CPDQ - Total deal value continues to climb - Ernst & Young · Total deal value continues to climb Total deal value in Q2 14 increased by a further 39% compared with Q1 14, which had

Issue 19

Q2 2014

Total deal value continues to climbAnalysis of transactions in Q2 2014 in the global consumer products sector

Consumer Products Deals Quarterly

Contents

Data analysis 4

Total deal value continues to climbTotal value jumps to a six-year peakData highlights Q2 14Top 10 deals in Q2 14

Investment themes 7

Notable trends in Q2 14Hunt for growth drives developed market dealsPortfolio optimization ongoing among the industry’s largest playersJoint ventures can provide an elegant solutionPrivate equity activity declines amid rising valuations

Deal analysis 10

Top 10 deals in Q2 14Bayer protects its global position with Merck acquisitionTyson’s knockout blow for Hillshire BrandsCoffee consolidation continuesCofco creates an international platformProcter & Gamble exits the pet food business

Mizkan expands further in the USDiageo takes a majority in United SpiritsSymrise closes the gap with larger rivalsNestlé underlines its intentions in skin health

3

WelcomeWelcome to Consumer Products Deals Quarterly, a report from EY that analyzes acquisitions and disposals in the global consumer products sector.

matched the highest aggregate quarterly levels achieved in any of the last three years, while the second

tone we noted among dealmakers in discussions at industry conferences in the early part of the year. However, a closer look at the investment themes underpinning recent deal activity reveals a consistent picture.

markets. Achieving consistent organic growth in these markets is increasingly challenging, driving companies to turn to acquisitions and joint ventures to drive the top line, seek out higher growth segments, and optimize their

rebounding IPO market, all of which help explain why private equity has been less in evidence on the buy side in the last quarter.

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

insight on request.

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

Total deal value continues to climb — Issue 19

4 Total deal value continues to climb — Issue 19

Data analysisTotal deal value continues to climb

Total deal value in Q2 14 increased by a further 39% compared with Q1 14, which had itself matched the highest quarterly total in the three-year review period. Three megadeals, with a value greater than US$5b, were announced during the quarter, and all of the top 10 deals had a deal value of more than US$1b. Total deal volumes maintained their recent relatively stable trajectory, increasing by 4% compared with the previous quarter.

Q2 14 total deal value was the largest since Q2 08

US$57b

Data analysis — Total deal value continues to climb

Total value jumps to a six-year peakThe most striking feature of the second quarter was the further

Q1 14 to US$57b in Q2 14. The sharp increase was underpinned by the announcement of three megadeals during the quarter: Bayer’s purchase of Merck’s over-the-counter consumer health care business, Tyson Foods’ acquisition of Hillshire Brands, and the merger of the coffee businesses of D.E. Master Blenders

announced during the whole of 2013, but six have already been

tobacco deals since our numbers closed.

Below the megadeal threshold, there were a further 10 deals with a disclosed deal value of more than US$1b. In Q1 14 the smallest deal in the top 10 had a value of US$340m, but in the second quarter the 20 largest deals all exceeded that value.

In contrast, the trend in deal volumes was steadier. However, deal volumes did increase by 12 deals, or 4%, to 299 deals in Q2 14, compared with 287 deals in Q1 14, despite a sharp decline in the number of private equity deals, from 51 to 35.

We believe, based on our client relationships and knowledge of the deal pipeline, that further large deals and megadeals are likely to be announced in the next couple of quarters, maintaining the buoyant trend in total value.

Private equity activity declines sharply

The number of private equity deals declined from 51 in Q1 14 to 35 in Q2 14, a 31% decrease. In contrast, the number of corporate deals increased by 12%, to 264 deals. The proportion of corporate deals in total deal volumes consequently increased from 82% in Q1 14 to 88% in Q2 14.

Corporate vs. private equity deals Q3 11–Q2 14

Deal volumes make steady progress

Second-quarter deal volumes increased by 4%, to 299 deals from 287 in Q1 14. The four-period long-term moving average of total deal volume increased from 287 to 288 deals.

Deal volumes Q3 11–Q2 14

Data highlights Q2 14Pickup in total value gathers pace

Disclosed deal value climbed to US$57b in Q2 14 from US$41b in Q1 14. There were three megadeals, with a value greater than US$5b, announced in the third quarter, and all of the top 10 deals had a value of more than US$1b.

