INSIDER · 2019-06-12 · INSIDER. Unemployment Consumer Conﬁdence 50 60 70 80 90 100 110 Jan-05...

CONSUMER PRODUCTS & RETAIL SERVICES

B G L C O . C O M A P R I L | 2 0 1 5

J O H N R . T I L S O NM A N AG I N G D I R E C TO R & G R O U P H E A D3 1 2 . 6 5 8 . 1 6 0 0J T I L S O N @ B G LC O. C O M

ALEXANDER N. [email protected]

REBECCA A. DICKENSCHEIDTDIRECTOR OF [email protected]

2

4

1 0

1 6

2 7

M A C R O E N V I R O N M E N T

H E A LT H & W E L L N E SS

O U T D O O R & A C T I V E L I F E S T Y L E

P E T

A B O U T U S

TA B L E O F C O N T E N T S

INSIDER

Unemployment

Consumer Confidence

50

60

70

80

90

100

110

Jan-

05

Jun-

06

Nov

-07

May

-09

Oct

-10

Apr-

12

Sep-

13

Feb-

15

5.5%

4%

5%

6%

7%

8%

9%

10%

11%

Jan-

05

Jun-

06

Nov

-07

May

-09

Oct

-10

Apr-

12

Sep-

13

Feb-

15

897

593

297

0

500

1,000

1,500

2,000

2,500

Jan-

05

Jun-

06

Nov

-07

May

-09

Oct

-10

Apr-

12

Sep-

13

Feb-

15

(In T

hous

ands

)

Total In Structures with 1 Unit In Structures with 5 Units or More

Housing Starts

Source: The University of Michigan.

Source: U.S. Census Bureau. Source: U.S. Census Bureau.

CONSUMER SPENDING TO ACCELERATE

PURCHASING POWER TO SURGE

Despite a decline in consumer confidence in February, the University of Michigan Consumer Sentiment index is still at a seven-year high. Economists anticipate that jobs growth and low gasoline prices will translate into real income expansion, with consumer spending forecasted to grow an average 3.6 percent in 2015—the fastest annual pace since 2004.

MONITOR

Consumer Sentiment

Unemployment

Housing Starts (SAAR in 000s)

Existing Home Sales (SAAR in 000s)

Mortgage Rate (30-year)

2 C O N S U M E R P R O D U C T S & R E T A I L S E R V I C E S | M A C R O E N V I R O N M E N T

Fe b - 1 5 Fe b - 1 4

9 5 . 4 8 1 . 6

5 . 5 % 6 . 7 %

8 9 7 9 2 8

4 , 3 4 0 4 , 1 1 0

3 . 7 % 4 . 3 %

M AC R O E N V I R O N M E N T | H E A LT H & W E L L N E SS | O U T D O O R & AC T I V E L I F E S T Y L E | P E T | A B O U T U S

CONSUMER SPENDING POWER AND TRENDS

3 C O N S U M E R P R O D U C T S & R E T A I L S E R V I C E S | M A C R O E N V I R O N M E N T

Spen

ding

pow

er

1946 - 1964Baby Boomers

After 1980Generation Y and Z

1964 - 1980Generation X

T h e ” M e ” & ” F i r s t o f E v e r y t h i n g ”

G e n e r a t i o n

2 4 . 3 % o f t o t a l p o p u l a t i o n

A n n u a l P u r c h a s e Po w e r$ 3 . 5 t r i l l i o n

T h e ” L a t c h - K e y K i d s ” G e n e r a t i o n



T h e ” E c h o B o o m e r s ” a n d

” B o o m l e t s ” G e n e r a t i o n s



• Baby boomers wield unparalleled spending power and are strongly focused on their health as they enter their later years

• Following the 1990s shopping spree and constantly under the pressure to save for retirement, Generation X are sophisticated and value-driven consumers, but spend money on their passions

• Millennials look at overall healthy living as a way of life

• Use technology as a source of constant ideas and information to live a healthy lifestyle

S p e n d i n g F o c u s

Consumption Drivers

• Passionate pursuit of enjoyment and satisfaction even with less free time - prioritizing expenditures above all non-essentials

• Living healthier, longer, and more engaged lives - what will help me live better?

• Technology-driven innovation – faster, lighter, and stronger gear

• More efficacious vitamins; less processed / more natural foods; faster acting protein shakes

Purchasing Patterns

• Equate “retirement” with “enjoyment of life”

• Envision technology and innovation as requiring a learning process; warming up to DTC, but still fairly attached to Brick & Mortar retail

• The generation hardest hit by the great recession, as they should have been close to their peak earnings potential, paying down their mortgages, and beefing up their retirement accounts

• Still want what they want and want it now, but struggling to buy

• Strong focus on specialty and DTC channels, especially with enthusiasts

S o u r c e : U . S . B u r e a u o f L a b o r S t a t i s t i c s


HEALTH & WELLNESSVitamins & Dietary Supplements and Sports Nutrition are two winning categories in Consumer Health.

4 C O N S U M E R P R O D U C T S & R E T A I L S E R V I C E S | H E A L T H & W E L L N E S S


VITAMINS & DIETARY SUPPLEMENTSSector growth is being fueled by an increasing push toward preventative health and a propensity to avoid medical issues and bills.

SECTOR GROWTH

Growing focus on wellness for improved health and disease prevention is driving increased consumption of supplements. Approximately 50 percent of U.S. adults currently take vitamins or other supplements, an improvement from 42 percent in the 90s. The number of U.S. adults age 50 and older has grown 2.2 percent per year on average between 2009 and 2014.

POSITIONING

Vitamins continue to be dominated by senior-specific positioning followed by gender-specific positioning. Elderly vitamins had the biggest market share growth focused on joint, digestive, bone, and cognitive health. Consumers are demanding specific supplements for specific ailments, desires, and results, as illustrated by the decline in general multivitamins. Children’s health represents a growth area with a focus on natural and gentle ingredients.

ONGOING INNOVATION

Innovation in dosage forms is ongoing as 20 percent of Americans have difficulty swallowing pills. Experimentation with new delivery mechanisms is continuing with gummy and gel formulations gaining popularity.

LENS OF SCRUTINY

Negative media attention continues to plague the industry, the impact of which could mean weaker consumer demand in the near-term and more stringent regulatory oversight. In February, the New York State Attorney General’s office ordered national retailers Wal-Mart Stores, Walgreens, Target, and GNC to halt sales of popular store-brand herbal supplements after testing revealed potential mislabeling or contamination with other ingredients.


CONVENIENCE FUELS OTC

Convenience is driving the popularity of OTC over doctor visits and precription drugs, with the number of Rx-to-OTC switches remaining steady. Internet retailing is growing in popularity as consumers feel less need to consult a physician when selecting products.

S o u r c e s : E u r o m o n i t o r, N u t r i t i o n B u s i n e ss J o u r n a l , p u b l i c d a t a .


SPORTS NUTRITION

MAINSTREAMING

The shift from hardcore users toward the mainstream consumer is accelerating. More consumers are proactively managing their health through increased exercise and nutrition, with awareness growing for the benefits of protein supplementation for well-being, maintenance of muscle mass, and weight loss. Favorable secular trends in fitness (i.e., growth in health club memberships and increased participation in competitive fitness challenges and regimented training) support continued mainstreaming of the casual fitness consumer into supplement consumption.

NEW DELIVERY FORMATS

New delivery formats favor personalization, convenience, and accessibility with sizable growth in RTDs and bars. Packaged food companies are flexing their marketing muscle and entering the fray with protein-fortified products, from milks and juices to cereals, and promoting meats and cheeses for healthful on-the-go snacking.

MARKETING TO WOMEN

Fitness-minded females represent a large, untapped demographic. Women account for roughly half of the 16-39 year-old population of gym members in leading sports nutrition markets like the United States and are taking up competitive fitness, strength training, and running at increasing rates. Women also have a higher propensity to use dietary supplements. Findings from a 2013 survey conducted by the Council for Responsible Nutrition survey found that 72 percent of U.S. adult women use dietary supplements, compared to only 64 percent of U.S. adult men. With gender-specific positioning underdeveloped in sports nutrition, differentiated products that address the specific nutritional needs of women (i.e., toning, bone health, joint health) present a large opportunity. Examples of popular women’s lines include FitMiss (Muscle Pharm) and Evolve (CytoSport) launched in 2013.

