CPD QIssue11 10Aug12

7/31/2019 CPD QIssue11 10Aug12

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Megadeals returningAnalysis of transactions in Q2 2012

in the global consumer products sector

Issue 11

AprilJune 2012

Consumer ProductsDeals Quarterly


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WelcomeWelcome to Consumer Products Deals Quarterly a report from Ernst & Young that

analyzes acquisitions and disposals in the global consumer products sector.

In our last issue, we asked: is deal activity bottoming out? After three consecutive

quarterly declines, second-quarter deal volume was only fractionally lower than inthe opening three months of the year. More signicantly, the second quarter was

book-ended by large deal announcements in April and late June, which helped push

total deal value to the highest level recorded in any quarter in our review period.

While the timing of deals cannot be accurately predicted, given the extent of ongoing

economic uncertainty and market volatility, it is impressive that consumer products

companies have the appetite to deploy this amount of capital in such a tough

environment.

Our analysis is based on data collected by Thomson Reuters. As usual we have drawn

on the insights of our global professionals to analyze the key investment trends

underlying deal activity.

We hope that this data and the perspectives we offer will be of use to the leaders of

consumer products companies and to the nancial investors who continue to focus on

this sector. We are happy to provide further insight on request.

Contents

Overview 1

Megadeals returning

Volume and value 6

Jump in values underpinned

by megadeals

Top 10 deals 7

Focus on rapid-growth markets drives

resurgence in big-ticket deals

Sector focus 12

Tobacco groups diversifying away

from traditional cigarettes

Geographic focus 14

US leading the M&A country rankings

Methodology 15

Contacts 16

David Murray

Global Consumer Products Transactions Leader

[email protected]

Consumer Products Deals Quarterly Issue 11


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Consumer Products Deals Quarterly Issue 11 1

Following three consecutive quarterly declines, deal activity stabilized in Q2 12.

Two megadeals (with a value in excess of US$5b) were announced in the quarter,illustrating that despite continuing economic uncertainty, appetite remains amongconsumer products groups to deploy signicant sums of capital, particularly inpursuit of opportunities in rapid-growth markets.

Megadeals returning

Overview

Deal activity bottoming out

Overall deal activity in the second quarter was virtually

unchanged from Q1 12. Total deal volumes declined by just

2 deals (1%) to 303 transactions from 305. Accompanying this

stabilization in deal ow was a dramatic rise in value. Total valuein Q2 12 reached US$51.2b, exceeding the previous high point

in our review period (US$38.7b recorded in Q1 10) by a third.

Average deal value also rose sharply from the rst-quarter low

point, increasing to US$466m from US$96m.

The second quarter also witnessed the return of the megadeal

(value of more than US$5b), with two transactions falling into

this category: AB InBevs US$20.1b purchase of the remaining

half of Modelo that it did not already own, and Nestls

acquisition of Pzers infant nutrition division for US$11.9b. The

precise timing of any transaction is difcult to predict, and too

much signicance should not be attached to a deals eventual

announcement date, but the increase in large deals is consistent

with the amount of due diligence work that we see our clients

conducting.

The appetite for megadeals is still there.

Consumer products companies are acquiring

businesses for cash, increasing their exposure

to rapid-growth markets where possible and

also playing to their strengths in existing

categories within their heartlands.

Andrew Cosgrove

Global Consumer Products, Lead Analyst

Data highlights Q2 2012

Deal volumes stabilize after three consecutive

quarterly declines

Second-quarter deal volumes were broadly at, decliningvery slightly to 303 deals from 305 in Q1 12. The

four-period long-term moving average of total deal volume

continued to decline, from 391 deals to 351.

Total value rises sharply

Disclosed deal value increased almost sevenfold from

US$7.5b in Q1 12 to US$51.2b in Q2 12. There were two

megadeals, with a value greater than US$5b in the quarter,

and six deals had a value of more than US$1b.

Private equity activity increases while corporate

activity slips

Corporate deals (representing 83% of total deals in Q2 12)

fell to 252 from 262 in Q1 12, but private equity deals

increased to 51 from 43 in Q1 12 (19% increase).

Cross-border activity increases

In comparison with the slight overall decline in total deal

volume, cross-border activity increased by 12% from

98 deals in Q1 12 to 110 deals in Q2 12. The US was the

most active deal-making country in the second quarter.


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2 Consumer Products Deals Quarterly Issue 11

What is also striking is that boards are making decisions on

signicant investments despite the ongoing uncertainty

surrounding the global economic outlook. Large consumer

products companies have cash on their balance sheets as

well as the ability to borrow, as shown by AB InBev raising

US$14b in loans to part nance the Modelo acquisition and

are prepared to look through near-term volatility and makestrategic decisions.1

The nature of those decisions reects a number of ongoing

investment themes, which we have previously identied and

which the second quarter further illustrated.