Deal values Q3 11–Q2 14

Food Beverages HPC Tobacco Average LTM value Average deal size

0.0

0.2

0.4

0.6

0.8

1.0

0

20

40

60

Q3 11 Q4 11 Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14

Ave

rage

dea

l val

ue (U

S$b)

Tota

l dea

l val

ue (U

S$b)

312

232

231

222

206

221

243

193

186

185

190

207

81

69 66

60 65 69

68

66 52 56 54 55

54

52 40

25 43 25 32

33

46 37

36

30

8

4 4

2 3 3

4

2 1 3 7 7

-

50

100

150

200

250

300

350

400

450

500

Q3 11 Q4 11 Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14

Num

ber

Tobacco HPC Beverages Food Average LTM number of deals

Corporate PE

334

121

278

79

285

56

261

48

264

53

258

60

292

55

241

53

222

63

229

52

236

51

264

35

0%

20%

40%

60%

80%

100%

Q3 11 Q4 11 Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14

Total deal value continues to climb — Issue 19 5


Top 10 deals all had a disclosed value of more than US$1b

The top 10 deals had a combined total value of US$44b, the highest in the three-year review period. These 10 deals alone surpassed the aggregate total value for any quarter since Q2 08.

Top 10 deal activity dominated by acquisitions in developed markets

Of the quarter’s 10 largest acquisitions, 8 involved a target company in a developed world market. Of the remaining two deals, one target was in India and the other in Singapore.

Merck Consumer Care Business ($14,200)

Hillshire Brands Co. ($8,550)

($5,000)

Noble Agri Ltd. ($4,000)

Procter & Gamble Co. Pet Food ($2,900)

Michael Foods Inc. ($2,450)

Unilever/Conopco Inc. ($2,150)

United Spirits Ltd. ($1,901)

Diana Ingredients SAS ($1,797)

Valeant Pharmaceuticals International, Inc. ($1,400)

Bayer AG

Tyson Foods Inc.

D.E Master Blenders

Mars Inc.

Post Holdings Inc.

Diageo plc

Symrise AG

Nestlé

Disclosed value (US$m)

Global challengers

Number of deals greater than US$1b in last eight quarters (Q3 12–Q2 14)

Beverages Food HPC Total deal value

4 2 1 1 2

-2 2

2

2

1 3 1

2

2

8 -

1

-

1 1

-

2

3 $32.2

$13.8

$30.9$24.9

$6.7 $2.8

$35.9

$47.9

0

10

20

30

40

50

60

0

2

4

6

8

10

12

14

16

Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14

US$

b

No.

of D

eals

The top 10 deals had a combined value of US$44b — 78% of total disclosed deal value

78%

Top 10 deals in Q2 14

Buyer name Buyer country

Target name Target country

Disclosed value (US$m)

Announced date

Deal type Sector Cross-border or in-border

Bayer AG Germany Merck Consumer Care Business

United States $14,200 6 May 14 Corporate HPC Cross–border

Tyson Foods Inc. United States

Hillshire Brands Co. United States $8,550 29 May 14 Corporate Food In–border

D.E Master Blenders AustriaBusiness

Netherlands $5,000 7 May 14 Corporate Beverages Cross–border

Cofco/Hopu Investment

China Noble Agri Ltd. Singapore $4,000 2 Apr 14 Corporate Food Cross–border

Mars Inc. United States

Procter & Gamble Co. Pet Food

United States $2,900 9 Apr 14 Corporate Food In–border

Post Holdings Inc. United States

Michael Foods Inc. United States $2,450 17 Apr 14 Corporate Food In–border

Mizkan Holdings Co. Ltd.

Japan Unilever/Conopco Inc. United States $2,150 22 May 14 Corporate Food Cross–border

Diageo plc United Kingdom

United Spirits Ltd. India $1,901 15 Apr 14 Corporate Beverages Cross–border

Symrise AG Germany Diana Ingredients SAS France $1,797 14 Apr 14 Corporate Food Cross–borderNestlé Switzerland Valeant

Pharmaceuticals International, Inc.

Canada $1,400 28 May 14 Corporate HPC Cross–border



Global consumer products corporate and PE transactions scorecard by sector

Total consumer products (CP) deals by sector, corporate and PE Beverages 55 54 2% 55 66 —17%Food 207 190 9% 207 193 7%HPC 30 36 —17% 30 33 —9%Tobacco 7 7 0% 7 2 250%Total 299 287 4% 299 294 2%

PE deals by subsector (based on seller sector) Beverages 5 14 —64% 5 16 —69%Food 24 32 —25% 24 30 —20%HPC 6 5 20% 6 7 —14%Tobacco 0 0 0 0Total 35 51 —31% 35 53 —34%

Corporate deals by subsector Beverages 50 40 25% 50 50 0%Food 183 158 16% 183 163 12%HPC 24 31 —23% 24 26 —8%Tobacco 7 7 0% 7 2 250%Total 264 236 12% 264 241 10%

Deals announced Q2 14 Q1 14 Seq % change Q2 14 Q2 13 YoY % change


The underlying portfolio optimization theme continues, particularly among the industry’s largest global players. The focus of this restructuring in Q2 14 has been on developed markets, with joint ventures a popular strategic solution. Emerging market expansion was less evident, and private equity activity declined sharply.