ACQUISITION GROWTH

Outsized category growth is generating broad interest across industries with CPG companies snatching up marquee brands in recent months, notably Cytosport by Hormel in August 2014. Post Holdings has built up its active nutrition portfolio through an aggressive acquisition growth strategy, picking up PowerBar and Musashi (October 2014), Dymatize Nutrition (February 2014), and Premier Nutrition (September 2013), creating a business approaching $550 million in annualized revenue.


S o u r c e s : E u r o m o n i t o r, N u t r i t i o n B u s i n e ss J o u r n a l p u b l i c d a t a .


CASE STUDY

Hormel’s (NYSE: HRL) acquisition of Cytosport Holdings advances its M&A strategy around protein—building out its non-meat portfolio—and fast-tracks an entry to the growing sports nutrition market. The transaction marks Hormel’s largest deal since the $700 million acquisition of Skippy in 2013.

Cytosport is the maker of Muscle Milk® products, the No. 1 brand in the ready-to-drink protein beverage category. The company offers a complete line of protein-enhanced powders, shakes, and bars that are used by professional athletes, collegiate athletic departments, and fitness enthusiasts. Retail sales (~40 to 50 percent of product mix) have grown in excess of 22 percent annually since 2010, according to industry analysts.

Hormel expects to achieve distribution efficiencies by leveraging its direct sales effort to increase sales in food, drug, and mass (FDM) channels and expand sales in alternative channels. Muscle Milk is currently sold in c-stores (~30 percent of sales), specialty nutrition retail stores (~20 percent), FDM (~40 percent), and international (~10 percent).

“Muscle Milk® products will serve as a growth catalyst for our Specialty Foods segment, providing this division with a leading brand in the high-growth sports nutrition category,” said Hormel CEO Jeffrey Ettinger. “The acquisition of CytoSport expands our offerings of portable, immediate, protein-rich foods, and broadens our appeal with younger consumers.”

TSG Consumer Partners acquired a minority interest in Cytosport in 2007, with sales increasing more than four-fold during its investment. Cytosport’s sales were projected to reach $370 million in 2014.

Enterprise Value: $450 million, plus $20 million earnout

Enterprise Value/Revenue: 1.2x-1.3xEnterprise Value/EBITDA: 13x-15x

7 C O N S U M E R P R O D U C T S & R E T A I L S E R V I C E S | H E A L T H & W E L L N E S S | C A S E S T U D Y

“ Muscle Milk® products will serve as a growth catalyst for our Specialty Foods segment,

providing this division with a leading brand in the high-growth sports nutrition category.”

Jeffrey EttingerCEO, Hormel Foods

S o u r c e s : S & P C a p i t a l I Q , P i t c h B o o k , E q u i t y R e s e a r c h , p u b l i c d a t a .


INDUSTRY METRICS

8 C O N S U M E R P R O D U C T S & R E T A I L S E R V I C E S | H E A L T H & W E L L N E S S | I N D U S T R Y M E T R I C S

PUBLIC COMPANY OPERATING METRICS

NOTE: Figures in bold and italic type were excluded from median and mean calculation.(1) As of 4/10/2015.(2) Market Capitalization is the aggregate value of a �rm's outstanding common stock.(3) Enterprise Value is the total value of a �rm (including all debt and equity).Source: S&P Capital IQ.

($ in millions, except per share data) Current % of Market Enterprise Total Debt/ TTMCompany Name Country Ticker Stock Price (2) 52W High Capitalization (3) Value (4) Revenue EBITDA EBITDA Revenue Gross EBITDA

ACTIVE INGREDIENTS

Associated British Foods plc United Kingdom LSE:ABF $44.17 91.6% $34,748 $35,864 1.9x 15.3x 0.6x $21,010 24.3% 12.2%

Kerry Group plc Ireland ISE:KRZ 70.37 99.9% 12,376 13,747 2.3x 17.9x 2.2x 6,968 44.5% 12.6%

Lonza Group Ltd Switzerland SWX:LONN 130.78 99.7% 6,803 8,924 2.4x 13.5x 3.1x 3,664 29.9% 20.1%

Ingredion Incorporated United States NYSE:INGR 78.22 89.7% 5,597 6,840 1.2x 8.6x 2.3x 5,668 19.7% 14.0%

Glanbia plc Ireland ISE:GL9 18.88 99.5% 5,584 6,134 2.3x 22.7x 2.7x 3,053 30.2% 9.1%

SunOpta Inc. Canada TSX:SOY 11.06 85.8% 746 871 0.8x 14.1x 2.0x 1,243 11.5% 5.3%

Naturex Société Anonyme France ENXTPA:NRX 56.94 78.1% 523 751 2.2x 24.4x 0.0x 396 59.3% 9.2%

Median $56 .94 91.6% $5,597 $6,840 2.2x 15.3x 2.2x $3,664 29.9% 12.2%

Mean $58.63 92.0% $9,482 $10,447 1.8x 16.6x 1.8x $6,000 31.3% 11.8%

NATURAL & ORGANIC FOODS

Whole Foods Market, Inc. United States WFM $51.53 89.5% $18,590 $17,916 1.2x 13.3x 0.0x $14,626 35.5% 9.2%

The Hain Celestial Group, Inc. United States HAIN 65.95 99.4% 6,708 7,448 3.0x 25.1x 3.0x 2,469 24.3% 11.9%

United Natural Foods, Inc. United States UNFI 74.56 88.9% 3,733 4,261 0.6x 15.2x 2.0x 7,555 16.0% 3.7%

Amira Nature Foods Ltd. United Arab Emirates ANFI 9.01 45.4% 322 494 0.7x 5.6x 2.1x 659 22.7% 13.4%

Median $58.74 89.2% $5,221 $5,855 1.0x 14.3x 2.0x $5,012 23.5% 10.6%

Mean $50.26 80.8% $7,338 $7,530 1.4x 14.8x 1.8x $6,327 24.6% 9.6%

PERSONAL CARE

The Procter & Gamble Company United States NYSE:PG $83.35 88.8% $225,088 $249,063 3.0x 13.1x 1.8x $82,136 49.5% 23.1%

L'Oreal SA France ENXTPA:OR 189.90 100.0% 104,821 105,461 4.4x 21.5x 0.6x 27,273 71.1% 20.6%

The Estée Lauder Companies Inc. United States NYSE:EL 83.44 97.8% 31,546 31,575 2.9x 15.1x 0.7x 10,951 80.4% 19.1%

Beiersdorf AG Germany DB:BEI 88.29 100.0% 20,025 18,346 2.8x 17.9x 0.1x 7,608 62.3% 15.4%

ULTA Salon, Cosmetics & Fragrance, Inc. United States ULTA 151.68 97.2% 9,742 9,203 2.8x 17.0x 0.0x 3,241 35.1% 16.7%

Shiseido Company, Limited Japan TSE:4911 20.20 99.8% 8,052 8,370 1.3x 13.4x 1.7x 6,531 74.9% 9.4%

Sally Beauty Holdings Inc. United States SBH 33.35 94.6% 5,281 6,901 1.8x 11.7x 3.1x 3,778 49.6% 15.6%

Nu Skin Enterprises Inc. United States NYSE:NUS 60.76 67.7% 3,612 3,558 1.4x 8.7x 0.6x 2,569 81.4% 15.8%

Avon Products Inc. United States NYSE:AVP 7.90 51.1% 3,433 5,068 0.6x 6.5x 3.3x 8,851 61.8% 8.8%

POLA Orbis Holdings, Inc. Japan TSE:4927 59.45 100.0% 3,286 2,808 1.7x 13.0x 0.2x 1,653 80.1% 12.9%

Revlon, Inc. United States REV 40.56 97.3% 2,124 3,722 1.9x 11.4x 5.7x 1,941 65.7% 16.9%

Oriflame Cosmetics SA Luxembourg OM:ORI SDB 15.68 81.1% 850 1,114 0.8x 8.4x 2.8x 1,532 68.4% 9.6%

Elizabeth Arden, Inc. United States NasdaqGS:RDEN 15.21 40.4% 453 829 0.8x NM NM 1,007 42.3% -2.9%

Nature's Sunshine Products Inc. United States NasdaqCM:NATR 12.59 68.5% 235 178 0.5x 7.6x 0.0x 366 75.0% 6.4%

