work to satisfy global food demand.

We’ve also provided an analysis of the relative performance of listed European peers operating in the same segments below. However, it is important to note that this data is for illustrative purposes, and while it can provide valuable insights, it is not appropriate to extrapolate valuations of European peers onto Irish private companies from the data below for reasons of scale, international diversity, product complexity and share liquidity. For tailored valuation guidance based on a range of relevant methodologies, please contact Key Capital.

INDUSTRY BENCHMARKING: IRELAND VS INTERNATIONAL PEERS

THE FOLLOWING SECTION CONTAINS A TWO PART ANALYSIS.

(1) First, using CSO data, we have created a rebased index of industrial turnover by food segment.

The categories are broken down slightly differently than in the previous section given the nature of the source data, however, this allows for an analysis of the Irish food market as a whole, regardless of destination. In this way, it can be thought of as the “GNP” (versus the “GDP” detailed in the previous section).

(2) Next, we created composite indices of representative listed European food companies for each segment.

This allows us to conduct a high level comparison of the respective fortunes of the Irish and European markets and to provide some insight into the financial performance and current valuations of European peer groups.

Food & Beverage Turnover Index (Base 2010 =100)Source: Irish Central Statistics Office

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European Dairy Products Peer GroupSource: Key Capital Research, Capital IQ

European Meat Products Peer GroupSource: Key Capital Research, Capital IQ

Dairy Products

Although the Irish Dairy sector experienced a brief decline in 2012, it recovered quickly and experienced overall revenue growth of 34.4% between 2010 and 2014, a 7.7% CAGR. This mirrors the performance of its European Dairy peers, which grew 39.6% (excluding outliers) over the same period (8.7% CAGR). The peer group includes companies involved in the production of milk, cheese and ice-cream; revenue of peers range from €114m (Valsoia) to €5.6bn (Parmalat SpA). EBITDA margins declined over the period (9.6% in 2010 to 8.5% in 2014), reflecting milk price volatility over the period and sensitivity to commodity prices so prevalent in the sector. The average valuation multiple (excluding outliers) for the sector reached a high of 7.9x in 2013 and 2014.

Please see Peer Index Table II in the Appendix for peer analysis as of September 2015.

Meat Products

Irish Meat sector sales grew 26.2% from 2010 to 2014 (6.0% CAGR), in line with that of their European peers, which include the likes of MHP (revenue of €1.7bn) and Scandi Standard (€186m), and grew at an identical rate of 6.0%.

European peers delivered fairly stable EBITDA margins and average valuations remained flat over the period. EBITDA margins increased from a low of 7.0% in 2013 to a high of 9.0% in 2014. Meanwhile, the average valuation multiple for the group remained unchanged at 5.9x EV/EBITDA over the period (despite spiking briefly to 7.2x in 2013).

Please see Peer Index Table III in the Appendix for peer analysis as of September 2015.

European Bakery Products Peer GroupSource: Key Capital Research, Capital IQ

Bakery Products

The European Bakery segment saw total sales increase by 4.0% CAGR over the period 2010 to 2014. This sector includes companies involved in the manufacturing of bread, pastry goods, cakes and biscuits. In the Irish Food market, this sector has been the best performing with revenues growing by 8.0% CAGR over the same period, despite dropping slightly in 2014. The European peer group comprises a mix of large (e.g. Aryzta – 2014 revenue €5.0bn), and SME companies (Frou-Frou Biscuits – 2014 revenue €28m) across continental Europe.

The average EBITDA margin across the peer group fluctuated slightly over the period (11.2 to 12.3%). A trend seems to be present where companies focusing on private label production (e.g. Finsbury Food Group, 6.3%) exhibit lower margins, and companies that focus on branded food production (e.g. Aryzta, 14.2% and Frou-Frou Biscuits, 17.1%) exhibit higher margins. This trend supports the notion that focusing too heavily on private label production can erode overall margins (see page 8). The average valuation (excluding outliers) for the peer group in 2014 was 8.7x EV/EBITDA.

Please see Peer Index Table I in the Appendix for peer analysis as of September 2015.

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European Beverages Peer GroupSource: Key Capital Research, Capital IQ

European Other Foods Peer GroupSource: Key Capital Research, Capital IQ

Beverages

Irish Beverages was the poorest performing sector under review. The group experienced a decline in turnover of 3.4% over the period 2010 to 2014, a negative CAGR of 0.9%. Its European peers delivered more positive results with revenue growth of 4.9% CAGR over the same period. However, it should be noted that these figures include alcohol, which skews the analysis in two ways: (i) alcohol prices have decreased significantly in recent years; and (ii) European peers include such alcohol giants as Anheuser-Busch InBev (€38.9bn revenue).

The EBITDA margin across the European group has been stable over the period (22.5 - 23.2%). Of the companies in the Appendix, there are only two non-alcoholic beverage producers, Coca-Cola HBC (11.6% 2014 EBITDA margin) and Britvic (14.4%); not surprisingly, they exhibited the lowest EBITDA margins of the group. The average valuation for the listed group was 12.8x EV/EBITDA in 2014.

Please see Peer Index Table IV in the Appendix for peer analysis as of September 2015.

Other Food Products

This subsector includes companies that specialise in chocolate and sugar confectionery, condiments / seasonings, and prepared meals, and range from such food giants as Nestlé (€76.4bn revenue) to Koninklijke Wessanen (€434m revenue).

Despite experiencing flat growth between 2010 and 2013, Irish Other Foods demonstrated steep growth in 2014 (22.9%), raising total growth for the period to 29.2% (6.6% CAGR), and far outstripping their European peers, which displayed the worst performance of the European subsectors (1.6% CAGR).

Between 2010 and 2014, EBITDA margins (excluding outliers) for European peers decreased slightly, from 11.1% in 2010 to 10.8% in 2014 (peaking at 11.9% in 2012). Nestlé (19.0%) and Koninklijke Wessanen (6.7%) exhibited the highest and the lowest EBITDA margins in 2014, respectively, reflecting the power of scale. The average valuation multiple (excluding outliers) for the sector was 12.9x EV/EBITDA in 2014.

Please see Peer Index Table V in the Appendix for peer analysis as of September 2015.


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IRISH THEME IN FOCUS: MARGIN PRESSURE AND SUPERMARKET MULTIPLES

European Other Foods Peer GroupSource: Key Capital Research, Capital IQ

Change in Irish Grocery Market Share since October 2012 Source: Kantar Worldpanel

Margin pressure is the bane of existence for retail food manufacturers everywhere, but perhaps nowhere more so than in Ireland, a small island nation whose manufacturers are at once the beneficiaries and victims of UK grocery multiples’ reach and scale, not to mention that of their German discount counterparts. Though these companies provide Irish manufacturers access to much larger markets, they do so while dictating the price and terms under which such access is granted. Indeed, it is a buyer’s market.