Expansion into rapid-growth marketsdriving deal activity

The dominant theme in Q2 12 was the pursuit of growth

opportunities in rapid-growth markets. This theme has

both cyclical and structural elements. The economies of the

developed world continue to struggle in the aftermath of the

global nancial crisis and with the ongoing uncertainty createdby the Eurozone debt crisis. Prior to the announcement of its

acquisition in Morocco this quarter, for example, Groupe Danone

warned that shrinking demand in Spain and other areas of the

southern Eurozone may affect its prots.

Consumer products companies can no longer rely on historical

growth rates in mature markets, but they cannot ignore them.

At the same time as they look to expand into rapid-growth

markets, they must seek to maintain and grow their business in

mature markets through brand extensions, new formulations and

product innovations.

Underlying this cyclical component is the long-term shift ineconomic power toward the rapid-growth markets and the

accompanying creation of a new middle class of consumers.

Of the quarters top 10 deals, ve have a rapid-growth market

rationale, including both of the megadeals:

AB InBevs purchase of Modelo increasingly exposes the

worlds largest brewer to the fast-growing Mexican market.

The competition for Pzers baby-food business between

Nestl and Groupe Danone reects the opportunity on offer,

with the bulk of future growth in the category expected to

come from rapid-growth markets, particularly China, which

already accounts for a signicant proportion of Pzers sales.

1 AB InBev to pay US$20b for Grupo Modelo, The Financial Times,

www.ft.com, 29 June 2012.

Molson Coors purchase of StarBev and General Mills

acquisition of Brazils Yoki Alimentos are two examples of

companies executing their strategy to expand in rapid-growth

markets.

Groupe Danone has been pursuing opportunities in rapid-

growth markets, with transactions in the CIS and India in 2010

and 2011, respectively. This quarters deal for Moroccos

Centrale Laitiere is the latest example.

Better the devil you know

Groupe Danones deal to increase its holding in Centrale Laitiere

from 29% to 67% also illustrates another investment theme being

pursued by consumer products groups, which is to increase

the size of their stakes or buy out the minorities in businesses

in which they already have an ownership interest. Increasing

control over a business that the acquirer already knows well is a

strategy that makes sense in an uncertain economy because it

helps limit the risk in the acquisition process.

The AB InBev/Modelo megadeal is the most signicant example

of this trend among the quarters deals, with AB InBev buying

the remaining 50% of Modelo that it didnt already own. On the

back of the deal, Constellation Brands acquired the other half of

its Crown Imports US joint venture with Modelo from AB InBev.

Evidence of this strategy can be found all the way down from the

megadeal to small bolt-on deals. For example, in June, Diageo

paid US$21.8m through a public offering to raise its stake in

Vietnams biggest spirits company, Halico, by 10.6% to 45.5%.2

2 Diageo tops up stake in Vietnams Halico, Reuters, www.reuters.com, 15 June 2012.


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Consolidating in developed markets

The second quarter also provided examples of another

signicant investment theme: consolidation within developed

markets to strengthen brand portfolios and increase scale.

Asahi Groups acquisition of Calpis, for example, marks a further

diversication by the beer maker into soft drinks through thepurchase of a leading brand in the Japanese market.

Japanese consumer products groups also continue to be active

in overseas acquisitions in developed markets, leveraging the

strength of the yen and taking advantage of Europes status

as a relatively higher-growth region. In Q2 12, UCC Holdings

announced that it had agreed to buy Switzerlands United Coffee

from private equity rm CapVest Equity Partners, Japan Tobacco

purchased family-owned Belgian rolling tobacco company

Gryson, and vinegar-maker Mizkan bought the Sarsons,

Haywards pickled onion and Dufrais vinegar brands from the

UKs Premier Foods.

In the top 10 deals this quarter, Beams acquisition of the

Pinnacle vodka and Calico Jack rum brands from White Rock

Distilleries represents a shift by Beam into the fast-growing

avored-vodka market in the US. Constellation Brands buyout of

its JV partner Modelo, however, is a more defensively motivated

transaction, aimed at securing its route to market well before the

joint venture agreement expires in 2017.