Mannatech, Incorporated United States NasdaqGS:MTEX 20.76 64.9% 56 29 0.2x 2.0x 0.1x 190 79.8% 7.6%

CCA Industries Inc. United States AMEX:CAW 3.25 72.4% 23 24 0.8x NM NM 30 54.8% -4.9%

Reliv International, Inc. United States NasdaqGS:RELV 1.14 46.0% 15 14 0.2x 13.1x 4.0x 57 79.7% 1.8%

Median $33.35 88.8% $3,433 $3,722 1.4x 13.0x 0.7x $2,569 68.4% 12.9%

Mean $52.21 80.5% $24,626 $26,251 1.6x 12.0x 1.6x $9,395 65.4% 11.3%

VITAMINS, SUPPLEMENTS & NUTRITION

Abbott Laboratories United States NYSE:ABT $47.15 98.5% $71,148 $74,646 3.7x 17.0x 1.8x $20,247 54.6% 21.7%

Valeant Pharmaceuticals International, Inc. Canada TSX:VRX 207.41 98.9% 69,479 83,295 11.0x 23.1x 3.9x 8,258 73.1% 47.5%

Teva Pharmaceutical Industries Limited Israel NYSE:TEVA 66.37 96.5% 56,539 64,609 3.2x 10.8x 1.7x 20,272 54.6% 29.5%

Perrigo Company Public Limited Company Ireland NYSE:PRGO 198.55 92.0% 29,187 30,378 7.3x 25.9x 4.1x 4,172 34.4% 28.4%

Mead Johnson Nutrition Company United States NYSE:MJN 102.68 97.4% 20,796 21,083 4.8x 19.7x 1.4x 4,409 61.4% 24.2%

GNC Holdings Inc. United States NYSE:GNC 47.51 95.7% 4,170 5,378 2.1x 11.0x 2.7x 2,613 37.5% 18.7%

Herbalife Ltd. Cayman Islands NYSE:HLF 43.83 62.9% 4,038 5,204 1.0x 8.2x 2.9x 4,959 50.5% 12.7%

USANA Health Sciences Inc. United States NYSE:USNA 118.32 99.4% 1,498 1,387 1.8x 11.1x 0.0x 790 82.2% 15.8%

Vitamin Shoppe, Inc. United States VSI 40.55 81.4% 1,252 1,248 1.0x 8.5x 0.1x 1,213 42.5% 12.1%

Weight Watchers International, Inc. United States NYSE:WTW 8.10 27.1% 459 2,564 1.7x 7.1x 6.7x 1,480 54.5% 24.4%

Medifast Inc. United States MED 30.50 84.6% 370 318 1.1x 7.4x 0.0x 285 73.3% 15.0%

Nutraceutical International Corporation United States NasdaqGS:NUTR 19.74 69.3% 190 228 1.1x 6.1x 1.1x 216 49.1% 17.4%

Median $47.33 93.9% $4,104 $5,291 1.9x 10.9x 1.8x $3,392 54.6% 20.2%

Mean $77.56 83.6% $21,594 $24,195 3.3x 13.0x 2.2x $5,743 55.7% 22.3%

TTM MarginsEnterprise Value / TTM


DAT E TA R G E T B U Y E R D E A L S TAT S

M&

A T

RA

NS

AC

TIO

NS

9 C O N S U M E R P R O D U C T S & R E T A I L S E R V I C E S | H E A L T H & W E L L N E S S | I N D U S T R Y M E T R I C S

O c t - 1 4

S e p - 1 4

A u g - 1 4

D e c - 1 4

O c t - 1 4

O c t - 1 4

D e c - 1 4

D e c - 1 4

N o v - 1 4

S e p - 1 4

Enterprise Value (EV): $85.6MEV/Revenue: 1.07xEV/EBITDA: 10.7x

Enterprise Value (EV): $153.0MEV/Revenue: 2.10x

Enterprise Value (EV): $750.0MEV/Revenue: 4.29x

Enterprise Value (EV): $450.0MEV/Revenue: 1.2x-1.3xEV/EBITDA: 13x-15x

Enterprise Value (EV): $132.5M

R AT I O N A L E


The transaction allows “Pharmavite [to enter] the natural and practitioner channels via FoodState’s fast-growing brands” “…which align with Pharmavite’s values of high quality and integrity and are well positioned for continued growth.”

”The acquisition of NLI expands Elite One’s manufacturing capacity and extensive customer base and adds a strong suite of services including, but not limited to, product formulation and specification development, precise ingredient sourcing, extensive in-house laboratory testing, and industry-leading regulatory compliance and documentation.”

Expansion of product portfolio along with enhancement of distributor network and channel presence

Vertical integration by acquisition of a supplier

Increases distribution in the U.S. and internationally, leverages internal efficiencies with other protein rich products it already owns, adds to an already strong stable of products, and allows for advertising spend consolidation

Diversifies product offering and aids in the expansion of its active nutrition category

Allows Gryphon to enter the OTC and Personal healthcare products space, as they believe the sector is poised for continued growth as consumers migrate toward non-prescription products.

The acquisition provides significant scale to its U.S. OTC nausea franchise.

Provides diversification in its protein product offerings

The acquisition brings an estimated $800 million in additional annual revenue to the company, bringing them closer to the goal of becoming a billion dollar OTC products company.


1 0 C O N S U M E R P R O D U C T S & R E T A I L S E R V I C E S | O U T D O O R & A C T I V E L I F E S T Y L E

OUTDOOR & ACTIVE LIFESTYLEThe health and wellness mega trend is fueling a fitness boom as more Americans engage in active lifestyles.


29%

7% 7%

40%

10%

62%

39%

14%18%

53%

13%

67%

43%

19%

31%

58%

17%

64%

48%

15%

53%

63%

14%

44%

0%

10%

20%

30%

40%

50%

60%

70%

80%

IndividualSports

RacquetSports

Team Sports OutdoorSports

Water Sports Fitness Sports

Boomers (1945-1964) Gen X (1965-1979) Gen Y (1980-1999) Gen Z (2000+)

2013 Participation Rates: % of Individuals Ages 6+

Participation Rates by Generation

Source: 2014 Participation Report, Physical Activity Council; 2014 Outdoor Participation Report, Outdoor Foundation7%

7%

8%

10%

10%

11%

20%

24%

25%

28%

Kayaking (White Water)

Hunting (Handgun)

Kayaking (Sea/Touring)

Triathalon (Traditional/Road)

Trail Running

Kayaking (Recreational)

Kayak Fishing

Stand Up Paddling

Triathalon (Non-traditional/Off-Road)

Adventure Racing

3-Year Change

Trending Activities

12%

13%

21%

36%

49%

61%

Water Sports

Racquet Sports

Team Sports

Individual Sports

Outdoor Sports

Fitness Sports

125

130

135

140

145

2006 2013

Num

ber o

f Par

tici

pant

s (in

mill

ions

)

+8.2 millionparticipants

Participation Rates by Sport

FITNESS

FITNESS FOR HEALTHY LIVING

Fitness is gaining in popularity, underscored by increased participation in activities that promote healthy living. As more Americans engage in active lifestyles, makers of performance-enhancing gear are responding in kind with products that appeal to a diverse and growing demographic of fitness seekers and outdoor enthusiasts.


A record 143 million Americans (49 percent of U.S. population) took to the great outdoors in 2013, with running and fishing among the most popular adult activities. Health clubs are seeing a boost in membership, with a burgeoning and more active senior population and proliferation of low-cost club memberships expected to propel industry revenue. Yoga is seeing dramatic increases in participation and spending, one of a number of growing niches in an expanding fitness market.

OUTDOOR RECREATION

S o u r c e s : O u t d o o r I n d u s t r y A ss o c i a t i o n , I B I S Wo r l d , p u b l i c d a t a .


OUTDOOR NICHESOutdoor enthusiasts are growing in number, expanding niches in performance-enhancing gear.

HUNTING’S BIG COMEBACK

Hunting is seeing a revival and is drawing a younger, more athletic demographic. A 10 percent increase in the number of hunters fueled a 47 percent increase in total hunting expenditures between 2006 and 2011, with spending topping $34 billion.

Recent transaction activity, including Bass Pro Shops, which is reportedly close to securing a minority investment from Leonard Green & Partners and the spinoff of Vista Outdoor (NYSE:VSTO) from Orbital ATK (NYSE:OA), are further evidence of tailwinds in the industry.