To put this into perspective, consider that the combined UK revenue of Tesco, Morrison’s and Sainsbury’s in 2014 was £83.5bn (€114.1bn), whereas the total food and drink exported to UK from Ireland in 2014 was £2.9bn (€3.9bn), 38.6% of total food and drink exports.

Closer to home, matters are not any better. Tesco, SuperValu and Dunnes together control 71.5% of the market, giving them significant pricing power – leverage they have no choice but to employ given the emergence of Aldi and Lidl in Ireland in recent years as established competitors rather than niche players.

Indeed, total combined sales by discounters in Ireland grew by 54.9% between 2009 and 2014, a compound annual growth rate of 9.1%. By comparison, total sales at supermarkets in Ireland grew by 13.3% over the same period (2.5% CAGR). This growth has resulted in a nearly 2.5x growth in market share by discounters since 2009 (from 7.1% to 17.8%).

This is notable for two reasons: (i) the grocery retail segment is hardly a new sector, so such rapid growth is unusual; and (ii) perhaps more troubling for established supermarkets, the period spans the recession and the initial part of the economic recovery, which suggests that the shift is a permanent one.

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This is no accident. Aldi and Lidl, having initially taken market share from established players by offering cash strapped consumers lower cost products during the recession, have since shifted their focus and are competing directly with traditional supermarkets in higher margin products, thus increasing the frequency with which consumers visit their shops and the size of their baskets when they do so.

Much of this has been driven by Aldi and Lidl’s moving into more upmarket products (e.g. Lidl’s Deluxe and Aldi’s Specially Selected ranges) as consumers once again look to add every-day luxuries to their weekly shopping. This has shifted the battle among multiples to a much broader product platform than in Lidl and Aldi’s earliest days in Ireland, and in turn placed even more pressure on manufacturers.

This is yet another evolution of the ongoing price war among multiples, which in recent years has benefitted consumers, but not necessarily retailers or manufacturers. Seemingly never ending price cuts and promotions that have compressed retailer margins and cut into their profits have, to no one’s great surprise, resulted in steep share price declines at every major multiple. To alleviate this pressure, multiples have pushed manufacturers to consistently offer an ever larger variety of products at lower prices, which is driving three major trends in branded food: (i) a shift towards private label products; (ii) an increasing requirement for product innovation; and (iii) a need to expand into new markets to escape the root cause of their woes.


UK Multiples Share Price Decline since January 2014Source: Key Capital Research, CapitalIQ

Irish Food and Beverage, excluding Alcohol, Prices (Base December 2001=100)Source: Irish Central Statistics Office

Shift Towards Private Label

The response to increased competition in the grocery retail segment, and in particular to the emergence of Aldi and Lidl, has been predictable: leading chains have increased their focus on private label manufacturing in an effort to control costs and introduce new products at lower price points. This has also had the added benefit of allowing retailers to standardise quality, safety, as well their procurement system through centralised purchasing.

This has not been an altogether unwelcome development for the Irish retail food industry in that it has allowed manufacturers to: (i) gain a foothold with international multiples; (ii) drive revenues through scale; and (iii) utilise otherwise idle capacity. But private label production is not without its drawbacks; it can have the effect of cannibalising both margin and market share if not managed properly. Nowhere has this been more evident than in the bakery sector where bread makers have seen margins on branded products eroded to unsustainable levels. As such, careful management of the balance between private label and branded products is required, and incremental profits achieved via scaling of private label offerings should be reinvested not only in the maintenance and defence of existing brands, but also in the development of new products in order drive margins (see Gallaghers Bakery inset at right).

Brief Company Overview – Gallaghers Bakery / PureBred

Gallaghers Bakery was established by the Gallagher family in 1968 in Ardara, County Donegal. After decades of successful operation and developing one of the preeminent brands in the Northwest, the company was sold to international bakery group Aryzta in 2007. In 2011, Aryzta announced that they were shutting down the production of Gallaghers frozen breads and putting the fresh bread business up for sale, citing market contraction in Ireland and the UK, as well as increased commodity costs, declining sales, and reduced product prices as reasons for its exit from the business.

Declan Gallagher, Managing Director of Gallaghers Bakery, bought back the fresh bread business from Aryzta. Since then, the company has focussed on private label production to increase scale, partially mitigating the market conditions so prevalent in the industry, and invested heavily in new and innovative branded products to drive margins and differentiate itself in a commoditised marketplace. Of particular note is the development of its PureBred brand, the company’s gluten free offering. Having identified a hole in the market – gluten free bread that tastes as good as fresh bread – Gallaghers set about developing a recipe that would set its brand apart from existing market offerings, which were renowned for poor taste. The results speak for themselves. Today, PureBred products are exported to markets as far away as Australia and Gallaghers Bakery is once again a success.

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c. 30% decline since the beginning of 2014

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“The supermarket industry has changed more rapidly in the last three to six months than any time in my thirty years in the industry” Mike Coupe, Sainsbury’s CEO, October 2014

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Product Innovation

Imitation (in the form of private labelling), however, is not the same as innovation, and this is where traditional supermarkets have seemingly lost the plot. In an attempt to cater to what is, admittedly, an increasingly fickle consumer, traditional supermarkets have introduced a seemingly endless supply of nearly identical products, mostly via private labelling. This strategy, while delivering lower cost products to consumers, fails on two much more significant counts: (i) it delivers repackaged products, not innovative ones, and thus fails to satisfy consumer demand for new products; and (ii) it does not address the broader issue of an uncompetitive cost structure – it simply pushes more product through the same faulty system.

Tesco is good example of this. In recent years its product selection has grown both confusing for the consumer and cumbersome for management, at one stage stocking nearly 90,000 SKUs. For instance, prior to a recent overhaul of its range, Tesco offered 28 SKUs for ketchup. Aldi? They had one brand - their own. Similar examples are available across Tesco’s product range (98 brands of rice to Aldi’s 6; 60 brands of cola to Aldi’s 4).

Aldi and Lidl, by comparison, each stock fewer than 2,000 SKUs, which gives them significantly more buying power, not to mention making their businesses much easier to run from a product development, procurement, distribution, storage, and marketing perspective.

For branded food manufacturers, the struggle to remain relevant among this morass is difficult. Retailers value brands only so long as consumers do, often leaving room for only the top brands in a segment and jettisoning also-rans in favour of private label products, which offer a higher margin to the retailer. As such, product product differentiation and innovation are critical.