Outside the top 10, French cosmetics maker LOreal paid

US$264m for baby products company Cadum from Anglo-French

buyout group Milestone Capital to reach more customers in its

domestic market. Cadum is an important acquisition for LOreal

in France, said the companys consumer products head Herve

Navellou. It blends seamlessly into our strategy to conquer new

consumers in France.3

3 LOreal buys Cadum to extend domestic reach, Reuters, www.reuters.com, 26 April 2012.

Global consumer products corporate and PE transactions scorecard by subsectorDeals announced 2Q 2012 1Q 2012 Seq % change 2Q 2012 2Q 2011 YoY % change

Corporate deals by subsector

Beverages 50 55 -9% 50 54 -7%

Food 173 175 -1% 173 243 -29%

HPC 27 31 -13% 27 42 -36%

Tobacco 2 1 100% 2 5 -60%

Total 252 262 -4% 252 344 -27%

PE deals by subsector (based on seller sector)

Beverages 7 9 -22% 7 15 -53%Food 39 31 26% 39 90 -57%

HPC 5 2 150% 5 11 -55%

Tobacco 0 1 -100% 0 2 -100%

Total 51 43 19% 51 118 -57%

Total consumer products (CP) deals by sector, corporate and PE

Beverages 57 64 -11% 57 69 -17%

Food 212 206 3% 212 333 -36%

HPC 32 33 -3% 32 53 -40%

Tobacco 2 2 0% 2 7 -71%

Total 303 305 -1% 303 462 -34%

Source: Ernst & Youngs analysis of Thomson Reuters data.


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Internationalization of brands goes botheast and west

Taking brands global is a well-established theme, which is gaining

an additional rapid-growth markets dimension in the beverage

sector. Beverage groups are looking for the next tier of local

drinks that can provide exposure to rapid-growth markets,access to distribution capabilities and future potential for brand

internationalization.

In 2011, Diageo bought Turkish Raki maker Mey Icki and took

a stake in Chinese baijiu producer Shui Jing Fang. The drinks

groups acquisition activity in Q2 12 shows further evidence of

this trend. In May, Diageo paid US$453.9m to acquire the Ypica

brand from Ypica Agroindustrial. Ypica is the market leader

in Brazils premium market for cachaa, Brazils best-selling

spirit. Diageo will gain access to a strong distribution platform in

Brazils northeast region, complementing the companys existing

strength in the southeast. Diageos CEO Paul Walsh said the deal

will also provide Diageo with an enhanced platform from which

to accelerate the long-term growth of our premium international

spirits brands in Brazil.4

The acquisition of 60% of Weetabix by Chinas Bright Food

represents a similar trend of widening the reach of a brand, but

with the direction of travel running from global markets into

the Chinese market. Bright Food plans to sell Weetabix in China

through its large distribution network, hoping to cash in on the

trend toward more consumption of western foods.

In a similar vein, in April, Indian leisure company India Hospitality

bought UK convenience food producer Adelie Food Holdings for

US$350m from private equity rm Duke Street Capital. Adelie

supplies products including salads, quiches and sandwiches to

UK supermarkets. Ravi Deol, the entrepreneur who controls the

Indian food group, said the rising demand for quality fast-foodproducts among Indias growing middle class is one of the main

reasons India Hospitality acquired Adelie.5

4 Diageo snaps up Ypioca, as domestic spirits gain further appeal,Just Drinks,

www.just-drinks com, 30 May 2012.

5 Indias IHC buys food producer Adelie, The Financial Times, www.ft.com, 12 April 2012.

Companies are looking for brands

they can internationalize.

Jeremy Barnes

Transactions Advisory Services, Latin America


7/20


Cautious optimism

From the deals announced this quarter and from our knowledge

of ongoing due diligence work by our corporate clients, we are

cautiously optimistic that deal activity will continue to bottom

out into the latter half of the year.

Further announcements of signicantly sized deals immediatelyafter the end of the quarter add to our optimism. In the

US, Campbell Soup announced the acquisition of Bolthouse

Farms, a producer of juices, salad dressings and baby carrots

for US$1.6b. In Asia, ThaiBev agreed to buy a 22% stake in

Singapore conglomerate Fraser & Neave (F&N) for US$2.2b,

and at the same time, Kindest Place Groups, which is run by

ThaiBevs owners son-in-law, bought an 8.4% stake in Asia

Pacic Breweries (APB).

Heineken and F&N have a joint venture, which owns a majority

stake in APB. The day after ThaiBevs announcement, Heineken

responded by offering to buy F&Ns stake for US$4.1b, setting up

a potential takeover battle for APB.6

Of course, the wider economic backdrop remains very uncertain,

and there is potential for event risk, such as a Greek exit from

the Eurozone, to delay corporate decision making on strategicinvestments. However, this quarter provides ample evidence of

the willingness of global consumer products groups, who are

becoming accustomed to living in a new normal of increased

volatility, to look beyond the short-term uncertainty. The market

environment they face is one of continuous, accelerating change

and spiraling complexity that we call the brand new order

(www.ey.com/brandneworder), but they have the appetite to

make the strategic decisions to access growth opportunities.