BUYERS ON THE HUNT

The hunting industry is attracting strong interest from both strategic and financial buyers, evidenced by a flurry of recent investment activity.

Strategic players are striving to offer a broader portfolio to their retail customers and are on the hunt for innovative, growth-oriented brands for brand extension, bundling, and consistency. Recent strategic targets include Battenfeld Technologies (Smith & Wesson), Kolpin Outdoors (Polaris), and Bushnell (ATK). Financial investors are attracted to the strong secular tailwinds in the space. Hunters have exhibited enthusiastic, even fanatical purchasing behavior, demonstrating accelerating demand for product performance enhancements, with Baby Boomers and Gen Xers spending more for hunting success and comfort. Consumables (ammunition, apparel, etc.) are a big driver of spending with strong predictability. Notable recent private equity platform investments include Arcus Hunting (Bregal Partners), New Archery Products (Bruckmann, Rosser, Sherrill), FeraDyne Outdoors (Snow Phipps), and Hunter’s Specialties (Peak Rock Capital), all 2014 investments.


ARCHERY ON TARGET

Archery and bowhunting are generating strong buzz, attracting more than 18 million participants, with demographic data showing increasing appeal among younger consumers and women. Bowhunting is accounting for a larger percentage of hunting licenses, with the use of crossbows gaining favor as advances in materials and manufacturing technology improve performance. Participation rates are expected to grow, supported by increased memberships in archery groups, demand for archery products, and media attention for the sport in recent years.

S o u r c e s : N a t i o n a l S u r v e y o f F i s h i n g , H u n t i n g , a n d W i l d l i f e A ss o c i a t e d R e c r e a t i o n ; A r c h e r y Tr a d e A ss o c i a t i o n ; A r c h e r y M a n u f a c t u r e r s a n d M e r c h a n t s O r g a n i z a t i o n o f G a i n s v i l l e , F l o r i d a ; K e n t u c k y D e p a r t m e n t o f F i s h & W i l d l i f e R e s o u r c e s.


CASE STUDY

Bregal Partners formed Arcus Hunting in November 2014 as a growth platform in the fragmented and growing bowhunting and archery consumables and accessories space, a theme the sponsor has been developing for “the better part of a year” according to Bregal managing partner Scott Perekslis. “This year, we started to focus on it with a little more urgency as we looked around the spectrum of enthusiast consumer activities and tried to peel back the onion to see where participation rates are increasing,” Perekslis said. “We believe the enthusiast nature of the category, the strong brand loyalty, and the growth of bowhunting and archery make this industry especially attractive.”

To date, Bregal has completed three investments to further its aggressive growth plan for Arcus Hunting, including the November 2014 purchase of Dead Down Wind, a maker of scent elimination products, which established an entry into the fragmented enthusiast space of bowhunting; Tink’s in January 2015, a maker of lures, scents, and other products to attract deer; and Obsession Archery in April 2015, a manufacturer of premium vertical bows.

“With Dead Down Wind, Tink’s, and now Obsession, we continue to pursue further strategic investments in leading hunting and archery brands, with a particular focus on categories that enhance hunters’ performance in the field,” Perekslis said.

Bregal is actively looking for add-on opportunities in leading hunting and archery brands.

1 3 C O N S U M E R P R O D U C T S & R E T A I L S E R V I C E S | O U T D O O R & A C T I V E L I F E S T Y L E | C A S E S T U D Y

“ We believe the enthusiast nature of the category, the strong brand loyalty, and the

growth of bowhunting and archery make this industry especially attractive.”

Scott PerekslisManaging Partner, Bregal Partners

S o u r c e s : P i t c h B o o k , b r e g a l p a r t n e r s . c o m .


INDUSTRY METRICS

1 4 C O N S U M E R P R O D U C T S & R E T A I L S E R V I C E S | O U T D O O R & A C T I V E L I F E S T Y L E | I N D U S T R Y M E T R I C S




APPAREL & FOOTWEAR

Nike, Inc. United States NYSE:NKE $99.97 96.3% $85,949 $81,792 2.7x 17.1x 0.3x $30,247 45.8% 15.9%

V.F. Corporation United States NYSE:VFC 75.58 97.1% 32,158 32,636 2.7x 15.5x 0.7x 12,282 48.8% 17.2%

Under Armour, Inc. United States NYSE:UA 83.75 99.1% 18,045 17,737 5.8x 41.6x 0.7x 3,084 49.0% 13.8%

Adidas AG Germany DB:ADS 81.71 96.6% 16,696 16,826 1.1x 12.9x 1.5x 17,592 47.6% 8.4%

Lululemon Athletica Inc. Canada NasdaqGS:LULU 68.86 98.4% 9,776 9,111 5.1x 21.3x 0.0x 1,797 50.9% 23.8%

ASICS Corp. Japan TSE:7936 26.81 93.3% 5,090 5,241 1.4x 14.7x 1.7x 3,716 43.4% 9.8%

Columbia Sportswear Company United States NasdaqGS:COLM 61.12 98.3% 4,302 3,889 1.9x 15.2x 0.1x 2,101 45.5% 12.2%

Wolverine World Wide Inc. United States NYSE:WWW 32.82 97.1% 3,383 4,065 1.5x 12.5x 2.8x 2,761 39.4% 11.8%

PUMA SE Germany DB:PUM 196.12 84.8% 2,930 2,512 0.8x 13.2x 0.1x 3,597 46.6% 6.0%

Deckers Outdoor Corp. United States NYSE:DECK 75.77 75.9% 2,619 2,288 1.4x 9.2x 0.0x 1,588 47.7% 15.7%

Billabong International Limited Australia ASX:BBG 0.42 74.1% 413 457 0.5x 11.3x 4.7x 920 51.6% 4.7%

Quiksilver Inc. United States NYSE:ZQK 1.75 25.4% 300 1,043 0.7x NM NM 1,516 48.3% -0.8%

Rocky Brands, Inc. United States Nasdaq:RCKY 22.57 97.7% 171 202 0.7x 8.9x 1.6x 286 33.7% 7.9%

Lafuma SA France ENXTPA:LAF 19.47 92.1% 138 125 0.7x 15.7x 0.4x 208 39.7% 4.4%

Median $64.99 96.5% $3,843 $3,977 1.4x 14.7x 0.7x $2,431 47.1% 10.8%

Mean $60.48 87.6% $12,998 $12,709 1.9x 16.1x 1.1x $5,836 45.6% 10.8%

FITNESS & FUNCTIONAL

Life Time Fitness, Inc. United States NYSE:LTM $71.40 99.7% $2,712 $3,960 3.1x 10.6x 3.4x $1,291 44.9% 28.9%

Johnson Health Tech Co., Ltd. Taiwan TSEC:1736 2.60 91.3% 785 772 1.5x 14.4x 2.9x 521 46.2% 10.2%

Nautilus Inc. United States NYSE:NLS 16.99 99.1% 535 463 1.7x 13.6x 0.0x 274 51.2% 12.5%

Gaiam Inc. United States NASDAQ:GAIA 6.95 79.3% 170 159 1.0x NM 0.0x 167 45.3% -0.1%

Town Sports International Holdings Inc. United States NasdaqGM:CLUB 6.85 80.1% 167 458 1.0x 8.3x 7.3x 454 57.5% 11.6%

Median $6.95 91.3% $535 $463 1.5x 12.1x 2.9x $454 46.2% 11.6%

Mean $20.96 89.9% $874 $1,162 1.6x 11.7x 2.7x $541 49.0% 12.6%

OUTDOOR & ACTIVE RETAIL

Foot Locker, Inc. United States FL $62.02 97.4% $8,661 $7,828 1.1x 8.2x 0.1x $7,151 42.1% 13.3%

Canadian Tire Corp. Ltd. Canada TSX:CTC.A 108.03 98.9% 8,639 11,721 1.2x 11.6x 3.2x 10,633 32.5% 10.2%

Dick's Sporting Goods Inc. United States DKS 58.65 97.2% 6,967 6,752 1.0x 9.0x 0.0x 6,814 30.7% 11.1%

Sports Direct International plc United Kingdom LSE:SPD 9.48 77.5% 5,615 5,884 1.4x 12.0x 0.9x 4,494 43.1% 11.9%