Glenilen Farm, makers of artisan yoghurts and prepared desserts, provides a good example this. While Glenilen’s total market share is modest (c. 0.4% of Irish yoghurt sales), its market share and brand awareness among artisan products is strong, a powerful differentiator even in the face of private label imitators which, paradoxically, have only served to inform consumers about artisan yogurts and drive sales across the segment rather than stealing share from Glenilen. Others who have achieved similar success by identifying a niche and branding it well include: Gallaghers (gluten free), Glenisk (organic), Green Saffron Spices (Asian), Fitfuel (protein), Lily O’Brien’s (affordable luxury), and Nature’s Best (chilled convenience).

Routes to Market

Successful branding, of course, is a pre-requisite for expansion beyond Irish shores, which given the size of our fair island is necessary to achieve any meaningful scale. Even expansion into the UK – the first natural destination for Irish exporters - represents a step change for all but the largest Irish food companies given the size of that market (see insert). But to be truly global – and not for nothing, to escape the grasp of UK grocery multiples – firms must push past the UK, into the Continent and beyond.

Gaining entry to these markets and successfully trading in them, however, is no easy task. Some companies have grown their presence overseas organically, slowly expanding their presence abroad through existing relationships and shoe leather. RibWorld has made significant inroads into the Continent in recent years via direct sales to multiples. Ditto Glenisk, which is now exporting to the Middle East. And Flahavan’s – a quintessential Irish product – can now be found on shelves as far away as South Korea due to the relationships it has built with local distributors and wholesalers there.

For some manufacturers, the acquisition of an existing brand abroad might prove to be a better route to market, affording them instant access and name recognition, not to mention manufacturing facilities, distribution, and established relationships with key buyers. Key Capital recently acted as advisor to Callan Bacon on its acquisition of Stirchley Bacon in the UK, which not only provided the company with a new brand, but also moved it into an entirely new distribution channel, food service.

Interestingly, many primary manufacturers, which wouldn’t necessarily be associated with a brand, are acquiring brands abroad in an effort to move up the value chain into higher margin products:

– Aurivo Co-operative Society acquired London-based sports nutrition company My Goodness in March 2015 to gain access to the protein drinks market and leverage its expertise in dairy ingredients

– Lakeland Dairy acquired Tasty Trends, a frozen yoghurt manufacturer in the UK, in January 2015 as a means of entering the branded food space and as an outlet for its milk supply

– Key Capital identified Danish nutritional supplement company Nutramino as an ideal acquisition for Glanbia in January 2014, which provides the company a scaleable, branded platform in the sports nutrition segment

Irish vs UK Household Spend (€)Source: Kantar Worldpanel, The Institute of Grocery Distribution

Value of Irish Market €10bn

Grocery Spend per Household €5,500Forecast Annual Market Growth through 2020 +2.3%

Value of UK Market €246bn

Grocery Spending per Household €5,500Forecast Annual Market Growth through 2020 +2.5%

Brief Market Overview: Middle East

If one were to poll 100 people about the next great export market for Irish food, 99 might respond “China” or “America”, but consider this:

– Ireland exports nearly 90% of its food while the Middle East imports nearly 90% of its food

– The population of the Middle East is expected to grow by 43.0% to 566m through 2050, ahead of North America (21.7% growth), the EU (1.2% decline) and China (2.5% decline)

– In 2014 Irish exports to the Middle East totalled €237m (a 28% increase over 2013)

– Irish exports to the region are expected to exceed €500m by 2020

– The Economist forecasts the Gulf Cooperation Council’s (GCC) regional food import bill will double to over $53bn by 2020, up from $26bn just a decade ago

What does it all Mean?

The opportunity for Irish branded food manufacturers is clear, but the obstacles are manifold. Succeeding in a global marketplace where commoditization and margin pressure are commonplace will require a clear strategic vision, capital to fund expansion, product innovation to defend and expand margins, and on-the-ground knowledge of foreign markets – a tall order for even the largest Irish branded food companies.

Fortunately, there has never been a better time for Irish firms seeking capital to fund expansion of their product lines, move into foreign markets, or even to exit their businesses entirely. International capital, as outlined in the following section, has arrived in Ireland, and it seeking to partner with or acquire established Irish food businesses and help them overcome some of the obstacles outlined herein.


INTERNATIONAL CAPITAL

SOURCES OF CAPITAL – HOW TO CHOOSE?Choosing the right source and quantum of funding among such a wide variety of sources can be daunting. Leverage may help you achieve the pricing required to close a transaction, but it may limit you operationally. Similarly, an equity partner may bring much needed expertise and management acumen, but could potentially introduce controls to which most entrepreneurs would not be accustomed. Your corporate finance advisor will be your best resource in determining the appropriate source of capital.

The great irony of the Celtic Tiger is what it has wrought: cheap and abundant money. There has perhaps never been a better time to source financing in the Irish market. While money might have flowed freely during the boom years, its sources were largely fixed (Irish banks) and its form was often limited (senior debt). Today, Ireland is awash with foreign capital in a variety of forms from a growing number of players. Foreign banks, private equity funds, sovereign wealth funds, pension funds, and insurance companies, to name but a few, are eager to invest in Ireland and are offering money on increasingly competitive terms and in ever creative ways.

Much of this capital has been dedicated to either: (i) funding the expansion of established Irish businesses via international acquisitions; or (ii) acquiring strong, cash flowing Irish businesses and thus allowing Irish entrepreneurs an avenue of exit previously unavailable to them. This, combined with historically low Libor and Euribor rates, makes it an opportune time for Irish firms to reconsider their strategic direction.

Year to Date Highlights

This increased investment activity is evident through the first nine months of the year. Year to date through September 2015, there have been twelve private equity funded transactions in Ireland, including six MBOs; Payzone, CJ Fallon, Carroll Cuisine and Cold Move in March, IdentiGEN in April, and Walls Construction in May, with a combined disclosed transaction value of €97m (though this is slightly understated by the undisclosed transaction value for CJ Fallon).

Branded food figured prominently in the first nine months of the year. Carlyle Cardinal Ireland funded the MBO of Carroll Cuisine for c. €40m in March. Of note is that the transaction marked their second investment in the Irish food sector, having previously purchased Lily O’Brien’s.

Similarly, CapVest, a London-based private equity firm run by Irishman Seamus Fitzpatrick, acquired Origin’s final 32% stake in Valeo Foods in July. Origin sold its holding to CapVest for €86.6m, comprising €42.5m for Origin’s equity stake and a €44.1m loan note. Capvest has majority control of Valeo Foods.

Taken together, the activity in the sector is encouraging and speaks to the appetite for branded food among lenders, private equity and trade players alike.