Hunt for growth drives developed market deals The consumer products sector in developed-world countries is a tough market environment, offering in many cases zero growth or, at best, low single-digit organic top-line growth. Companies have responded to this strategic challenge in a number of ways.

In recent years, the focus of many leading global companies in the sector has been to expand into emerging markets, tapping into the long-term trend of increasing demand for consumer products as economic development creates a new middle class. This year, however, there have been noticeably fewer big-ticket deals involving a global player expanding into emerging markets. When these deals have taken place, they have also often been examples of companies pursuing the less-risky strategy of building larger stakes, or taking a majority in businesses in which they are already invested. This quarter’s move by Diageo to take a controlling position in India’s United Spirits was one such deal.

Investment themes

With concerns over the slowing pace of growth in many emerging markets, as well as heightened geopolitical risks in a number of countries, there is less urgency among potential buyers to acquire immediately. From a seller’s perspective, slower growth in the near term may also make it harder to realize a valuation that the vendor believes is appropriate for the long-term potential of the business.

Meanwhile, global players have sharpened focus on their developed-market businesses. To create value in the absence of organic revenue growth, companies (sometimes prompted

pursuing acquisitions and making strategic divestments (portfolio optimization). As a result, 7 of the top 10 deals in Q1 14 and 8 in Q2 14 have involved a target in a developed-market country. Looking ahead, we expect companies will continue to pursue acquisitions to expand revenues in a zero-growth environment. Even in the already highly consolidated tobacco sector, for example, as expenditure on tobacco continues to fall, commentators expect M&A activity to pick up.1

Portfolio optimization ongoing among the industry’s largest playersThis recurring theme of portfolio optimization is particularly evident at the top end of the market capitalization scale. The large multinational consumer products groups are optimizing their brand portfolios and geographic market exposure through the disposal of non-core and lower-growth businesses and the acquisition of faster-growing and/or higher-margin businesses.

1 “Tobacco deals may light up after six year lull,” Bloomberg, www.bloomberg.com, 6 March 2014.

Notable trends in Q2 14

“The lack of recent large-scale emerging market M&A does not mean the long-term investment case is no longer compelling. When growth picks up in emerging markets, we expect M&A activity will also increase as both buyers and sellers regain their appetite.”

Kristina RogersGlobal Consumer Products Emerging Markets Leader EY

Investment themes — Notable trends in Q2 14


The second-quarter top 10 leaderboard provided further examples of this recurring investment theme. Merck’s disposal of its OTC consumer health care business to Bayer is aligned with its strategy of being a more focused research-driven pharmaceutical company. The deal is also indicative of the wider trend among pharmaceutical companies to make clear choices regarding their consumer businesses.

Procter & Gamble has been divesting its portfolio of food businesses for some time and this quarter largely exited the pet food business. In a similar vein, Unilever sold the Ragu and Bertolli

merged its coffee assets with D.E Master Blenders 1753.

Joint ventures can provide an elegant solution

transactions creating joint ventures. Companies are taking strategic decisions to restructure their portfolios but are not necessarily opting to divest businesses fully. While they may no longer wish to devote management resources to running the business being put into the joint venture, companies still want to participate in the synergies created by the new company and to share in longer-term value creation.

Receiving cash and retaining a stake in the joint venture can be an elegant strategic solution compared with fully divesting.

announcement of the deal and an additional US$3.5b restructuring, the company’s shares gained almost 8%.2

The trend is evident across different subsectors of the consumer products industry. For example, GlaxoSmithKline in April

two parts, GlaxoSmithKline will acquire Novartis’ global vaccines business and divest its oncology portfolio to Novartis. The third part is the creation of a consumer health care joint venture with current annual revenues of US$11b. GlaxoSmithKline will have majority control with an equity interest of 63.5%.3

Horizon Milling, another joint venture between grain trader Cargill and CHS, a farmers’ cooperative, formed in 2002.4

Of course, every trend has its exceptions, and some companies are moving in the opposite direction, taking full control of joint ventures and investing in the business. In February, for example, Nestlé took full control of Galderma, the skin-care business it previously operated as a joint venture with L’Oréal, and in May it agreed to acquire the rights to a number of Valeant’s anti-wrinkle products.