6 Heineken bids US$4.07b to take full control of Asia Pacic Breweries,Just Drinks,

www.just-drinks.com, 20 July 2012.


8/20


Deal volumes were at in the second quarter, but total deal values jumped sharply.

Q1 12 marked the low point in deal values since Q2 09, and in stark contrastQ2 12 marked the high point by some considerable margin. Six of the top 10 dealshad values in excess of US$1b, and two megadeals were announced in the quarter.

Jump in values underpinned by megadeals

Volume and value

Deal volumes declined just 1% in Q2 12 to 303 deals from 305

in Q1 12. Given the three preceding consecutive quarters of

declining volumes, the four-period long-term moving average

of deal volume continued to move lower in the second quarter,

dropping to 351 deals from 391 in Q1 12. After dropping by

almost two-thirds in three quarters, private equity activity partlyrecovered in Q2 12, rising from 43 deals to 51 deals.

Total disclosed deal value increased sharply in the second

quarter, rising almost sevenfold from US$7.5b in Q1 12 to

US$51.2b in Q2 12, driven by the announcement of two

megadeals and a number of other large-ticket transactions.

Average deal value also increased markedly from US$96m

in Q1 12 to US$466m in Q2 12, reversing six quarters ofconsecutive decline. The proportion of deals with disclosed

values increased to 36% in Q2 12 from 26% in Q1 12.

Deal values Q3 09 to Q2 12Deal volumes Q3 09 to Q2 12



0

50

100

150

200

250

300

350

400

450

500

226

229

238

223 2

68

279 3

34

333

283

247

206

212

69 7

9 73

62

73 7

5

89

69

78

69

64

57

26 4

3 51

36

38 5

3

32

53

55

52

33

32

2

3 3

3

1

3

2 7

6

5

2 2

Q32009

Q42009

Q12010

Q22010

Q32010

Q42010

Q12011

Q22011

Q32011

Q42011

Q12012

Q22012

Number

Food Average LTM number of dealsBeveragesHPCTobacco Q3

2009

Q4

2009

Q1

2010

Q2

2010

Q3

2010

Q4

2010

Q1

2011

Q2

2011

Q3

2011

Q4

2011

Q1

2012

Q2

2012

Food Beverages HPC

Tobacco Average LTM value Average deal size

Average

dealvalue

(US$

b)Totaldealvalue

(US$b)

0.0

0.2

0.4

0.6

0

20

40

60


9/20


The top 10 deals in Q2 12 had a combined value of US$43.6b, 85% of total deal

value. There were two megadeals, with values of more than US$5b in the quarter. Ofthe top 10 deals, ve were in the beverage sector and ve were in the food sector. Allthe buyers were corporates, and private equity was the seller in three deals.

Focus on rapid-growth markets drivesresurgence in big-ticket deals

Top 10 deals

The biggest gets even bigger ...

At the end of June, AB InBev announced the US$20.1b

all-cash purchase of the remaining 49.7% it did not already

own in Mexican beer giant Modelo. AB InBev, already the worlds

largest brewer, will gain increased exposure to the Mexican

market, which is growing at 3% per year and where Modelo

is the biggest brewer.7

AB InBev also gains access to the growth potential offered by

Modelos brands, particularly Corona, which is the top imported

beer in 38 countries. We have a big opportunity to expand

Corona on a global basis as we have with global Budweiser these

last three years, said Carlos Brito, AB InBevs chief executive.

However, because of its already large US market share, AB InBev

will have to give up the import rights to Modelos brands in the

US (see Constellation brands deal at below right).8

7 Mexican wave for brewing giant as it snaps up Corona, The Scotsman, 30 June 2012.

8 Modelo deal a win-win: AB InBev would sacrice US import rights for a shot at bigger prots

overseas, St. Louis Post Dispatch, 8 July 2012.

The deal was struck at a high price a 30% premium to Modelos

closing price on June 22, which is 13 times 2012 consensus

EBITDA, according to Bernstein Research. AB InBev took on

US$14b in additional bank borrowing to nance the cash

purchase.9

Analysts, however, received the deal favorably. It wasalways going to be high, given that Modelo shareholders are

under no compulsion to sell, said Socit Gnrale analyst

Andrew Holland. But InBev has a strong track record in

integration and cost savings. AB InBev stated that it expects

to generate at least US$600m a year in cost savings.10

Speculation has already begun over what AB InBevs next deal

will be once it has digested Modelo. Many analysts believe the

next major acquisition could be SABMiller or PepsiCo.11

... but needs to divest to satisfycompetition concerns

In a related transaction to AB InBevs purchase of Modelo,

Constellation Brands bought Modelos 50% stake in Crown

Imports, the US distribution joint venture between Constellation

and Modelo, for US$1.9b. Constellation and Crown will have

complete, independent control of distribution, marketing and

pricing for all Modelo brands in the US, while AB InBev will

ensure continuity of supply, quality of products and the ability to

introduce innovations.