PE Fund Investment in Ireland since Q1’08Source: Key Capital Research, MergerMarket, Capital IQ

€0m

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Number of Deals Value of Deals (€m)Q1’0

8Q3’0

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9Q3’0

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1Q3’1

1Q1’1

2Q3’1

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5


M&A TRENDS

Irish M&A - Inbound

Another prominent trend is the level of indigenous M&A, evidence of both the newfound capital available to Irish trade players and growing confidence in the Irish economy. The table overleaf shows M&A transactions in the Irish food sector over the last four years. Indeed, 22 of the 34 transactions listed comprised one Irish company buying another, an unthinkable statistic in the midst of the recession, and only made possible in recent years by the re-opening of capital markets and bank lending.

Private equity is also playing a prominent role in the Irish food sector. As previously mentioned, two acquisitions, Lily O’Brien’s (see Case Study 1) and Carroll Cuisine, are notable not only because they are both branded food acquisitions, but also because they are MBOs, with a global private equity firm backing in situ Irish management teams. This illustrates perfectly how the private equity model is emerging in Ireland; global private equity brings to the table expansion capital, an international network to help scale the business, and management acumen, while local managers bring

their knowledge of the business, product expertise and local market experience.

This is a trend that is expected to continue as private equity identifies similar, scalable businesses across the Irish branded food sector.

Business Overview

– Lily O’Brien’s is a manufacturer of premium chocolate and desserts with a strong brand identity

– Boasts a blue-chip client base including major multiples and national flag carriers within the airline industry

Transaction

– Key Capital were engaged to advise the shareholders of Lily’s Limited on the sale of Lily O’ Brien’s

– Through the IMAP network, Key Capital were able to source 75 potential acquirers in 12 countries

– Global sales process ultimately drove significant value accretion for exiting shareholders

PE Investor

– The eventual acquirer was Carlyle Cardinal Ireland (“CCI”), a joint venture arrangement between Carlyle Group and Cardinal Capital Group, the largest private equity investment fund dedicated to Ireland

– The fund is backed by the ISIF and specialises in making investments of €10m-€40m in companies with significant growth potential

Mary-Ann O'Brien starts Lily O'Brien's in her kitchen

Moved to a new state of the art factory

Dessert production facility built

CCI acquired 100% of Lily O’Brien’s

1992 2000 2011 2014

CASE STUDY 1: LILY O’BRIEN’S


Irish Food & Beverages Companies Acquired since January 2011Source: Key Capital Research, Capital IQ, MergerMarket

Announced Target Target Description Acquirer Transaction Value (€'m)

EV/ Revenue

(€'m)

EV/ EBITDA

(€'m)

Aug-15 Irish Pride Bakeries Limited Products include breads, rolls, sliced pans, toasts, sandwiches, and bunsters Pat The Baker Limited n.a. n.a. n.a.

Jul-15 Ballyrashane Co-Op Offers milk, cream, cheese, yoghurt, butter, ice-cream, shortbread, and cream liqueur products Town of Monaghan Co-Op n.a. n.a. n.a.

Jun-15 Moy Park Limited Produces and sells farmed poultry products for retailers, restaurant chains, and foodservice providers JBS S.A. 1,324 3.3x 7.9x

Mar-15 Carroll Cuisine Limited Produces deli hams and ready meal products Cardinal Capital Group 40 n.a. n.a.

Dec-14H. J. Heinz Company, Frozen Ready Meals Manufacturing Site in Dundalk

Produces frozen read to eat meal The Authentic Food Company Limited n.a. n.a. n.a.

Dec-14 Castlemine Farm Limited Produces and sells beef, lamb, pork, meat boxes, sauces and chutneys, and other products

Allen & Droney Food Group Limited n.a. n.a. n.a.

Sep-14Robert Roberts Limited and Kelkin Limited

Blends, roasts, and sells tea and coffee. Produce and sell ambient healthy foods, beverages, fine foods and vitamins

Valeo Foods Group Limited 60 0.5x n.a.

May-14Aran Candy Limited (75% Stake) Produces jelly beans and candies Cloetta AB 15 1.9x n.a.

May-14Cheese Brands of Fivemiletown Creamery Soft cheese and Boilie production Dale Farm Limited n.a. n.a. n.a.

Apr-14 Irish Pride Bakeries Limited Manufactures bakery products WHW Bakeries n.a. n.a. n.a.

Apr-14 Fivemiletown Creamery Manufactures and supplies dairy products to retail and catering industries Glanbia plc n.a. n.a. n.a.

Jan-14 Lily O'Briens Holding Limited Manufactures and markets premium chocolates Cardinal Capital Group n.a. n.a. n.a.

Nov-13 Galmere Fresh Foods and Taravale Foods

Produces fresh soups, premium salads, sandwich fillers and fresh chilled food products Donworth Capital n.a. n.a. n.a.

Oct-13 Freshways Limited Produces and distributes ready-to-go food products to retailers MBO n.a. n.a. n.a.

Jun-13Wexford Creamery Limited (70% Stake)

Produces and markets cheese, cream, and milk products Glanbia plc 20 n.a. n.a.

Jun-13Mccarren and Company Limited

Processes, produces and markets pork and bacon products in Ireland Kepak Clonee Limited n.a. n.a. n.a.

Apr-13 Mullins Ice Cream LimitedSupplies desserts to restaurants and hotels, ice cream to schools and hospitals, and a branded product to retailers

Dale Farm Limited n.a. n.a. n.a.

Dec-12 Organic For Us Provides organic milk and yogurt Aurivo Co-operative Society Limited n.a. n.a. n.a.

Dec-12 Kearney Cheese Company Manufactures blue cheese Farmview Dairies Limited n.a. n.a. n.a.

Nov-12 Dairy Ingredients Ireland (60% Stake)

Ireland based business unit of the Dairy Ireland division of Glanbia plc

Glanbia Co-operative Society Limited 173 0.3x 4.6x

Oct-12 Arnotts Fruit Limited Produces fresh food products Pallas Foods Limited n.a. n.a. n.a.

Jun-12 Donegal Creameries (Milk and Retail businesses) Milk and retail businesses of Donegal Creameries Connacht Gold Co-operative

Society Limited 21 0.3x n.a.

May-12 Causeway Cheese Company Produces cheese, serving restaurants and shops in Northern Ireland Fivemiletown Creamery n.a. n.a. n.a.

May-12 Yoplait Ireland Limited Produces mixed seed and fruit yogurts Yoplait France SAS 18 n.a. n.a.

May-12 Cully & Sully Limited Offers soups, pies, and hot pots in Ireland The Hain Celestial Group, Inc. 13 n.a. n.a.