2 “Mondelez, D.E Master Blenders to merge coffee businesses,” Reuters, www.reuters.com, 7 May 2014.

3 “Novartis, GlaxoSmithKline consumer-health business unites big brands,” The Wall Street Journal, www.online.wsj.com, 22 April 2014.

4 “ConAgra Foods, Cargill and CHS to complete joint venture,” Feedstuffs, www.feedstuffs.com, 28 May 2014.


“Companies can create shareholder value by regularly assessing whether each business unit in their portfolio is contributing to their strategic goals and long-term growth. Our own research shows that a rigorous approach to strategic portfolio management leads to more effective divestment outcomes.”

Greg StemlerGlobal Consumer Products Transaction Advisory Services Leader EY



Private equity activity declines amid rising valuationsThe number of private equity deals dropped by 31% in Q2 14

the three-year review period. Private equity also did not feature as a buyer in the top 10 deals, although in the Michael Foods and Diana Group transactions private equity was the seller.

“Competitive auctions, rising equity markets and the return of the IPO market are all putting upward pressure

of high initial valuations.”

David MurrayUK & Ireland Consumer Products Transaction Advisory Services Leader EY

However, the decline of private equity should not be overstated. While not strictly a private equity fund, D.E Master Blenders 1753 is controlled by long-term private family capital. Outside the top 10 in Q2 14, TPG capital invested US$750m in Greek-yogurt maker Chobani, which could be converted to an equity stake at IPO, for which the company is currently preparing.6 In many quarters a deal of this size would have been comfortably among the period’s 10 largest deals. Meanwhile, after the end of the quarter, Unilever announced the sale of its Slim-Fast brand to private equity group Kainos Capital for an undisclosed sum.7 A lack of deals also need not mean a lack of interest. In May, for example, Australian winemaker Treasury Wine Estates rejected a US$2.9b bid from private equity group KKR.8

6 “Chobani Reaches Deal for $750 Million Investment From TPG,” The Wall Street Journal, www.online.wsj.com, 23 April 2014.

7 “Unilever sells Slim-Fast brand to Kainos Capital,” The Wall Street Journal, www.online.wsj.com, 10 July 2014.

8 “Treasury Wine Rejects KKR Takeover Offer,” The Wall Street Journal, www.online.wsj.com, 22 May 2014.

Rising equity markets and resurgence in IPO activity are driving valuations higher. Globally, the number of consumer products

the same period last year, according to EY data. Based on

5 This trend

strategic buyers, which may have greater ability to generate

private equity owners an increasingly attractive alternative exit option compared with a trade or secondary private equity sale.

5 EY Global IPO trends: Q2 2014, EY, July 2014.


Bayer protects its global position with Merck acquisitionIn May, Bayer agreed to acquire the consumer care business of Merck for US$14.2b in cash, outbidding Reckitt Benckiser in a competitive auction. This transaction will maintain Bayer’s current position as the world’s number two in the OTC consumer health care segment behind Johnson & Johnson, which was set to be challenged by the joint venture announced in April between GSK and Novartis.9

According to Merck CEO Kenneth C. Frazier, the disposal sharpens the group’s focus on its strategy to be the premier research-intensive pharmaceutical company as it seeks to counteract the negative impact on its business from the growth in cheaper generic drugs. Pointing to potential further acquisitions, Merck said it would augment its pipeline with “external assets.”10

Analysts believe the deal makes strategic sense for Bayer, but the competitive auction process drove up the deal’s value. Société Générale said: “The deal equates to 6.5x historical sales and 21x EBITDA. In the context of past deal multiples and in view of potential cost and revenue synergies, the deal is expensive.”11 Reckitt Benckiser, meanwhile, pointing to ongoing interest in deals, said: “The consumer health market remains highly fragmented, and we will continue to evaluate opportunities that

12

Tyson’s knockout blow for Hillshire BrandsThe second-largest deal in Q2 14 was the acquisition of food processor Hillshire Brands, the biggest maker of breakfast sausage and hot dogs in the US, by Tyson Foods for US$8.6b. The deal was agreed to after a unsolicited bidding war between Tyson Foods and Pilgrim’s Pride, which is controlled by Brazil’s JBS, the world’s largest producer of beef products. Hillshire Brands, in turn, had reached a prior agreement to buy Pinnacle Foods from private equity owner The Blackstone Group for US$6.6b, which has been canceled and a termination fee paid.