Hibbett Sports, Inc. United States HIBB 49.74 85.8% 1,235 1,150 1.3x 8.6x 0.0x 913 35.8% 14.7%

Finish Line Inc. United States FINL 25.15 78.8% 1,174 1,026 0.6x 6.3x 0.0x 1,821 32.1% 8.9%

Sportsman's Warehouse Holdings, Inc. United States NASDAQGS:SPWH 8.65 78.6% 362 568 0.9x 10.5x 3.9x 660 32.6% 8.2%

Big 5 Sporting Goods Corp. United States BGFV 12.78 81.4% 283 340 0.3x 6.9x 1.4x 978 32.1% 5.0%

Median $37.45 83.6% $3,425 $3,517 1.0x 8.8x 0.5x $3,157 32.5% 10.6%

Mean $41.81 87.0% $4,117 $4,409 1.0x 9.1x 1.2x $4,183 35.1% 10.4%

OUTDOOR & RECREATION

Polaris Industries Inc. United States PII $143.54 90.1% $9,548 $9,637 2.1x 11.5x 0.3x $4,541 30.4% 18.5%

Brunswick Corporation United States NYSE:BC 52.26 92.3% 4,854 4,670 1.2x 10.5x 1.0x 3,839 27.0% 11.5%

Pool Corp. United States POOL 68.92 97.1% 3,006 3,315 1.5x 16.2x 1.6x 2,247 28.6% 9.1%

Amer Sports Corp. Finland HLSE:AMEAS 22.82 100.0% 2,678 3,123 1.3x 13.8x 3.1x 2,698 43.9% 9.5%

Callaway Golf Co. United States NYSE:ELY 9.35 95.6% 726 812 0.9x 15.6x 2.4x 887 40.4% 5.9%

Arctic Cat Inc. United States ACAT 35.76 77.3% 463 395 0.5x 8.4x 0.0x 745 18.9% 6.3%

Johnson Outdoors Inc. United States NasdaqGS:JOUT 34.20 96.9% 341 316 0.8x 10.6x 1.1x 417 39.8% 7.1%

Marine Products Corp. United States NYSE:MPX 8.50 93.2% 326 318 1.9x 25.0x 0.0x 171 19.1% 7.4%

Black Diamond, Inc. United States NasdaqGS:BDE 9.75 77.3% 319 300 1.6x 228.3x 17.1x 193 38.8% 0.7%

Escalade Inc. United States NasdaqGM:ESCA 17.48 99.6% 245 262 1.9x 11.0x 1.1x 138 29.8% 14.4%

Median $28.51 94.4% $594 $604 1.4x 11.5x 1.1x $816 30.1% 8.3%

Mean $40.26 91.9% $2,251 $2,315 1.4x 13.6x 1.2x $1,588 31.7% 9.1%

HUNTING

Cabela's Incorporated United States NYSE:CAB $54.53 81.4% $3,880 $7,814 2.1x 17.4x 9.0x $3,648 43.5% 12.3%

Vista Outdoor Inc. United States NYSE:VSTO 44.17 94.9% 2,818 3,754 1.7x 9.8x 2.6x 2,163 26.9% 17.7%

Olin Corp. United States NYSE:OLN 32.11 93.5% 2,488 2,906 1.3x 8.1x 1.9x 2,241 17.3% 15.9%

Sturm, Ruger & Co. Inc. United States NYSE:RGR 47.78 69.1% 891 882 1.6x 6.6x 0.0x 544 31.0% 24.5%

Smith & Wesson Holding Corporation United States NasdaqGS:SWHC 12.88 74.5% 692 908 1.7x 7.2x 2.2x 541 36.9% 23.3%

Median $30.31 92.6% $792 $895 1.6x 11.2x 1.5x $680 30.6% 13.4%

Mean $29.60 87.0% $1,450 $2,006 1.7x 33.9x 3.6x $1,204 30.5% 13.4%



M&

A T

RA

NS

AC

TIO

NS

The hunting industry is attracting strong interest from both strategic and financial buyers, evidenced by a flurry of recent investment activity.

1 5 C O N S U M E R P R O D U C T S & R E T A I L S E R V I C E S | O U T D O O R & A C T I V E L I F E S T Y L E | I N D U S T R Y M E T R I C S

DAT E TA R G E T B U Y E R D E A L S TAT S

J a n - 1 5

N o v - 1 4

N o v - 1 4

O c t - 1 4

O c t - 1 4

A p r - 1 4

Enterprise Value (EV): $130.5MEV/Revenue: 2.61xEV/EBITDA: 10.4x

A p r - 1 4

A p r - 1 4

J a n - 1 4

D e c - 1 3

N o v - 1 3

Enterprise Value (EV): $160M


Enterprise Value (EV): $985MEV/Revenue: 1.60xEV/EBITDA: 10.0x

OUTDOOR NICHES: HUNTING

R AT I O N A L E

Fe b - 1 5

A p r - 1 5


The acquisition is in line with its targeted effort to build out its presence in the bowhunting and archery accessories industry.

The sourcing and distribution infrastructure at Battenfeld should provide a framework for organic and inorganic growth in the firearm accessories division.

Allowed Arcus to enter the fragmented enthusiast space of bowhunting with a product used by 70 of bowhunters at the time of acquisition.

The company has inroads with top sporting goods retailers and distributors, and innovates in a unique space.

The company was a fit with other outdoor companies in the portfolio and had a strong, loyal customer base.

“Snow Phipps was attracted to the strong secular tailwinds in the space and the opportunity to back the leading supplier with the leading brands in consumable accessories.”

The acquisition adds to the stable of parts, garments, and accessories and creates growth opportunities therein.

Further expands upon the existing archery platform, and fills a hole in their accessories holdings

The acquisition expands the range of products, delivering a comprehensive recurve bow offering.

Expanded the company’s shooting sports offerings, and allowed entry into new markets in golf, snow skiing, and camping.

The acquisition represents a new growth platform for Peak Rock, which has stated plans to expand through new product development and strategic add-on acquisitions.

Acquisition of premium bow brand furthers stated goal to focus on categories that enhance hunters’ performance in the field.

The acquisition furthers commitment to the archery industry with addition of high-performance brand in arrow shafts and accessories.


1 6 C O N S U M E R P R O D U C T S & R E T A I L S E R V I C E S | P E T

PETPET


PET

SMALL DOGS TAKE LEAD

With rising pet ownership has come a growing affinity for “pint-sized” pups, fueled in part by changing family structures and lifestyles and closer bonds with and further humanization of pets. Urbanization and younger pet owners are contributing to the shift to smaller dogs which are more conducive to city dwelling. Findings from the American Pet Products Association (APPA) 2015-2016 National Pet Owners Survey identified a 10 percent increase in younger pet owners—8 million new pet owners within the last year—the majority of which are Gen Y and Gen X.

Family size is shrinking, and as more people delay starting families, pets are filling the gap or are serving as substitutes for children. Ease of care and companionship are key factors for aging consumers, and living accommodations (e.g., apartment and assisted living) are more amenable to small dogs.


Humanization is fueling increased spending on pet care with consumers more likely to lavish small pets with premium products and supplies. In addition, as humans focus on healthful food, they are increasingly projecting that focus to their pets. Younger generations are increasingly driving those trends. Comprising 27 percent of the U.S. adult population, Millennials are expected to eclipse Baby Boomers in spending power by 2018 ($3.39 trillion), projects Wakefield Research. The research firm reports 61 percent of Millennial pet owners believe it is important to have a “portable” pet, 76 percent would splurge on pet purchases, and 60 percent own clothing for their pet. According to the APPA national survey, Gen Y consumers spend more on products and services, including tech-enabled monitoring and convenience products to pamper their pets.

To y / S m a l l M e d i u m G i a n tL a r g e59%

35%

82%View pets as "practice" for startinga family

Own clothing for their pet

Coloring and styling is essential

Pet supplies should be made withnatural or organic materials

Natural food is essential

Would "splurge" on certain itemsfor pet

Important to have a "portable" pet

Millennials Boomers

S M A L L I S B I G F O R YO U N G E R P E T O W N E R S

S o u r c e : Wa k e f i e l d R e s e a r c h .

4 5 M I L L I O N U . S . H O U S E H O L D S W I T H D O G S

S m a l l M e d i u m L a r g e

5 2 % 4 2 %

V E T E R I N A R Y V I S I T S

5 1 % 2 7 % 2 1 % 2 %

S o u r c e : P a c k a g e d Fa c t s a n d B a n f i e l d A n i m a l H o s p i t a l .