Feb-12 Walsh Family Foods Limited Manufactures frozen and chilled convenience foods, including branded Walsh Family Foods Keystone Foods LLC n.a. n.a. n.a.

Dec-11Premier Foods plc, Chivers, Gateaux, McDonnells and Erin Brands

Chivers a jams and jelly brand; Gateaux a cake brand; McDonnells a noodle and curry brand; and Erin a soup brand

Boyne Valley Group Limited 41 1.4x 4.1x

Dec-11 STGN Limited Rib World engages in producing and delivering food products for retail and foodservice markets M&M Walshe Limited n.a. n.a. n.a.

Sep-11 Tullamore Dairies Limited Produces and sells dairy products in Ireland Glanbia plc n.a. n.a. n.a.

Aug-11 Jacob Fruitfield Foods Limited

Manufactures and distribute biscuits, sauces, jams and preserves, and confectionery products Valeo Foods Group Limited n.a. n.a. n.a.

Jul-11 Largo Foods Limited (36% Stake) Manufactures and distributes snack foods in Ireland Intersnack Knabber-Gebäck

GmbH & Co. KG n.a. n.a. n.a.

Jun-11 Carton Group Limited (40% stake)

Produces farm chicken, offering products through major supermarkets, and local stores and butchers in Ireland and internationally

Vincent, Justin and Elizabeth Carton 6 n.a. n.a.

Apr-11 Dawn Dairies Limited (Liquid Milk Business)

Limerick based liquid milk business of Dawn Dairies Limited Glanbia plc 10 n.a. n.a.

Feb-11 Gallagher's Bakery Limited Produces bread, cakes, and pastries MBO n.a. n.a. n.a.

Note: Alcohol related M&A is excluded


Irish M&A - Outbound

At Key Capital, we are currently experiencing significant growth in outbound M&A among our clients in both the agri-food sector and more broadly across the economy. Many companies have emerged from the economic downturn with leaner, more efficient businesses and are once again focussed on growth.

This renewed focus on international growth, accompanied by more flexible funding solutions is driving outbound M&A. This is particularly true in the food sector where M&A not only facilitates new market entry, but can also provide access to lower cost production. Through our international network we have been able to successfully introduce many of our clients to proprietary acquisition opportunities around the world.

International Acquisitions by Irish Food & Beverage Companies since January 2011Source: Key Capital Research, Capital IQ, MergerMarket

Current generation of leadership takes over from company’s founders

New state of the art processing plant is built

Announced the acquisition of RibWorld

Acquires 100% of UK-based Stirchley Bacon Ltd.

1980s 1990 2011 August 2015

Announced Target Country Target Description Acquirer Transaction

Value (€'m)

EV/ Revenue

(€'m)

EV/ EBITDA

(€'m)

Aug-15 Stirchley Bacon UK Leading provider of branded pork products to the UK food service sector Callan Bacon n.a. n.a. n.a.

Jul-15 Societe Chiron A.C.V.F. France Produces frozen hamburgers for supermarkets Liffey Meats Limited n.a. n.a. n.a.

May-15Balconi Industria Dolciaria S.p.A. Italy Produces cakes, rolls, and snacks Valeo Foods Group Limited 225 n.a. n.a.

Apr-15Insight Beverages, Inc. US Develop, manufacture, and market custom

beverages Kerry Group plc n.a. n.a. n.a.

Feb-15My Goodness Limited UK Producer of sports recovery food, muscle

nutrition, and milkshake drinks Aurivo Co-operative Society Limited 15 n.a. n.a.

Feb-15 Rollover Limited UK Produces and supplies hot food and snacks in the UK Kerry Group plc n.a. n.a. n.a.

Feb-15Dairygold Food Ingredients (France) SAS

FranceProduces dairy and cheese based ingredients for food manufacturers, caterers, foodservice operators, and retail outlets

Kerry Group plc n.a. n.a. n.a.

Feb-15Gambles Group (50% Stake) Canada Fresh produce company Total Produce plc n.a. n.a. n.a.

Dec-14Wellness Foods Limited UK

Producer and distributor of ready-to-eat fresh fruit products, fresh fruit patisserie and drinks, mueslis, honey, and natural fruit snacks

Erbium n.a. n.a. n.a.

Dec-14 Taste Trends Limited UK Produces frozen yogurt products Lakeland Dairies Co-op Society Limited n.a. n.a. n.a.

Oct-14The Isopure Company, LLC US

Engaged in manufacturing sports nutrition products Glanbia plc 118 2.1x n.a.

Sep-14 Luxtor S.A. Spain Manufactures cheese Ornua Co-operative Limited 75 n.a. n.a.

Sep-14Eco Farms Avocados, Inc. (45% Stake) US Manufacturing, packing and selling fresh fruits Total Produce plc n.a. n.a. n.a.

Apr-14Fivemiletown Creamery UK Manufactures and supplies dairy products

to retail and catering industriesGlanbia Ingredients Ireland Limited n.a. n.a. n.a.

Mar-14ASF Holland BV (50% Stake)

Nether-lands Soft fruit producer Total Produce plc n.a. n.a. n.a.

Mar-14Rowse Honey Limited UK Offers honey in the UK Valeo Foods Group Limited n.a. n.a. n.a.

Business Overview

– Headquartered in Callan, Co. Kilkenny, Callan Bacon is a producer high quality, branded and private label products

– The company was founded in 1924 and has a long operating history of steady, organic growth

Transaction

– Key Capital were engaged to advise the shareholders of Callan Bacon on the acquisition of Stirchley Bacon, a leading provider of branded products to the UK food service sector

– The acquisition represented an opportunity for Callan to expand its presence in the UK, as well enter the food service market

– Callan acquired 100% of Stirchley Bacon in August 2015

Financing

– Key Capital arranged senior bank financing to fund the acquisition

CASE STUDY 2: CALLAN BACON


Announced Target Country Target Description Acquirer Transaction

Value (€'m)

EV/ Revenue

(€'m)

EV/ EBITDA

(€'m)

Feb-14 Lettieri's, LLC US Manufactures cooked and merchandised food products Greencore Group plc 27 1.0x 8.1x

Feb-14WynnStarr Flavors, Inc. US Produces and supplies savory flavors and

food products for food service companies Kerry Group plc n.a. n.a. n.a.

Feb-14Lynch Quality Meats (Ayrshire) Limited UK Meat wholesaler, offering chilled and frozen

meats to the and export markets Dunbia Group n.a. n.a. n.a.

Feb-14Jaspers (Treburley) Limited UK

Procuring, processing, and selling beef products for wholesale, retail, and manufacturing outlets in the UK

Dawn Meats Group Limited n.a. n.a. n.a.