However, from AB InBevs perspective, uncertainty remains over

whether the divestiture will be enough to satisfy US competition

authorities, because the companys share of total beer

9 AB InBev to pay US$20b for Grupo Modelo, The Financial Times,

www.ft.com, 29 June 2012.

10 AB InBev to buy Corona brewer for US$20.1b, Financial Post, 30 June 2012.

11 The largest brewery gets bigger, Beer Universe www.beer-universe.com, 29 June 2012.

The deal is a logical continuation of ABInBevs strategy. AB InBev gains greater

exposure in rapid-growth markets while

at the same time, by buying out the other

stakeholders in a business it already knows,

the deal is a better utilization of capital

because its less risky than a completely new

acquisition.

David Murray

Global Consumer Products Transactions Leader


10/20


Top 10 deals in Q2 2012

distribution in the country would be more than 50%. Analysts

at Bernstein Research said, When InBev bought Anheuser-

Busch, the Department of Justice (DoJ) required the disposal of

the Labatt brand in the USA and the associated manufacturing

contract, which resulted in Molson Coors brewing Labatt on

behalf of the new brand owners.12

The purchase price values Crown at about 8.5 times EBIT.13The agreement is a perpetual one, although AB InBev has

12 Grupo Modelos Crown Imports sell-off may not satisfy regulators,Just Drinks,

www.just-drinks.com, 29 June 2012.

13 Constellation Brands Inc. to Acquire Remaining 50 Percent Interest in Crown Imports JointVenture, Yahoo! Finance, www.nance.yahoo.com, 29 June 2012.

an option every 10 years to buy out Constellation at a pricey

13 times EBIT. The deal was seen as solving a problem for

Constellation as some had worried Constellation might actually

lose its rights to distribute Modelo brands when its previous

contract expired in 2017.14

14 Constellation Stars Amid AB InBev-Modelo Deal, The Wall Street Journal,www.blogs.wsj.com, 29 June 2012.

Buyer Name Buyer Country Seller Name Seller Country

Disclosed Value

(US$m) Announced Deal Type Sector

Cross-border or

in-border

Anheuser-

Busch InBev

Belgium Grupo Modelo

SAB de CV

Mexico $20,093 6/29/2012 Corporate Beverages Cross-border

Nestl SA Switzerland Pzer Inc.

Nutrition

business

United States $11,850 4/23/2012 Corporate Food Cross-border

Molson Coors

Brewing Co.

United States Starbev

managementServices sro

United Kingdom $3,531 4/3/2012 Corporate Beverages Cross-border

Bright Food

(Group) Co. Ltd.

China Weetabix Ltd. United Kingdom $1,938 5/3/2012 Corporate Food Cross-border

Constellation

Brands Inc.

United States Crown Imports

LLC

United States $1,850 6/29/2012 Corporate Beverages In-border

Asahi Group

Holdings Ltd.

Japan Ajinomoto Co.

Inc. Calpis

Japan $1,502 5/8/2012 Corporate Beverages In-border

General Mills

Inc.

United States Yoki Alimentos

SA

Brazil $962 5/24/2012 Corporate Food Cross-border

Danone SA France Centrale

Laitiere SA

Morocco $686 6/27/2012 Corporate Food Cross-border

UCC Holdings

Co Ltd.*

Japan United Coffee United Kingdom $616 4/23/2012 Corporate Food Cross-border

Beam Inc. United States White Rock

Distilleries

Pinnacle Vodka

and Calico Jack

rum brands

United States $605 4/23/2012 Corporate Beverages In-border

*UCC Holdings transaction is recorded as a food deal as per Ernst & Young sector classication



11/20


Nestl wins the battle for Pzer infant

nutrition

The second quarters other megadeal, announced in April,

was Nestls acquisition of Pzers infant-nutrition business for

US$11.9b in cash. Nestl outbid Groupe Danone to secure the

deal, which is the largest in the companys history.

The transaction was perceived as a good strategic move for

Nestl, while Pzer is disposing of a non-core asset acquired

when it merged with Wyeth in 2009. According to Santander

analyst Pedro Gil, This transaction takes Nestls leading

global market share in the fast-growing US$30b infant formula

category to an estimated 23% from 17%, signicantly expanding

its presence in key emerging markets, and conrms our view

that Nestl was the natural buyer for the asset in a competitive

auction process.15

Pzers baby food division derives 85% of its US$2.1b revenues

from rapid-growth markets, with particularly strong positions in

Asia and the Middle East. China accounts for about one-third ofthe Pzer units sales, and 45% of the growth in the market for

infant-nutrition products will come from China in the next ve

years, according to Euromonitor gures.16

Given the competition for the asset, the price Nestl paid was

high, reecting a transaction multiple of 19.8 times 2012

estimated EBITDA, according to analysts at Jefferies. This

compares with the estimated 15.7 times Gerbers pre-tax prot

Nestl paid when it acquired the baby food brand for US$5.5b

in 2007.17

15 Nestl Buys Pzer Infant Nutrition, Santander equity research report, 23 April 2012.

16 Nestles acquisition to alter baby-food market, China Daily Information

Company, 25 April 2012.