9 “Acquisition of Merck’s OTC business,” Natixis Equity Research, 7 May 2014.10 “Bayer buying Merck consumer care business for $14.2 billion,” The Hawk Eye,

www.thehawkeye.com, 7 May 2014.11 “Acquiring Merck’s Consumer business: a strategically sound but expensive deal,”

Société Générale Cross Asset Research, 7 May 2014.12 “Reckitt Benckiser says no longer in talks with Merck,” Reuters, www.reuters.com,

30 April 2014.

The deal’s US$63 per share value represents a multiple of 16.7 times Hillshire’s historical EBITDA, which is a high valuation for a meat-processing business.13 Some commentators also highlighted the changing market dynamics driving the deal. According to the Financial Times:in the years since, the food industry focused on growth through

smaller labour forces. But the Hillshire bidding war suggests the industry is back on the hunt for growth.”14

Coffee consolidation continues

agreed to merge their coffee businesses in a joint venture.

created company, called Jacobs Douwe Egberts, which is expected to have revenues of more than US$7b and will be based in the Netherlands.

The deal was the latest move by JAB Holding Co., the investment arm of the billionaire Reimann family, to consolidate the global coffee market. Last year, in the industry’s biggest-ever deal, JAB Holding Co. bought D.E Master Blenders 1753, which was spun off from Sara Lee in 2012, for about €7.6b (US$10.4b). It also previously bought Peet’s Coffee & Tea and Caribou Coffee.

13 “Tyson wins bid against itself,” The Wall Street Journal, www.online.wsj.com, 9 June 2014.14 Financial Times, www.ft.com,

30 May 2014.

The quarter’s biggest deal was the acquisition of Merck’s consumer care business by Bayer

US$14.2bDeal analysisTop 10 deals in Q2 14

Deal analysis — Top 10 deals in Q2 14

“Historically a business such as Hillshire would have traded at a multiple of 9–11x EBITDA, but it went for 17x. This shows the scarcity of both high-quality assets and the strategic value of the target to the buyer. At these multiples other consumer products companies might be viable targets as well.”

Steve PotterAmericas Consumer Products Transaction Advisory Services Leader EY


behind Nestlé, with D.E Master Blenders 1753 occupying third position. Between them the three companies control about 40% of the global coffee market. Even after the creation of Jacobs Douwe Egberts, Nestlé will remain the largest player.15

Analysts received the merger favorably. Wells Fargo Securities described the transaction as an “outstanding strategic decision,” enhancing the merged company’s position in challenging Western European markets and bringing a strong presence in high-growth markets such as Brazil.16

Cofco creates an international platformState-owned China National Cereals, Oils and Foodstuffs Corp. (Cofco) in April agreed to pay US$1.5b in cash for a 51% stake in Noble Agri, the agribusiness operations of Hong Kong-based Noble Group, one of Asia’s largest commodity-trading houses. Cofco will share the investment with Hopu Investment, a private equity fund, while Noble will retain an equity stake and will jointly manage the business with Cofco. The joint venture will take on the US$2.5b of net debt held by Noble’s agriculture business, halving Noble Group’s total debt and giving the transaction an enterprise value of US$4b. The deal followed hard on the heels of Cofco’s purchase in February of a 51% stake in grain trader Nidera to gain access to South American grain supplies, which valued the company at US$4b.17

Noble Agri predominantly trades and processes farm products sourced from low-cost regions to supply markets with high demand in Asia and the Middle East. Its assets include sugar mills in Brazil and oilseed-crushing plants in China, Ukraine, South Africa and South America. The deal values Noble Agri’s equity at 1.15 times 2014 book value, which compares with the 1.4 times that Temasek, Singapore’s state investment company, paid in a March tender offer for Noble’s rival Olam.18

15 “Master Blenders to Buy Mondelez Coffee Unit for $5B,” Bloomberg, www.bloomberg.com, 8 May 2014.

16 “Mondelez: To Form Leading Pure Play Coffee Company With D.E Master Blenders Outstanding Transaction, in Our View,” Wells Fargo Securities Equity Research, 7 May 2014.

17 “COFCO to take 51% stake in Noble Agri for $1.5b,” China Daily, www.chinadaily.com.cn, 2 April 2014.

18 “China’s Cofco cements agribusiness ambitions with $1.5bn Noble deal,” Financial Times, www.ft.com, 20 June 2014.