* To t a l e x c e e d s 1 0 0 % d u e t o m u l t i p l e p e t o w n e r s h i p .

* To t a l e x c e e d s 1 0 0 % d u e t o r o u n d i n g .

3 2 %


PET

FOOD SAFETY TAKES CENTER STAGE

Pet food manufacturing is undergoing increasing scrutiny in response to an unprecedented number of product recalls. Significant quality and safety issues are surfacing close to home, with a growing number of U.S.-based manufacturers making headlines. Potential contamination concerns prompted several recalls just in the last few months: Tuffy’s Foods, Oma’s Pride, and Jump Your Bones on Salmonella risks and J.J. Fuds on Listeria. Nestle Purina PetCare received a warning letter from the FDA on ”significant deviations from the LACF (acidified and low-acid canned foods) regulations” at a Pennsylvania manufacturing facility.

In a January announcement, consumer-funded testing coordinated by The Association for Truth in Pet Food (ATPF) found 11 of 12 pet foods tested were contaminated. The project is the first of its kind to use crowd-funding from pet owners to test pet products and involved testing six dog foods and six cat foods.

Petco announced in January it removed all China-sourced dog and cat treats from more than 1,300 U.S. retail stores and online, making it the first national pet specialty retailer to complete this transition.

Consumers are taking a hands-on approach to pet health and demanding greater transparency in how products are sourced and manufactured.

YOU ARE WHAT YOU EAT

The shift to premium pet food is helping drive overall industry sales despite lack of unit volume growth. Humanization is fueling the “better for you” mantra in pet food as consumers place increasing value on nutritional health for pet well-being and longevity. Consumers associate premium with higher quality and healthier products, a boon for manufacturers of natural and organic food and treats which continue to see outsized growth. Grain-free foods have experienced a surge in demand, while gluten free, refrigerated/frozen, raw, and freeze dried foods are emerging as categories to watch.

Freshpet’s differentiated offering of natural fresh foods, refrigerated meals, and treats has seen explosive growth, with investors seeing great value in healthful pet food trends. Freshpet went public in November 2014 in a highly oversubscribed initial public offering, with the share price gaining 27 percent on the first day of trading. The company trades at a premium valuation despite its negative EBITDA.


4,639

10,836

0

4,000

8,000

12,000

2009 2013

$11.7

$63.2

$0

$20

$40

$60

$80

2009 2013

CAGR +52%

CAGR +24%

Net Sales Freshpet Fridge Store Locations

S o u r c e s : C o m p a n y F i l i n g s , Pe t F o o d I n d u s t r y , p u b l i c d a t a ..


PET


J A N U A R Y 2 0 1 5

• A lawsuit filed by a California resident claims that beginning in late December, the plaintiff’s dogs were fed Purina exclusively while being kept in 3 separate houses

• Since this time, two of the dogs have fallen ill, and one of the dogs died as a result of internal bleeding in the stomach and lesions on its liver

• A voluntary recall was previously issued in January of 2013

F E B R U A R Y 2 0 1 5

• The project is the first of its kind to use crowd-funding to test pet products funded by a group of pet owners and coordinated by the Association for Truth in Pet Food

• The Pet Food Test examined 12 pet food products, six cat foods and six dog foods

• All 12 pet food products were tested for bacteria content:

• 9 pet foods contained one or more bacteria FDA terms as ‘Qualifying Pathogens’ which “have the potential to pose a serious threat to public health“

• 10 contained one or more “Pathogenic Microorganisms” listed in the FDA’s Bad Bug Book

• 9 contained one or more bacteria the Food and Agriculture Organization of the United Nations links to “spoilage of meat”

• Indiana-based J.J. Fuds is recalling a select lot and product of J.J. Fuds Chicken Tender Chunks Pet Food because it has the potential to be contaminated with Listeria monocytogenes.

J A N U A R Y 2 0 1 5

• Petco has announced that it has completely removed all China-sourced dog and cat treats from shelves at more than 1,300 retail stores throughout the U.S. and online, making Petco the first national pet specialty retailer to complete this transition

• The decision allows Petco to expand its assortment of safe and healthy alternatives that are made in the U.S. or in other regions around the globe that support complete pet health

• “Customer response to our expanded assortment of treats has been great,” said Jim Myers, Petco CEO. “And we are equally pleased at just how responsive our vendor partners have been in helping us source an entirely new line-up of high-quality, predominantly U.S.-made treat and chew alternatives.”

J A N U A R Y 2 0 1 5

J A N U A R Y 2 0 1 5

• FDA sent a warning letter to a Nestle Purina PetCare manufacturing facility in Allentown, Pennsylvania, after an inspection in September 2014 revealed “significant deviations from the LACF (acidified and low-acid canned foods) regulations

J A N U A R Y 2 0 1 5

• Jump Your Bones, Inc. of Boca Raton, FL is voluntarily recalling Jump Your Bones Brand Roo Bites Dog Treats because it has the potential to be contaminated with Salmonella

D E C E M B E R 2 0 1 4

INCREASING SCRUTINY OF PET FOOD QUALITY

• The recall was as the result of a routine sampling program by Pesticide and Plant Pest Management Division of the Michigan Department of Agriculture and Rural Development resulting in a positive test for Salmonella

• Oma’s Pride has ceased the production and distribution of the product as the FDA and the company continue their investigation into what caused the problem

S o u r c e s : Pe t Fo o d I n d u s t r y , p u b l i c d a t a .


32%

30%

9%

4%

4%

4%

17%Coffee

Pet Food

Peanut Butter

Fruit Spreads

Shortening and Oils

Baking Mixes and Frostings

Other

Future Smucker PortfolioEstimated Net Sales by Category After Transaction

CASE STUDYThe Big Heart Pet Brands acquisition represents a transformational deal as Smucker takes a bite out of the $21 billion pet food and snacks market. Consistent with its strategy of owning leading food brands in attractive center-store categories, the acquisition marks an entry to one of the largest and fastest growing in the United States and establishes a new growth platform for the company.

Big Heart offers a broad product portfolio reaching across mainstream, premium, and superpremium categories represented by a stable of leading brands that includes Meow Mix, Milk-Bone, Kibbles ‘n Bits, 9Lives, Natural Balance, Gravy Train, and Milo’s

Kitchen, among others. It holds the #1 share in pet snacks, #2 share in cat food, and #3 in dog food.

Characterizing the deal as “one of the most transformational in the company’s 118-year history,” CEO Richard Smucker said the acquisition, “adds to the Company’s portfolio of leading brands and increases our consumer presence, while enabling us to capitalize on the growth of the pet food and snacks category.”

Annual synergies of $200 million are anticipated within the first three full years of ownership, with approximately $40 million to $50 million to be realized in fiscal 2016.

Other CPG companies have been circling the pet food space. In a 2014 marquee deal, Mars Petcare acquired 80 percent of the Procter & Gamble petfood business for $2.9 billion.

2 0 C O N S U M E R P R O D U C T S & R E T A I L S E R V I C E S | P E T | C A S E S T U D Y

“ One of the most transformational deals in the company’s 118-year history.”

Richard SmuckerCEO, The J.M. Smucker Company

Enterprise Value: $5.8 billion

Enterprise Value/Revenue: 2.5xEnterprise Value/EBITDA: 13x

S o u r c e s : S & P C a p i t a l I Q , P i t c h B o o k , E q u i t y R e s e a r c h , p u b l i c d a t a . ..


WHAT INDUSTRY LEADERS ARE SAYINGFrontenac Company is actively pursuing a path of acquisitive growth for newly-formed Whitebridge Pet Brands, a leading provider of natural pet food and treats. Joe Rondinelli, a Vice President at Frontenac, shared his insight on the business and changing dynamics in the industry.

Frontenac had been following the pet industry for many years, initially in services through a retail investment in PetStuff (sold to PetSmart) and later in distribution (c. 2008-2009) when our interest in the space piqued again, and in the process we were able to learn about the underlying brands that were driving growth in those businesses. At that time, the economic downturn was approaching; we saw a category that was very large and still very fragmented, particularly in the lower middle market where we invest, that was able to power through the recession.