Jan-14Ash Manor Cheese Company Limited UK Manufactures and provides cheese and milk

products Dale Farm Limited n.a. n.a. n.a.

Jan-14 Nutramino Denmark Fitness nutrition company Glanbia plc n.a. n.a. n.a.

Dec-13Ferrarini SpA (Kloso-wice meat plant) Poland

Engaged in the production of cooked ham and matured ham products ABP Food Group 5 n.a. n.a.

Apr-13Monaghan Champignons (Prime Champ Holding B.V.)

Nether-lands Grows and sells mushroom Monaghan Middlebrook

Mushrooms Limited n.a. n.a. n.a.

Apr-13 Bolling Coffee Limited UK Engaged in roasting and supplying coffee

to the foodservice market in the UK Bewley's Limited n.a. n.a. n.a.

Feb-13 Big Train, Inc. USDevelops and produces ice coffees and powdered chai tea products for retail and foodservice segments


Jan-13 The Oppenheimer Group (65% Stake) Canada Produces and supplies fruits and vegetables

for retailers, wholesalers, and foodservice Total Produce plc 31 0.1x n.a.

Oct-12 Arnotts Fruit Limited UK Produces fresh food products Pallas Foods Limited n.a. n.a. n.a.

Sep-12 Millennium Foods, LLC US

Provides custom food product development, manufacturing, and packaging services for retail grocers, restaurant chains, and food processing companies

Kerry Group plc 24 n.a. n.a.

Aug-12 International Cuisine Limited UK Produces chilled and frozen meal solutions Greencore Group plc 21 0.4x n.a.

Aug-12 Angsana Food Industries Sdn. Bhd. Malaysia Produces food ingredients,

and premixes and sauces Kerry Group plc 20 n.a. n.a.

Jul-12 Aseptic Solutions Inc. US Manufacturer and co-packer of nutritional and dietary beverages Glanbia plc 49 n.a. n.a.

Jul-12 The Cheese Warehouse Limited UK

Supplies cheese to food manufacturing, retail, foodservice, wholesale, and hospitality sectors in the UK and Ireland

Ornua Co-operative Limited 8 0.2x n.a.

Jun-12 H.C. Schau & Son Inc. US Manufactures and distributes fresh food

products Greencore Group plc 16 0.6x n.a.

Apr-12 Marketfare Foods, LLC US

Develops and produces freeze-thaw and fresh sandwiches, wraps, burritos, sauces, and Mexican and specialty foods

Greencore Group plc 27 0.6x 6.3x

Feb-12 Eatwell (UK) Limited UK Produces sandwich and other eatable items Kepak Clonee Limited n.a. n.a. n.a.

Jan-12 Midland Snacks Limited UK

Produces, markets, and supplies hand cooked pork scratchings and crunches Tayto Group Limited n.a. n.a. n.a.

Dec-11 Cargill Flavor Systems (UK) Limited UK Global flavors business Kerry Group plc 171 1.1x n.a.

Nov-11 Thiel Cheese & Ingredients, LLC US

Formulates and manufactures pasteurized process cheese products for food manufacturers, foodservice operators, and their products

Ornua Co-operative Limited 36 1.0x n.a.

Sep-11 SuCrest GmbH Germany

Develops, manufactures, and supplies natural ingredients for the food industry in ice cream, baked goods, confectionary, and cereal and snack sectors


Aug-11 Thakeham Mushrooms Limited UK Engages in the production of mushroom Monaghan Middlebrook

Mushrooms Limited n.a. n.a. n.a.

Jul-11 Uniq plc UKOffers fresh and chilled convenience food products in the UK Greencore Group plc 143 0.4x 19.3x

May-11 Woodchester Enterprises Limited UK Produces soft drinks SHS Group, Limited n.a. n.a. n.a.

Apr-11 Bio Green Foods Limited UK Manufactures yogurt drinks and dairy products Donegal Investment Group plc 2 n.a. n.a.

Feb-11Ebi Cremica Food Coatings Pvt. Limited (50% Stake)

India Manufacturer of food ingredients Kerry Group plc 5 n.a. n.a.

Jan-11Bio-Engineered Supplements & Nutrition, Inc.

US Manufacturing of bodybuilding supplements and sports nutrition products Glanbia plc 107 n.a. n.a.

Note: Alcohol related M&A is excluded


Global M&A

Global Private Equity Fund RaisingSource: Key Capital Research, Capital IQ

Global M&A Value by QuarterSource: Key Capital Research, Capital IQ

SUMMARYAssuming the economic recovery strengthens and deflationary risks moderate, the recent unprecedented expansionary monetary policy from central banks around the world will most likely be reined in. While the knock-on effect remains unclear, it is likely to be significant and may curtail M&A activity in the longer term. Other exceptional factors, such as Grexit, could also have a significant impact on the availability of risk capital and M&A activity.

In conclusion, this is a seller’s market –

demand for assets is currently very high with resulting positive impact on valuations. We expect this favourable environment to continue in the short to medium term, however, the end to this positive cycle may be abrupt and shareholders should take this into account when forming their exit plans. The long lead times involved in selling a business (typically 6-9 months) means that early consideration of the options is particularly important in the context of the current M&A landscape.

Global M&A volumes, as illustrated by the following tables, have grown significantly over the previous five years. This has been matched by healthy increases in the private equity fundraising market. We expect M&A volumes to continue increasing in the short to medium term based on a confluence of factors:

1. Following a period of significant deleveraging, corporate balance sheets are now in relatively good health

2. Reduced uncertainty about global economic outlook causing CEOs to renew focus on growth

3. Low interest rate environment moving investors (companies, private equity and individuals) up the risk curve

4. Buoyant private equity fundraising – fundraising values at 6 year peak which will drive further demand for assets

5. Highly liquid debt markets – bank focus shifted from balance sheet to P&L, growth in alternative credit providers, and increased debt capital markets activity

6. Arbitrage between public company valuations and private company levels is motivating listed entities to acquire private companies

223 246308

402 405992 1,1141,206 1,247 1,153

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Global Private Equity Fund Raising

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Aggregate Capital Raised (€bn) No. of Funds Closed

300

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Q12010

Q32010

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Aggregate Capital Raised (€bn) No. of Funds Closed

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1. Global reach

Key Capital is the exclusive Irish partner to IMAP, the world’s leading M&A partnership. Through this network, we have access to the relationships and expertise of over 40 firms across 35 countries. We can leverage this network to provide access to senior decision makers in companies and investment houses across the globe. We frequently introduce our Irish clients to international acquisition opportunities (e.g. Glanbia’s 2014 purchase of Nutramino in Denmark) and leverage the network to unlock large international buyer groups when engaged to sell a business.