17 Pzer Nutrition Eps Accretive,Jefferies equity research report, 24 April 2012.

Molson Coors looks east

At the start of April, US-Canadian brewer Molson Coors

announced it had agreed to buy StarBev, the Eastern European

brewer of Staropramen, from private equity group CVC for

US$3.5b in cash, debt and convertible bonds.

The focus of Molson Coors business has been largely focusedon the developed markets of the US, Canada and the UK. The

acquisition of StarBev ts squarely into Molson Coors strategy to

increase our portfolio of premium brands and deepen our reach

into growth markets around the world, said Peter Swinburn,

President and Chief Executive Ofcer of Molson Coors.18

According to Morgan Stanley, the purchase price of 11 times

2011 EBITDA (9.5 times including synergies) is in line with

brewer deal multiples over the past decade. While Morgan

Stanleys analysts agree that the deal ts Molson Coors

ambition to expand its rapid-growth markets footprint, they

also note that these CEE markets are already well-developed

in terms of per capita consumption, limiting growth potentialversus other emerging markets.19J.P. Morgan also noted

that CEE (Central and Eastern European) markets are highly

competitive: JP Morgan analysts noted StarBev has a solid

position in most of the countries it operates in, but competes

with Heineken, Carlsberg and SABMiller.20

18 Molson Coors to Acquire Central and Eastern European Brewer StarBev, Investment WeeklyNews, 21 April 2012.

19 StarBev Deal Will Expand Emerging Markets Footprint, Morgan Stanley equity research

report, 4 April 2012.

20 Big Deal For Molson Coors In Eastern Europe,J.P. Morgan equity research note,

3 April 2012.

Consumer products companies are willing

to pay high multiples for assets that

complement their portfolios and that have

good growth prospects.

Gregory J. Stemler

Consumer Products Transactions Leader, Americas


12/20


Bright Food opts for an Englishbreakfast

In May, Bright Food, one of Chinas largest food groups, agreed

to buy a 60% stake in British breakfast cereal maker Weetabix

from private equity group Lion Capital for US$1.9b. Bright Food

and Lion Capital said the acquisition signals that the Chinesefood company will enter both the British and global food markets

through the iconic Weetabix brand.21

In addition to gaining access to international markets Weetabix

is sold in 80 countries Bright Foods acquisition will also provide

the opportunity to sell Weetabix in China, through its network of

more than 3,000 stores.

Weetabix offers the Chinese company established retail-

distribution channels in major Western markets such as the U.S.,

Canada, Italy and Israel and will provide bargaining power to

Bright Food as it seeks retail shelf space in the West, said Marcia

Mogelonsky, an analyst for London-based market-research

rm Mintel.22

Asahi strengthens its domestic portfolio

Japans Asahi Group agreed to acquire Japanese beverage

maker Calpis for US$1.5b (Yen 120b) in cash from food

and seasoning maker Ajinomoto. Asahi has diverse food

and beverage businesses, including Japans top-selling beer,

Asahi Super Dry.

Calpis is well known in Japan for its fermented milk drink, which

is branded under the same name. The deal will push Asahi into

third place in the Japanese soft drinks market with share of 12%.

The market, however, is dominated by Coca-Cola and Suntory

Beverage & Food, which have a combined market share of 48%.

According to analysts at Deutsche Bank, the deal reects a

valuation of 9.1 times EV/EBITDA based on the year to March

2012, and Asahis aim is to strengthen its product portfolio as

well as to create synergies in distribution and procurement.23

From Ajinomotos perspective, it is selling the protable Calpis

to pursue its aim of becoming the worlds top producer of

seasonings.24

21 Chinese company to buy 60% stake in British food maker Weetabix,

Xinhua Business Weekly, 7 May 2012.22 Chinese food company eats English breakfast, The Wall Street Journal,

www.wsj.com, 3 May 2012.

23 Company alert: Asahi Group, Deutsche Bank equity research note, 8 May 2012.

24 Ajinomoto Sells Calpis To Focus Global Ops On Amino Acids , Nihon Keizai

Shimbun, 9 May 2012.