Procter & Gamble exits the pet food businessProcter & Gamble has agreed to sell the majority of its pet food business to Mars for US$2.9b in cash to focus more on its household and personal-care brands. Mars will acquire the Iams, Eukanuba and Natura brands in the Americas and other selected countries, which account for 80% of Procter & Gamble Pet Care’s global sales. Procter & Gamble is also looking for buyers for those brands in European Union markets.19 Mars is the global leader in pet food sales with 23.4% market share in 2012, just ahead of Nestlé’s Purina brand, according to Euromonitor International.20

food as “an important step” toward focusing on core businesses. Analysts agreed, with Sanford Bernstein’s Ali Dibadj praising the company’s exit from pet food, which he called a “big distraction” that generates only about 2% of company sales.21 Dibadj also said that at US$2.9b, Procter & Gamble had secured a good price for

earnings.22

19 “P&G selling pet food brands to Mars for $2.9 billion,” Reuters, www.reuters.com, 9 April 2014.20 “Mars to Buy P&G Pet Food Brands for $2.9 Billion in Cash,” Bloomberg, www.bloomberg.com,

9 April 2014.21 “P&G selling pet food brands to Mars for $2.9 billion,” Reuters, www.reuters.com, 9 April 2014.22 “Mars buys P&G’s pet food brands in $2.9bn deal,” The Daily Telegraph, www.telegraph.co.uk,

9 April 2014.

“P&G is exiting a vastly different category to the one it entered in 1999. P&G’s launch of the Iams brand into mainstream grocery channels triggered the reshaping and consolidation of the global pet food industry, resulting in Nestlé’s purchase of Ralston Purina and Mars’ acquisition of Royal Canin as the global leaders sought to defend their market positions.”

Andrew CosgroveGlobal Consumer Products Lead Analyst EY


Post Holdings doubles in size as it

Since being spun off from Ralcorp in 2012, cereal maker Post

business into the active nutrition and protein markets. The latest transaction in this strategy was the acquisition in April of Michael Foods Group from its private equity owners, Goldman Sachs Capital Partners and Thomas H. Lee Partners, for US$2.5b. The

23

Michael Foods, which produces and distributes specialty eggs, refrigerated potatoes, cheese and other dairy products, will strengthen Post Holdings’ position in protein-based foods and will nearly double Post Holdings’ size. Press reports suggested that Post Holdings beat competition from US meat processor Tyson Foods to secure the deal for Michael Foods.24

The company has recently completed deals for Dakota Growers Pasta, peanut butter maker Golden Boy Foods, sports nutrition brand PowerBar, protein bar maker Dymatize Enterprises and dietary supplements company Premier Nutrition Corp. as it pursues higher-growth segments. For example, Post Holdings expects the global active-nutrition category to grow at a compound annual rate of 7% from 2014 to 2017.25

Mizkan expands further in the USIn May, Japanese condiment manufacturer Mizkan Group agreed to buy the Ragu and Bertolli pasta sauce brand portfolio from Conopco, a subsidiary of Unilever, for US$2.2b. The deal follows Mizkan’s recent acquisitions of Border Foods and Holland House in the US as the company seeks to diversify away from the Japanese market and build a more balanced global operation.26

23 “Fed’s easy money has disconnected markets from the real economy,” Financial Times, www.ft.com, 6 June 2014.

24 “Michael Foods to be sold to Post Holdings for $2.45bn,” Financier Worldwide,

25 “Post Holdings to Acquire Michael Foods for $2.45 Billion,” Bloomberg, www.bloomberg.com, 17 April 2014.

26 “Mizkan Group To Acquire Ragu & Bertolli From Unilever,” Reuters, www.reuters.com, 22 May 2014.

Unilever is continuing to restructure its portfolio globally, and analysts said the company had achieved a good exit multiple for the brands. Sanford Bernstein’s Andrew Wood, who covers Unilever, said that: “With estimated sales of $620m and estimated EBITDA of $136m the disposals multiples (3.5x sales, 16x EBITDA) are very good. Even assuming an EBITDA of $155m, which seems somewhat aggressive, would still give a good EBITDA multiple of 14x.”27 After the end of the quarter, Unilever also announced the sale of its Slim-Fast brand to Kainos Capital for an undisclosed sum.

