Issue 17 Q4 2013

Consumer Products Deals Quarterly

Outlook improving for 2014 Annual review and analysis of Q4 2013 transactions in the global consumer products sector

Contents Data analysis

4

Outlook improving for 2014 Underlying positive sentiment for 2014 Data highlights for Q4 2013 and 2013 Top 10 deals in Q4 2013 Top 10 deals in 2013

Investment themes

8

Notable trends in 2013 Portfolio optimization driving deal activity Private equity deploying more capital Emerging markets are a two-way street

Deal analysis Top 10 deals in Q4 13 Del Monte Foods to focus on pet food Private equity eyes meat sector consolidation in China Sigma extends its geographic reach into Spain WhiteWave diversifies into produce Domtar pushes ahead in the personal care sector Teachers’ takes the biscuit Campbell sells European soups to private equity Post pursues dual strategy L’Oréal extends its brand portfolio

12

Welcome Welcome to Consumer Products Deals Quarterly — a report from EY that analyzes acquisitions and divestitures in the global consumer products sector as defined by EY. This edition is my first since taking over responsibility for the publication from David Murray. Dave has done a great job creating and refining this informative, insightful report and I would like to personally thank Dave for his leadership. I’m looking forward to continuing to drive further improvements to this publication in the coming quarters. Based on the number of client inquiries and the level of activity among our own deal advisory teams, who remained busy up until the traditional Christmas slowdown, we had anticipated a stronger finish to the year. While the flat quarter-on-quarter trend in deal activity was at odds with our own experience, we are confident that the ongoing underlying interest from dealmakers in potential acquisitions will translate into a steady improvement in transaction volumes in the sector for the coming quarters. This confidence is already being realized by a busy start to the year, including the announcement in January of two megadeals in the beverage sector. In this issue we take the opportunity to review the quarter’s largest transactions, and also to look back on the investment themes underlying deal activity over the course of 2013. We expect several of these recurring themes to continue into 2014. These include portfolio realignment by the large global players; increased activity by private equity; and the two-way deal flow between developed market companies expanding in emerging markets and global challengers moving in the opposite direction. Our analysis is based on data collected by Thomson Reuters and as usual we have drawn on the insights of our global professionals. We hope the perspectives we offer will be of use to the leaders of consumer products companies and to the financial investors who continue to focus on this sector. We are happy to provide further insight on request.

Gregory J. Stemler Global Consumer Products Transaction Advisory Services Leader EY [email protected]

Consumer Products Deals Quarterly Issue 17

3

Data analysis — Outlook improving for 2014

Data analysis Outlook improving in 2014

Deal activity was broadly flat in Q4 13 compared with the previous three-month period, but declined on a year-on-year basis. Total disclosed deal value dropped sharply on a quarter-on-quarter basis, but declined only modestly year-on-year.

Fourth quarter deal volumes decreased by 1% to 281 deals from 285 in Q3 13. For the year as a whole, deal volumes fell by 6%. The four-period long-term moving average of total deal volume decreased slightly from 311 deals to 302 deals between Q3 and Q4 2013.

0

66 33 2

52 46 1

56 37 3

193

186

185

69 25 3 221

Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 Tobacco

HPC

Beverages

Andrew Cosgrove Global Consumer Products Lead Analyst, EY

1. Global Capital Confidence Barometer, October 2013.

4

68 32 4

65 43 3 206

50

243

6025 2

100

222

150

66 40 4

200

231

250

69 52 4

300

232

350

54 8

400

81

450

312

500

53 4

Deal volumes Q1 11–Q4 13

72

“There is a compelling economic rationale for consolidation. Organic growth in many mature market sectors has become challenging. Companies will have to pursue acquisitions to grow the topline, but they need to be selective in their targets or risk destroying value.”

Deal volumes decline quarter-on-quarter and year-on-year

331

Both our own workload and knowledge of the deal pipeline, as well as surveys of sentiment among dealmakers, suggest that the flat trend in transaction volumes at the end of last year will be replaced by an improvement in activity levels in the coming months.

Data highlights Q4 13 and 2013

84 36 2

These megadeals and the pace of smaller deal activity at the start of the year have strengthened our belief that there will be an upturn in transaction volumes in the coming months. Total disclosed deal value fell sharply from US$15b in Q3 13 to US$9b in Q4 13 and for the second consecutive quarter there were no megadeals with a value greater than US$5b. However, total disclosed value for 2013 was only 4% lower than in 2012.