General Mills expands in Brazil

During the quarter General Mills signed a denitive agreement to

acquire Yoki Alimentos, a privately held food company based in

Brazil for an estimated US$962m. The deal will provide General

Mills with a strong portfolio of local snack and convenience

meal brands.

Yoki, which is a family-owned Brazilian company established

in 1960, has a strong share of Brazils snack market and also

makes soup, seasonings and other packaged foods under its Yoki

and Kitano brands.

General Mills, whose brands include Cheerios, Betty Crocker and

Green Giant, expects the Yoki buyout to more than double its

annual sales in Latin America to almost US$1b.25

25 General Mills buying Brazils Yoki Alimentos, Yahoo! News, 24 May 2012.

Lions sale of 60% of its stake secures a

partial exit but also offers the private equity

group the opportunity to share in any futureupside from Bright Foods introduction of

Weetabix into China.

Mike Sills

Global Food Co-Leader


13/20


Danone tightens its grip on Moroccandairy leader

At the end of the quarter, French food group Danone announced

it had taken a majority stake in Moroccan dairy rm Centrale

Laitire, which is the countrys leading dairy product company

with nearly 60% of the market.26Danone increased its stake,which it has held since 2001, from 29% to 67% by buying part of

the stake owned by Societe Nationale dInvestissement, a local

holding company, for US$686m.

UCC leverages the yens strength

In April, Japans biggest coffee maker, UCC Holdings, announced

it had agreed to buy Switzerlands United Coffee from private

equity rm CapVest Equity Partners for an undisclosed sum.

Estimates placed the deals value at US$616m.27

The deal will increase UCCs overseas sales to 20% from 3%.28

Geneva-based United Coffee supplies retail customers in Spain,

the Netherlands, Switzerland, Scandinavia, France, Germany, the

UK and in several export markets. United Coffee owns about 20

brands, including Giger in Switzerland and Smit & Dorlas in the

Netherlands.

26 Danone takes majority stake in Centrale Laitire,Just Food,

www.just-food.com, 30 June 2102.

27 Japans UCC Holdings buys United Coffee, The Financial Times, www.ft.com, 23 April 2012.

28 Japans UCC to buy Switzerlands United Coffee, Marketwatch,

www.marketwatch.com, 23 April 2012.

Beam whips up a storm

Rounding out the top 10 deals, Beam, which makes Jim Beam

bourbon, purchased the Pinnacle Vodka and Calico Jack

rum brands from privately owned White Rock Distilleries for

US$605m. Pinnacle pioneered the dessert-avored vodka

category with Pinnacle Whipped Vodka in 2010, which has since

grown into the most popular avored-vodka brand in the U.S.

Analysts at SunTrust Robinson Humphrey said the deal

strengthens Beams portfolio and noted that the vodka

opportunity is 25% of the U.S. spirits market but was less than

10% of Beams sales prior to this deal.

Beam indicated that it can achieve cost synergies equating to

20% of sales, which implies it should be able to double Pinnacles

EBITDA over the next few years. SunTrust said that Beams cost

synergy estimate also gave greater comfort with the purchase

price of 20 times EBITDA excluding tax benets, which post-

synergies would drop down to 10 to 12 times EBITDA.29

29 Beam Inc. whips up a sweet deal, SunTrust Robinson Humphrey equity

research note, 23 April 2012.

Japanese companies continue to take

advantage of the strong yen to pursue

acquisitions providing faster growth

opportunities than the domestic Japanese

market can offer.

John Hope

Transaction Advisory Services Leader, Asia-Pacic

Danones continuing push into rapid-growth

markets, which already account for more

than 50% of sales, helps offset faltering

growth in the mature markets in which it

operates.

Emmanuelle Roman

Global Consumer Products Markets Leader


14/20


Total deal value in food and beverage was underpinned by the announcementof one megadeal and four other top 10 deals in both sectors. Japan Tobaccospurchase of Gryson fell just outside the top 10 deals, while activity in thehousehold and personal care sector was subdued in both volume and value terms.

Tobacco groups diversifying away fromtraditional cigarettes

Sector focus

Tobacco

There were just two tobacco deals in the second quarter, a

similar number to the rst quarter, but both illustrate the efforts

tobacco companies are making to diversify away from traditional

cigarettes.

Japan Tobacco agreed to pay US$596m for Belgian roll-your-

own and make-your-own tobacco group Gryson. According to

analysts at J.P. Morgan, the RYO/MYO cigarette market offers

attractive growth prospects its Compound Annual Growth

Rate (CAGR) for the 10 years up to 2010 was 3.9%. The analysts

wrote in a report, we think well of this unexpected addition to

JTs portfolio within a growth eld.30

Taking a different approach to diversication, Lorillard, the

third-largest US tobacco company, purchased Blu Ecigs, a maker

of battery-powered electronic cigarettes, which turn heated

nicotine-laced liquid into a vapor mist, for US$135m. The

strategic shift comes as the US Food and Drug Administration is

considering a possible crackdown on menthol-avored cigarettes,

which account for about 90% of Lorillards revenues.31

30 Acquisition of Gryson Comes as a Positive Surprise; Overseas Growth Set to Accelerate,

J.P. Morgan equity research note, 24 May 2012.