Ragu is the leading brand in North America, and commentators highlighted the parallels with Mizkan’s acquisition of the Branston pickle brand in the UK last year, which is also a strong and highly recognized brand but which operates in a slow-growth category. Mizkan is expected to innovate to breathe new life into an “old classic.”28

Diageo takes a majority in United SpiritsIn June, Diageo completed a tender offer to increase its stake in India’s United Spirits from 28.8% to 54.8% at a cost of US$1.9b.

end Diageo’s efforts, over several years, to take a majority stake in the company. Tycoon Vijay Mallya, who previously controlled United Spirits, has been forced to sell assets to pay down debt

According to analysts at Citigroup, “Diageo is doing the right

raise (United Spirits’) margins over time.”29 The Indian spirits market was worth US$16.4b in 2012, according to research

premium brands.30 Some commentators have noted renewed interest by foreign players in India’s consumer products sector, which has been given added impetus by the recent election of a new reform-minded majority government. Diageo’s deal, for example, follows last year’s move by Unilever to increase its stake in Hindustan Unilever.31

27 “In the spotlight: Mizkan furthers global ambitions with Ragu, Bertolli buy,” Just-Food, www.just-food.com, 22 May 2014.

28 “In the spotlight: Mizkan furthers global ambitions with Ragu, Bertolli buy,” Just-Food, www.just-food.com, 22 May 2014.

29 “Diageo bids $1.9 billion to take majority in United Spirits,” Reuters, www.reuters.com, 15 April 2014.

30 “Diageo bids $1.9 billion to take majority in United Spirits,” Reuters, www.reuters.com, 15 April 2014.

31 “Diageo poised to take control of India’s United Spirits,” Financial Times, www.ft.com, 20 June 2014.



Symrise closes the gap with larger rivalsIn April, Germany’s Symrise, the world’s fourth-largest scents and

Diana Group for US$1.8b from private equity group Ardian.

drinks, ice cream and perfume. Diana is one of the world’s leading providers of natural extracts and is the global leader in palatability enhancers for pet food, and the deal marks Symrise’s entry into the pet food market.

Symrise fought off competition from private equity buyers, including Blackstone, BC Partners and CVC Capital Partners.32 The deal values Diana Group at 14x 2013 EBITDA. Analysts at Berenberg Bank, highlighting Diana’s very strong market positions in natural ingredients and pet food, said: “We think that the acquisition, although not cheap, makes strategic sense for the company.”33

The purchase of Diana follows Symrise’s acquisition last year of the global fragrance business of New York-based Belmay Group and the increase in March of its stake in Probi, the Swedish probiotics company.

32 “Germany’s Symrise wins battle for French foodmaker Diana,” Financial Times, www.ft.com, 13 April 2014.

33 14 April 2014.

“Diageo has been trying for some time to increase

Indian spirits market and a better opportunity to leverage its international brands through United’s distribution channels.”

Pinaki MishraRetail and Consumer Products Leader, India EY


Nestlé underlines its intentions in skin healthIn February, Nestlé signaled its intentions in the skin health market by taking full control of Galderma, the skin health business it previously operated as a joint venture with L’Oréal. In May, Nestlé agreed to pay Canadian pharmaceutical group Valeant US$1.4b for the rights to a number of injectable anti-wrinkle products.

Analysts at Kepler Cheuvreux said that the deal’s strategic implications were more important than its size: “In terms of Nestlé’s revenues of about US$100b, this deal isn’t that

that they are serious about expanding their business into the health sphere.”34 According to data from GlobalData Facial

to grow from US$2.5b in 2013 to US$4.7b in 2018, a compound annual growth of 13.5%.

34 Financial Times, www.ft.com, 28 May 2014.

Delivering agile innovation: creating value from collaboration with entrepreneurs in retail and CP

We live in the age of innovation, driven by the rapid evolution of technology and data, which has fundamentally changed consumer behavior. This is creating unrelenting pressure

on consumer products (CP) and retail companies to put innovation at the center of their business.

EY Global IPO Trends Report: Q2 2014

Cash on the table 2014Working capital (WC) management in the consumer products industry in 2014

Find out more at www.ey.com/consumerproducts Find out more at www.ey.com/consumerproducts

More information at www.ey.com/consumerproductsFollow us on Twitter @EYConsumerGoods

Find out more at www.ey.com/ipo

Global IPO markets show strength and increased stability.

After a bumper start to the year

2011, global IPO activity continued to climb in the second quarter. Deal volume and proceeds reached the midpoint of the year at levels more than 60% higher than at the same

time 12 months ago, with expectation of more to come in the second half of 2014.


2013 was a year of sharp improvement in WC performance for CP companies, with food and beverage subsectors seeing the biggest improvements.

suggest that the leading 20 CP companies still have up to US$35b (or 5% of combined sales) tied up

unnecessarily in WC.