HOW KEY CAPITAL CAN HELP

HOW KEY CAPITAL CORPORATE FINANCE IS DIFFERENT

INTRODUCTION TO KEY CAPITAL

– Key Capital was established in 2001 and operates from offices in Dublin and London

– The group has over 100 employees, 35 of which are investment banking professionals, with experience gained at leading global financial institutions

– The group operates in two principal business lines: corporate finance advisory and wealth management

Global Performance 2012-2014 up to $200 million (based on number of transactions)

12345

PwCKPMGErnst & Young LLPIMAPBDO

678910

DeloitteRothschildHoulihan LokeyLazardMizuho Financial Group

ArgentinaBelgiumBosnia and HerzegovinaBrazilCanadaChile

ChinaCroatiaCzech RepublicDenmarkEgyptFinland

FranceGermanyHungaryIndiaIrelandItalyIvory Coast

JapanMexico

MontenegroMoroccoNetherlandsNorwayPeruPolandPortugal

KosovoRussiaSenegalSerbiaSlovakiaSloveniaSpain

SwedenSwitzerlandTurkeyUnited KingdomUnited States

Vietnam

Corporate Finance Advisory Private Wealth Management

M&A, restructuring and capital raising, with a strong track record in:1) Irish private companies2) Alternative assets (private equity

& corporate loans) for leading international asset managers

3) Real estateWe have executed €7 billion of M&A, financing & restructuring transactions in the last 10 years

Key Capital Private was established in 2006 to provide world-class wealth management services to Irish clientsWe provide advisory and discretionary wealth management services to:1) Individuals– typically

entrepreneurial wealth2) Families– typically

multi-generational wealth3) Not for profit – capital

preservation and income needs4) SSA Pension Funds & Approved

Retirement Funds (KCP is a Qualified Fund Manager)

Argentina Croatia Hungary Mexico Portugal SwedenBelgium Czech Republic India Montenegro Russia SwitzerlandBosnia and Herzegovina Denmark Ireland Morocco Senegal TurkeyBrazil Egypt Italy Netherlands Serbia United KingdomCanada Finland Ivory Coast Norway Slovakia United StatesChile France Japan Peru Slovenia VietnamChina Germany Kosovo Poland Spain


2. Sector focused

In a small market like Ireland, corporate financiers tend to be sector agnostic and opportunistic. At Key Capital, we are not. We focus on 3-4 core sectors where the team has existing advisory experience and augment this with detailed research. Most corporate finance firms pride themselves on their ability to run an efficient transaction process. At Key Capital, we do not think this is enough. Our understanding of the operating characteristics, risks, challenges and opportunities of each industry allows us to add significant value, whether buying or selling a business on behalf of our clients. Furthermore, by developing deep relationships and market intelligence in a sector, we can unlock genuine strategic opportunities for our clients. We would be happy to share some case studies and references to illustrate this point.

3. Experts in private equity

Private equity is becoming a critical feature of the funding and M&A landscape in Ireland. Key Capital has unique experience of this asset class in the Irish market having structured two private equity fund of funds with investments in nine top tier fund managers such as KKR, Equistone, Morgan Stanley and Permira. As a result, we have deep relationships in the industry that we can leverage for our clients’ benefit. We also have genuine insight into what drives private equity managers – this allows us to add significant value in deal structuring and negotiation. In aggregate we have raised more than €3bn in private equity financing to date.

4. We know how to buy businesses

Key Capital not only advises on buying businesses, we also invest our own capital to acquire trading companies. Key Capital is the owner or investor in a number of companies in both North and South of Ireland. This allows us to differentiate ourselves in two ways:

a. We understand how to buy businesses well – not just from a spreadsheet but the practical considerations of how to integrate businesses and drive value

b. In certain circumstances we can invest equity or debt (e.g. in the event of an MBO or capital raising) on a temporary basis to support transactions

5. Top tier international investment banking standards and expertise

At Key Capital we aim to provide international-class investment banking service to Irish mid-market clients. Key Capital is managed by individuals with investment banking expertise that is unparalleled in the Irish market. Key Capital’s CEO and Senior MD ran significant operations of global investment banks in London and New York before setting up Key Capital. Our standards are benchmarked off their experience.

HOW KEY CAPITAL CAN HELP

We work with some of the largest private companies in Ireland, providing financial advice in relation to M&A, disposals, capital raisings, restructuring and strategic advice. Please get in touch to find out more about how Key Capital can assist you in the following ways:

1. Support, develop and execute growth strategy

2. Unlock foreign markets

3. De-risk through capital raise

4. Maximise value of your business at time of sale


MULTIPLES

COMPANY NAME LOCATION MARKET CAP (€M)

EV (€M) REVENUE (€M)

EBITDA (€M)

NET DEBT (€M)

EV/REVENUE EV/EBITDA NET DEBT/EBITDA

Orkla ASA Norway 6,405 7,153 3,491 488 767 2.05x 14.7x 1.6x

ARYZTA AG Switzerland 3,880 5,914 5,096 743 2,031 1.16x 8.0x 2.7x

Lotus Bakeries NV Belgium 1,228 1,263 376 72 34 3.36x 17.5x 0.5x

Raisio plc Finland 637 711 509 54 74 1.40x 13.2x 1.4x

Finsbury Food Group plc

UK 170 206 251 16 32 0.82x 13.0x 2.0x

Tipiak Société Anonyme

France 64 97 190 14 27 0.51x 7.1x 1.9x

Cakovecki mlinovi d.d

Croatia 64 74 143 8 2 0.52x 9.7x 0.3x

Eurogerm S.A France 61 60 78 9 (8) 0.78x 7.0x n.a.

Zito Prehrambena Industrija d.d.

Slovenia 54 68 116 9 10 0.58x 7.5x 1.1x

Alkis H. Hadjik-yriacos (Frou-Frou Biscuits) Public Ltd.

Cyprus 26 29 28 5 6 1.07x 6.4x 1.4x

Karamolengos Bak-ery Industry S.A.

Greece 24 82 76 13 54 1.07x 6.1x 4.0x

Average 1.21x 10.0x 1.7x

Median 1.07x 8.0x 1.5x

Excluding Outliers 1.05x 9.6x 1.6x

PEER INDEX TABLE 1 : BAKERY

Note: Data is based on available company information as of 30th September 2015 (multiples calculated on a trailing LTM basis)Source: Key Capital Research, Capital IQ

APPENDIX

MULTIPLES

COMPANY NAME LOCATION MARKET CAP (€M) EV (€M)

REVENUE (€M)

EBITDA (€M)

NET DEBT (€M)

EV/ REVENUE

EV/EBITDA NET DEBT/EBITDA

Parmalat SpA Italy 4,256 3,547 5,914 419 (731) 0.60x 8.5x n.a.