338

The level of deal activity stabilized in the fourth quarter. There were 281 consumer products deals announced in Q4 13, a decline of just 4 deals (1%) compared with Q3 13. For the year as a whole, total volumes fell by 6% compared with 2012. While only a minority of those surveyed expects the coming year to bring bigger deals, 2014 has got off to a flying start with the announcement of two megadeals with a value of more than US$5b in the beverage sector. In January, Japanese beverage group Suntory Holdings announced the purchase of Beam Inc., makers of Jim Beam, Maker’s Mark and Knob Creek bourbons to name a few, for US$1.6b. In the same month, private equity groups KKR and Affinity Equity Partners agreed to sell South Korea’s Oriental Brewery back to former owner AB InBev for US$5.8b.

Our optimism that deal volumes will gradually increase is supported by the results of the latest EY Capital Confidence Barometer.1 The survey shows that most (60%) consumer products firms expect a “modest” improvement in deal volumes, based on an alignment of the core fundamentals: positive economic sentiment, enhanced credit availability and the imperative for growth. Of respondents, only 1% expect a return to historic highs in deal activity. However, while consumer products companies expect to announce more deals in the coming year, they do not expect to be doing bigger deals. According to the Capital Confidence Barometer, expectations for larger deals (greater than US$1b in value) have fallen from 7% to 4%, while those for smaller deals (less than US$51m in value) have risen from 28% to 36% since April 2013.

Number of deals

Underlying positive sentiment for 2014

Consumer Products Deals Quarterly — Issue 17

Food

Average LTM number of deals

Data analysis — Outlook improving for 2014

“2014 will finally bring the turnaround in deal activity.” Dave Murray Global Consumer Products Transaction Advisory Services Leader, EY Total value declines modestly in 2013 Disclosed deal value decreased to US$9b in Q4 13 from US$15b in Q3 13, but fell by just 4% in 2013 compared with 2012. There were no megadeals with a value greater than US$5b announced in the fourth quarter, and only two deals had a value of more than US$1b. Deal values Q1 11–Q4 13

0.6 0.4

20

0.2 0

Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 Food

Beverages

HPC

Average deal value (US$b)

Total deal value (US$b)

0.8 40

0.0

Top 10 deals by sub-sector in 2013

Food deals

Beverage deals

HPC deals

Tobacco

Average deal size

Average LTM value

The year’s two largest transactions — the acquisitions of Heinz and D.E Master Blenders 1753 — both involved private buyers.

In the year’s top 10 deals, there were 5 food and 4 beverage transactions. The remaining deal in the top 10 was in the household and personal care sector.

1.0

60

Private equity and private family holding companies take top two slots in food-dominated 2013 leaderboard

Top 10 deal activity in 2013 shows the rise of global challengers

Private equity activity lower in Q4 13, but stable year-on-year The number of corporate deals increased by 3% from 222 in Q3 13 to 229 in Q4 13, which represented 81% of total deal activity. In comparison, private equity deals decreased to 52 in Q4 13 from 63 in Q3 13, a drop of 17%. For the year as a whole, total private equity transactions (223 deals) represented 18% of total deal volume and were little changed from 2012’s total of 217 deals. Corporate vs. private equity deals Q1 11–Q4 13

Of the year’s top 10 deals, a target based in the emerging markets featured in five of the transactions. However, emerging marketsbased companies also featured as buyers in five of the year’s biggest transactions. 3G Capital Partners/Berkshire Hathaway Oak Leaf BV K`mYf_`maAfld&@d\_&Dl\&

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Hindustan Unilever Ltd. ($5,443)

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63

53

55

60

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48

56

79

121

117

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Kotobuki Realty Co. Ltd.

229

222

241

292

258

264

261

285

278

334

343

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No. of deals

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H.J Heinz Co. ($28,000) D.E Master Blenders 1753 BV ($8,279)

China Mengniu Dairy Co. Ltd.

;aY;]jn][]jY\];gY`madY ($2,900) Marfrig Alimentos-Seara Brasil ($2,744) ?dYpgKeal`Cdaf]HD;%Dm[grY\] ($2,119) Spaipa SA Bebidas ($1,855) gg\k;g&%:mkaf]kk ($1,675) QYk`adaAfld&@d\_&Dl\& ($1,606)