MethodologyConsumer Products Deals Quarterly is based on EY’s analysis of Thomson Reuters data from Q3 11–Q2 14. Data was pulled from the Thomson Reuters database using standard industrial

products includes only those companies in the food, beverages, tobacco and HPC subsectors.

date that the Thomson Reuters database was accessed.

Data source and industry scope

• Deals include transactions between companies in the four consumer products subsectors, consumer products companies acquiring businesses in other subsectors and non-consumer products companies acquiring consumer products companies.

• Private equity deal activity includes full and partial-stake transactions and was analyzed based on acquisitions by

management groups, certain commercial banks, investment banks, venture capital and other similar entities.

• based on the consumer products sector of the seller.

• Equity investments were included (corporate and private equity).

• Joint ventures were not included.

• The value and status of all deals highlighted in this report are as of 14 June 2014. Q2 2014 represents deals announced between 15 March 2014 and 14 June 2014.

• All dollar amounts are in US$ unless otherwise indicated.

• There is no minimum US$ deal threshold.

• Only disclosed deal values (as per Thomson Reuters) are used in all value analyses.

• As used in this report, ”total value” refers to the aggregate value of deals with disclosed values for the period under discussion.

• The disclosed value as stated in the top 10 deals table is the total value of consideration paid by the acquirer, excluding fees and expenses. The dollar value includes the amount paid for all common stock, common stock equivalents, preferred stock, debt, options, assets, warrants and stake purchases made within six months of the announcement date of the transaction. Liabilities assumed are included in the value if they are publicly disclosed. Preferred stock is included only if it is being acquired as part of a 100% acquisition. If a portion of the consideration paid by the acquirer is common stock, the stock is valued using the closing price on the last full trading day prior to the announcement of the terms of the stock swap. If the exchange ratio of shares offered changes, the stock is valued based on its closing price on the last full trading day prior to the date of the exchange ratio change. For public target 100% acquisitions, the number of shares at date of announcement is used.

Qualifying deals

About EYEY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities.

EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization please visit ey.com.

How EY’s Global Consumer Products Center can help your business Consumer products companies are operating in a brand new order, a challenging environment of spiraling complexity and unprecedented change. Demand is shifting to rapid-growth markets, costs are rising, consumer behavior and expectations are evolving, and stakeholders are becoming more demanding. To succeed, companies now need to be leaner and more agile, with a relentless focus on execution. Our Global Consumer Products Center enables our worldwide network of more than 16,000 sector-focused assurance, tax, transaction and advisory professionals to share powerful insights and deep sector knowledge with businesses like yours. This intelligence, combined with our technical experience, can assist you in making more informed strategic choices and help you execute better and faster.

© 2014 EYGM Limited. All Rights Reserved.

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In line with EY’s commitment to minimize its impact on the environment, this document has been printed on paper with a high recycled content.

This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice.

ey.com

EY | Assurance | Tax | Transactions | AdvisoryContactsRegion Contact Email/telephone

Global Gregory J. Stemler Global Consumer Products Transaction Advisory Services Leader

[email protected] +1 312 879 3351

Americas Steven G. Potter Consumer Products Transaction Advisory Services Leader


John Hope Consumer Products Transaction Advisory Services Leader

[email protected] +852 2846 9997

Europe, Middle East, India and Africa

David Murray Consumer Products Transaction Advisory Services Leader


Japan Tatsuya Hiramoto Consumer Products Transaction Advisory Services Leader


Country Contact Email/telephone

Brazil Cristiane Amaral Consumer Products Leader


Russia Dmitry Khalilov Retail and Consumer Products Leader


India Pinaki Mishra Retail and Consumer Products Leader


China Robert Partridge Transaction Advisory Services Leader

[email protected] +852 2846 9973

Sector Contact Email/telephone

Global Mark Beischel Global Consumer Products Leader


Global Kristina Rogers Global Consumer Products Emerging Markets Leader


Global Andrew Cosgrove Global Consumer Products Lead Analyst


Beverages Steve Wills Global Leader


Food Patricia Novosel Global Co-Leader


Food Mike Sills Global Co-Leader


HPC Anastasia Economos Global Co-Leader


HPC Mark Twine Global Co-Leader


Tobacco Ed Hudson Global Leader


Documents

CPDQ - Total deal value continues to climb - Ernst & Young · Total deal value continues to climb Total deal value in Q2 14 increased by a further 39% compared with Q1 14, which had