Fromageries Bel France 2,231 2,272 2,889 355 28 0.79x 6.4x 0.1x

Emmi AG Switzerland 1,897 2,323 3,204 284 270 0.73x 8.2x 1.0x

Unibel S.A. France 1,436 1,833 2,889 355 (43) 0.63x 5.2x n.a.

Dairy Crest Group plc

UK 1,091 1,380 1,839 106 294 0.75x 13.0x 2.8x

Savencia SA France 799 1,375 4,554 269 425 0.30x 5.1x 1.6x

Ledo D.d. Croatia 359 428 279 44 69 1.53x 9.6x 1.5x

AD Imlek Serbia 271 271 369 - (10) 0.73x n.a. n.a.

Valsoia SpA Italy 209 202 117 18 (7) 1.72x 11.4x n.a.

Hochdorf Holding AG

Switzerland 166 229 463 27 58 0.49x 8.3x 2.1x

Dukat mlijecna industrija d.d.

Croatia 119 105 462 40 (13) 0.23x 2.6x n.a.




PEER INDEX TABLE 2: DAIRY


MULTIPLES

COMPANY NAME LOCATION MARKET CAP (€M) EV (€M)

REVENUE (€M)

EBITDA (€M)

NET DEBT (€M)

EV/ REVENUE

EV/EBITDA NET DEBT/EBITDA

MHP S.A. Ukraine 854 1,872 1,161 475 1,044 1.61x 3.9x 2.2x

L.D.C. S.A. France 1,383 1,254 3,028 272 (147) 0.41x 4.6x n.a.

Bell AG Switzerland 924 1,282 2,414 193 291 0.53x 6.6x 1.5x

Cranswick plc UK 1,137 1,161 1,388 107 24 0.84x 10.9x 0.2x

Cherkizovo Group Russia 508 993 1,704 388 478 0.58x 2.6x 1.2x

Atria Oyj Finland 237 478 1,380 85 237 0.35x 5.6x 2.8x

Hilton Food Group plc

UK 422 439 1,509 59 3 0.29x 7.5x 0.1x

Scandi Standard AB Sweden 274 413 569 48 149 0.73x 8.6x 3.1x

HKScan Oyj Finland 231 390 1,962 38 150 0.20x 10.3x 4.0x

ORIOR AG Switzerland 288 355 489 43 70 0.73x 8.4x 1.6x

Fleury Michon SA France 258 319 733 58 - 0.44x 5.5x 0.0x




PEER INDEX TABLE 3: MEAT

MULTIPLES



EBITDA (€M)

NET DEBT (€M)


Anheuser-Busch InBev SA/NV

Belgium 150,009 193,695 41,083 15,798 40,147 4.71x 12.3x 2.5x

SABMiller plc UK 66,663 78,299 15,391 5,059 10,726 5.09x 15.5x 2.1x

Diageo plc UK 56,531 71,651 15,266 4,744 13,593 4.69x 15.1x 2.9x

Heineken Holding NV

Netherlands 17,339 35,758 19,879 4,252 10,612 1.80x 8.4x 2.5x

Pernod-Ricard SA France 24,765 34,031 8,558 1,792 9,183 3.98x 19.0x 5.1x

Carlsberg A/S Denmark 10,249 15,851 8,694 1,680 5,103 1.82x 9.4x 3.0x

Coca-Cola HBC AG Switzerland 6,392 7,561 6,478 788 1,201 1.17x 9.6x 1.5x

Davide Campari - Milano SpA

Italy 3,782 4,599 1,632 361 1,065 2.82x 12.7x 2.9x

Britvic Plc UK 2,321 3,060 1,827 273 749 1.68x 11.2x 2.7x

Rémy Cointreau SA France 2,565 3,034 965 176 467 3.14x 17.3x 2.7x

Royal Unibrew A/S Denmark 1,644 1,862 803 161 218 2.32x 11.5x 1.4x


Median 2.82x 12.3x 2.7x


PEER INDEX TABLE 4: BEVERAGES

MULTIPLES



EBITDA (€M)

NET DEBT (€M)


Nestlé S.A. Switzerland 205,001 223,266 87,972 16,751 17,343 2.54x 13.3x 1.0x

Chocoladefabriken Lindt & Sprüngli AG

Switzerland 12,627 13,330 3,457 583 724 3.86x 22.9x 1.2x

Barry Callebaut AG Switzerland 5,182 6,863 5,819 500 1,690 1.18x 13.7x 3.4x

Suedzucker AG Germany 2,644 4,100 6,634 324 786 0.62x 12.6x 2.4x

Ebro Foods SA Spain 2,655 3,069 2,329 302 389 1.32x 10.2x 1.3x

AAK AB Sweden 2,446 2,705 2,093 177 265 1.29x 15.3x 1.5x

Premier Foods plc UK 385 1,183 1,047 9 796 1.13x 125.2x 84.3x

Cloetta AB Sweden 773 1,073 592 94 312 1.81x 11.5x 3.3x

Deoleo SA Spain 358 848 773 68 490 1.10x 12.4x 7.2x

Raisio plc Finland 637 711 509 54 74 1.40x 13.2x 1.4x

Koninklijke Wessanen N.V.

Netherlands 693 693 479 32 1 1.45x 21.4x 0.0x


Median 1.32x 13.3x 1.5x


PEER INDEX TABLE 5: OTHER FOODS


RETAIL FOOD AND DRINK CORPORATE FINANCE

CONTACT INFORMATION:www.keycapital.ie

Jonathan Dalton DirectorTelephone: +353 1 638 3843Mobile: +353 87 411 2663Email: [email protected]

Tero TiilikainenDirectorTelephone: +353 1 638 3833Mobile: +353 86 733 4788Email: [email protected]

Richard CaseyAnalystTelephone: +353 1 638 3835Mobile: +353 87 262 6967Email: [email protected]

Alexandre DemenchukAssociate DirectorTelephone: +353 1 638 3846Mobile: +353 86 0455787Email: [email protected]

Conor MoranHead of Corporate FinanceTelephone: +353 1 638 3831Mobile: +353 87 677 6265Email: [email protected]

Cillian RyanAnalystTelephone: +353 1 638 3842Mobile: +353 87 174 2852Email: [email protected]

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Key Capital, DublinAddress: 3rd Floor, Huguenot House,

St. Stephen’s Green, Dublin 2, IrelandPhone: +353 (0) 1 638 3838

Key Capital, LondonAddress: 33 St. James’s Square,

London SW1Y 4JS, United KingdomPhone: +44 (0) 20 7769 6799

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