Through an investment in Mercer Foods, a manufacturer of freeze dried fruits, vegetables, and proteins, we have witnessed significant growth in demand for freeze dried proteins used in pet treats. Frontenac was looking for additional ways to get involved.

A number of tailwinds benefit our thesis in the space. Demographics are changing. People are getting married later and having smaller families, and pets are filling the void. Pet adoption has been on the rise. Coming out of the recession, discretionary spend per individual in the household has grown. The humanization [of animals] effort was really picking up, and people were spending more money on their pets. The natural and organic push which started in the late 1990s in human health and wellness really started five to ten years ago in pet and has really taken hold.

2 1 C O N S U M E R P R O D U C T S & R E T A I L S E R V I C E S | P E T | Q & A

What attracted you to the Pet industry?

Our go-to-market strategy through CEO1st involves partnering with executives to acquire and build operating companies, which for pet, allowed us to leverage our relationships with Olivier Amice (former CEO of Royal Canin and FURminator) and David Levy (former CEO of Zeus & Company) to identify brands where we could secure a foothold in the industry. Our goal was to build a family of like-minded natural, minimally processed food and treat brands. Cloud Star was one of the few companies in the treat space of significant scale which made it a great entry point to advance that goal.

Cloud Star was a pioneer in the premium, all-natural baked treat category. Founders Jennifer Melton and Brennan Johnson started the business 15 years ago with the vision to create a high-quality baked treat for dogs with limited ingredients—one you could make in your own kitchen. They were really ahead of their time in the all-natural, limited ingredient, clean panel treat space.

What are some of the differentiating characteristics of each business that led you to pursue transactions with Cloud Star and Tiki?


WHAT INDUSTRY LEADERS ARE SAYING


We are strong believers that the trade up to natural and premium foods will continue. There is a lot of staying power to the category—gluten free, wheat free, corn free. Consumers are becoming better educated about the health benefits of superior nutrition and smarter about what they are feeding their pets. They are looking at ingredients. They are looking at options. They are looking for clean labels.

Consumers are looking for targeted products that are functional and orientated toward certain conditions (e.g, digestive issues, joint issues, breath issues).

Consumers are looking for convenience and health in snack options (e.g., high protein, “better for you” freeze dried treats containing probiotics).

Consumers are going to continue to look for smaller animals (dogs and cats) and feed them premium food.

Even though ownership may be reaching a plateau, pets are living longer. Pet owners are buying higher quality products and spending more money on their pets.

Animal health is going to be a major area of focus and, in particular, obesity, which is a serious issue today. Consumers don’t necessarily know how many calories are in the food and treats they are feeding their animals. It is early, but an interesting area could be low calorie options.

Cloud Star was in a number of functions (e.g., indulgence, training) and formats (e.g., crunchy, soft and chewy, molded, dental). The business had reached sufficient scale and was at the right inflection point for a private equity partner.

We acquired the Tiki Cat, Tiki Dog, and Gourmet Carnivore brands from Petropics Gourmet Whole Foods in January 2015, which diversified our business into cat food. Owners Christine and Robert Hackett founded the business in 2005. Petropics was the pioneer in the premium gourmet cat and dog food category featuring human grade proteins. Marketed as an independent channel only brand, the Tiki product is designed to mimic the natural prey diet for pets.

In January 2015, we merged the operations of Cloud Star and Tiki into Whitebridge Pet Brands (WPB). Olivier Amice joined Cloud Star in 2014 and now leads WPB as CEO.

“ Consumers are becoming better educated about the health benefits of superior nutrition and smarter

about what they are feeding their pets.”

Please comment on developing consumer trends and industry-specific trends and dynamics that are driving growth in the Pet sector.




“ Food safety and traceability are going to be big issues going forward, particularly as the alternative

channel grows and becomes more mainstream.”

What have been your plans to grow your platform investment?

We are going to continue to grow organically through product innovation and brand extensions, and by investing in our salesforce. Our goal is to try to introduce new products in the market every six months. We believe our Wag More Bark Less brand will be attractive to loyal pet enthusiasts; people like the mantra. We developed a line of baked treats with fruit and vegetable inclusions which are differentiated from other baked biscuits with nutritional content in the market.

As we look to expand more into food, one of the potential areas is in the alternative space, which we define to include fresh, frozen, and raw, with freeze dried being one of the formats. We are pursuing a dual path—acquisition and product launch—to do it. The challenge with a freeze dried, single ingredient treat is differentiation. We don’t want to launch a “me-too” product. It may be more efficient to buy an existing brand than to try to win shelf space.

Freeze dried is a strong area of growth that is really being led in the independent channel. The larger pet food companies are trying to capture some of the growth, so you are starting to see the introduction of freeze dried inclusions in dry food. It can be difficult to make the leap into pure freeze dried or frozen for a consumer or a brand, so companies are trying to attract the consumers that want to gradually introduce nutritional content into their pet’s diet.

What are the critical issues facing the Pet industry?

FOOD SAFETYFood safety and traceability are going to be big issues going forward, particularly as the alternative channel grows and becomes more mainstream. Brands are going to want to align with best-in-class manufacturers. Consumers are going to continue to want to buy USA-made products or products sourced from countries like Canada or New Zealand where they know product quality is high.

CHANNELS ARE BLURRING Retailers are trying to figure out ways to drive foot traffic in their stores, which is becoming even more complicated with the growth of online outlets and subscription services to deliver products. The grocery and mass channels have gotten smarter and have begun expanding shelf space to be more competitive in pet.




” Investing in smaller, growing brands is going to continue because acquisitions are the path to

growth for the large industry players.”

We are making changes in the channel strategy to align ourselves with developments in the market. Whitebridge is assembling a family of brands that targets the different channels (independent, specialty, and mass) in different ways and keeps exclusive brands to each. We announced this March at Global Pet Expo that Buddy Biscuits will be our widely distributed brand, Cloud Star our independent and pet specialty brand, and Tiki our independent-only brand.

Ecommerce is an area of growth and one we are investing in more. Today, it is only a small percentage (~5 to 6 percent) of industry purchases but is forecasted to grow to more than 15 percent in the coming years.

The challenge for small companies is gaining support from distributors and retailers, and as more are consolidating, much of the marketing and merchandising and feet on the street are on the brands. That is where the small companies generally have difficulty. There are inefficiencies, and they don’t have enough capital to invest in the salesforce. Another reason we believe Whitebridge is attractive to some of these smaller brands given what we are trying to build.

INNOVATIONEveryone is “incrementalizing” innovation today—trying to figure out how to differentiate to avoid “me-too” products. Long-term, margins are likely to decline across the value chain as the market gets more competitive. That is why we are trying to build a scaled asset so that we have more bargaining power with distributors and retailers.

Packaged food companies like Smuckers are looking to grow their wallet share with the household budget which is why they made the move in acquiring Big Heart Pet Brands. For the large corporates, it is very difficult to create an authentic brand. They would rather acquire. Investing in these smaller, growing brands is going to continue because acquisitions are the path to growth for the large industry players.

The challenge for investors is demand exceeds supply of actual investment opportunities—a reason you will continue to see growth equity investments because the number of sizable assets is scarce. Investors recognize that there is value to these brands. In these enthusiast markets, if you can acquire a brand that is on trend, there are likely a lot of tailwinds behind it. In addition to food and treats, private equity is going to continue to invest in distribution and services businesses (e.g., boarding, grooming, veterinary) because they understand those asset-light, local models.

Please share your observations on recent corporate and private equity transaction activity in the Pet industry.


M&

A T

RA

NS

AC

TIO

NS

D AT E TA R G E T B U Y E R D E A L S TAT S


2 52 5 C O N S U M E R P R O D U C T S & R E T A I L S E R V I C E S | P E T | I N D U S T R Y M E T R I C S

Enterprise Value (EV): $5.8BEV/Revenue: 2.5xEV/EBITDA: 13.0x

Fe b - 1 5

J a n - 1 5

J a n - 1 5

S e p - 1 4

N o v - 1 4

S e p - 1 4

J u l - 1 4

Enterprise Value (EV): $8.8BEV/Revenue: 1.3xEV/EBITDA: 9.0x

D e c - 1 4

J a n - 1 5

M a r - 1 5

The acquisition represents Smuckers’ first foray into the pet food industry.

R AT I O N A L E

The acquisition was made in order for Petvalu to gain a greater foothold in the Midwest market of the U.S., where Jack’s is well-known.

United Pet made the acquisition to strengthen its pet food holdings in a pet toy heavy portfolio.

The acquisition was made to complement Outward Hound’s interactive dog toys.

The private equity consortium saw an opportunity to help PetSmart achieve its long-term goals and were excited about being part of an iconic brand.

The acquisition complements Petco’s existing capabilities in pet health and will expand its stable of products in that space.

With a proven track record in pet food, Catterton made another play in the premium level pet food space.

The acquisition was made as a move to build out PetSmart’s online platform in the ever-growing eCommerce sales channel of the pet space.

Frontenac saw a positive trend in the “all natural” pet food and treats space and pursued the acquisition based on the thesis that this area will continue to grow moving forward.

The acquisitions will further ”...vertical integration in the premium, high quality pet treat space.”

Natural AmericanPet Products



INDUSTRY METRICS

2 6 C O N S U M E R P R O D U C T S & R E T A I L S E R V I C E S | P E T | I N D U S T R Y M E T R I C S




Uni-Charm Corp. Japan TSE:8113 $26.47 93.7% $15,905 $15,635 2.7x 16.0x 0.2x $5,961 44.2% 16.7%

Spectrum Brands Holdings, Inc. United States SPB 87.50 88.5% 4,659 7,710 1.8x 11.7x 5.2x 4,396 35.5% 15.0%

Pets at Home Group Plc United Kingdom LSE:PETS 3.94 97.9% 1,968 2,302 2.2x 13.5x 2.8x 1,131 53.9% 16.1%

Freshpet, Inc. United States NasdaqGM:FRPT 24.09 92.9% 806 770 8.1x NM 0.0x 87 48.7% 0.0%

Central Garden & Pet Company United States NasdaqGS:CENT 9.59 57.3% 502 862 0.6x 7.9x 4.0x 1,621 28.5% 6.9%

PetMed Express, Inc. United States PETS 16.54 98.7% 335 283 1.2x 9.5x 0.0x 228 33.7% 12.9%

OurPet's Company United States OTCPK:OPCO 0.75 60.0% 13 18 0.8x 10.1x 1.9x 23 29.9% 8.1%

Median $16.54 92.9% $806 $862 1.8x 10.9x 1.9x $1,131 35.5% 12.9%

Mean $24.13 84.2% $3,455 $3,940 2.5x 11.4x 2.0x $1,921 39.2% 10.8%



GLOBAL CONSUMER PRODUCTS & RETAIL SERVICES

2 7 C O N S U M E R P R O D U C T S & R E T A I L S E R V I C E S | A B O U T U S

FOCUS AREAS

• Furniture / Home Décor

• Electronics / Appliances

• Decorative Lighting

• Kitchen, Bath & Outdoor

• Juvenile

• OTC / Cold & Flu

• Nutraceuticals

• Active Ingredients

• CPG Food & Beverage

• Personal & Household Care

• Food & Treats

• Toys

• Supplies & Consumables

• Supplements

• Facilities Management & Maintenance

• Front-end Retailing

• Point of Purchase Consulting & Services

WHO WE ARE

• Outdoor

• Recreation

• Sporting Goods

• Fitness & Functional

• Independent investment banking advisory firm focused on the middle market since 1989

• Senior bankers with significant experience and tenure; partners average over 20 years of experience

• Offices in Chicago and Cleveland

• Founding member and U.S. partner of Global M&A Partners, Ltd., the world’s leading partnership of investment banking firms focusing on middle market transactions

• Deep industry experience across core sectors of focus, including: Consumer Products & Retail Services, Environmental & Energy Services, Healthcare & Life Sciences, Human Capital Management Outsourcing, Industrials, Metals & Metals Processing, Plastics & Packaging, and Real Estate

Sell-Side Advisory

Acquisitions & Divestitures

Public & Private Mergers

Special Committee Advice

Strategic Partnerships & Joint Ventures

Fairness Opinions & Fair Value Opinions

All Tranches of

Debt & Equity Capital for:

Growth

Acquisitions

Recapitalizations

Dividends

General Financial & Strategic Advice

Balance Sheet

Restructurings

Sales of Non-Core Assets or Businesses

§363 Auctions

OUTDOOR & ACTIVE LIFESTYLE HEALTH & WELLNESS PET

FAMILY & HOUSEHOLD FACILITY MANAGEMENT &RETAIL SERVICES

The information contained in this publication was derived from proprietary research conducted by a division or owned or affiliated entity of Brown Gibbons Lang & Company LLC. Any projections, estimates or other forward-looking statements contained in this publication involve numerous and significant subjective assumptions and are subject to risks, contingencies, and uncertainties that are outside of our control, which could and likely will cause actual results to differ materially. We do not expect to, and assume no obligation to update or otherwise revise this publication or any information contained herein. Neither Brown Gibbons Lang & Company LLC, nor any of its officers, directors, employees, affiliates, agents or representatives makes any representation or warranty, expressed or implied, as to the accuracy, completeness or fitness of any information contained in this publication, and no legal liability is assumed or is to be implied against any of the aforementioned with respect thereto. This publication does not constitute the giving of investment advice, nor a part of any advice on investment decisions and nothing in this publication is intended to be a recommendation of a specific security or company, nor is any of the information contained herein intended to constitute an analysis of any company or security reasonably sufficient to form the basis for any investment decision. Brown Gibbons Lang & Company LLC, its affiliates and their officers, directors, employees or affiliates, or members of their families, may have a beneficial interest in the securities of a specific company mentioned in this publication and may purchase or sell such securities in the open market or otherwise. Nothing contained in this publication constitutes an offer to buy or sell or the solicitation of an offer to buy or sell any security.

LEADING INDEPENDENT FIRM COMPREHENSIVE CAPABILITIESM&A ADVISORY PRIVATE PLACEMENTS

FINANCIAL ADVISORY

For questions about content and circulation, please contact editor, Rebecca Dickenscheidt, at [email protected] or 312-513-7476.


GLOBAL CONSUMER PRODUCTS & RETAIL SERVICES

2 8 C O N S U M E R P R O D U C T S & R E T A I L S E R V I C E S | A B O U T U S

DEDICATED TEAM

CONTACTS

• Leads BGL’s Consumer Products & Retail Services practice

• Over 20 years of IB and corporate finance experience

• Former Managing Director at Banc One Capital Markets (JP Morgan Chase)

• Former Managing Director at First Chicago Capital Markets, founding the Detroit office for the firm in 1996

• Began investment banking career in 1990 with American National Bank & Trust Company, a subsidiary of First National Bank of Chicago

• Serves on the Chicago board of directors for the Gift of Adoption Fund

• Over 12 years of M&A and corporate finance experience

• Former senior banker within the Consumer and Retail group at KeyBanc Capital Markets, and M&A and corporate finance attorney for Wilmer Cutler Pickering Hale and Dorr LLP and Calfee, Halter & Griswold LLP

• B.S., University of Illinois

• M.B.A., Northwestern University Kellogg School of Management

• B.A., Colgate University

• J.D., Boston College Law School

J O H N T I L S O NM a n a g i n g D i r e c t o r

G r o u p H e a d

A L E X T E E T E RD i r e c t o r

PROFESSIONAL EXPERIENCE EDUCATIONPROFESSIONAL EXPERIENCE EDUCATION PROFESSIONAL EXPERIENCE EDUCATION


• Backcountry Camping, Hunting, Fly Fishing, Golf

• Lives in Winnetka, Illinois with his wife, three children, dog, and two cats

OUTSIDE INTERESTS

• Triathalons, Skiing, Backcountry Hiking/Camping, Scuba Diving

• Lives in Shaker Heights, Ohio with his wife, two children, and dog

OUTSIDE INTERESTS

One Magnif icent Mile 980 N. Michigan Avenue Suite 1880 Chicago, IL 60611p. 312.658.1600

One Cleveland Center1375 East 9th StreetSuite 2500 Cleveland, OH 44114p. 216.241.2800

C H I C A G O C L E V E L A N D

INSIDER · 2019-06-12 · INSIDER. Unemployment Consumer Conﬁdence 50 60 70 80 90 100 110 Jan-05...

Documents

Transcript of INSIDER · 2019-06-12 · INSIDER. Unemployment Consumer Conﬁdence 50 60 70 80 90 100 110 Jan-05...