31 Got a Lighter Charger? Big Tobaccos Latest Buzz, the Wall Street Journal,

www.wsj.com, 25 April 2012.

Food

There were 212 food subsector deals in the second quarter, an

increase of six deals from Q1 12. Total disclosed value in the

food sector, however, increased sharply from US$4.5b in

Q1 2012 to US$20.8b in Q2 12, driven largely by the ve food

deals in the top 10 deals, including Nestls megadeal purchase

of Pzers infant-nutrition business.

Number and value of tobacco deals Q3 09 to Q2 12


Number and value of food deals Q3 09 to Q2 12


5.0

10.0

0

5

10

Q32009

Q42009

Q12010

Q12011

Q22010

Q32010

Q42010

Q22011

Q12012

Q22012

Q32011

Q42011

Disclosed

value

(US$b)N

umberofdeals

0.0

Volume Value (US$b)

10.0

20.0

30.0

40.0

0 0.0

100

200

300

400

Q32009

Q42009

Q12010

Q22010

Q32010

Q42010

Q12011

Q22011

Q32011

Q42011

Q12012

Q22012

Disclosed

value

(US$b)

Numberofdeals

Volume Value (US$b)


15/20


Household and personal care

Deal volume in the household and personal care sector was

broadly stable with 32 deals in Q2 12 compared with 33 deals

in Q1 12, although total disclosed deal value increased from

US$490m to US$670m. There were no HPC transactions in the

top 10 deals.

Beverage

The beverage sector showed a similar pattern of a modest

decline in volume accompanied by a surge in total disclosed

value. Deal volume in the subsector slipped from 64 deals

in the rst quarter to 57 in the second, but total deal value

increased from US$2.5b to US$29.1b. Once again it was the

announcement of one megadeal (AB InBevs purchase of Modelo)

and four other top 10 deals that drove the increase in value.


Number and value of household and personal caredeals Q3 09 to Q2 12

0.0

2.0

4.0

6.0

8.0

10.0

0

10

20

30

40

50

60

Q32009

Q42009

Q22010

Q32010

Q42010

Q12010

Q22011

Q32011

Q42011

Q12011

Q22012

Q12012

Disclosed

value

(US$b)

Volume Value (US$b)


0.0

10.0

20.0

30.0

40.0

0

20

40

60

80

100

Q32009

Q42009

Q12010

Q22010

Q32010

Q42010

Q12011

Q22011

Q12012

Q22012

Q32011

Q42011

Disclosed

value(US$b)

Numberofdeals

Volume Value (US$b)

Number and value of beverage deals Q3 09to Q2 12


16/20


The US was the most prolic deal-making nation in the second quarter, recording

twice the number of transactions as the second-most-active nation, Japan. USrms are active in both in-border and cross-border acquisitions and are bothacquiring and disposing of assets.

US leading the M&A country rankings

Geographic focus

The US was the most active individual country for M&A activity

in Q2 12, recording 55 deals, which is equivalent to 18.2% of

total deal volume (cross-border and in-border combined). Japan,

which has also been active, based partly on the strength of

the yen, was a distant second with 27 deals (8.9% of total deal

volume). The US was also active at the top end of the deal size

spectrum, appearing as the buyer country in four of the top 10

deals and as a seller in three.

Regional volume comparisons (buy/sell combined),Q3 09 to Q2 12

When aggregated into regions, Europe once again dominated

cross-border activity, accounting for 45% of seller region volume

and 46% of buyer region volume. North America accounted for

25% buyer and 23% of seller region cross-border activity.

We continue to believe that US companies have both the

repower and the appetite for deals, and the degree of due

diligence work we observe suggests this will translate intoincreased transaction activity as the year progresses.

Regional value comparisons (buy/sell combined)Q3 09 to Q2 12



31

22

17

15

21

22

27

34

32 3

5

23

26

34

48

60

59

48 7

187

72

72 5

357

53

16

24

20

29

54 3

637

37

39

29 1

6

28

0%

20%

40%

60%

80%

100%

Q32

009

Q42

009

Q12

010

Q22

010

Q32

010

Q42

010

Q12

011

Q22

011

Q32

011

Q42

011

Q12

012

Q22

012

North America Europe Asia-Pacific

20.2

3.5

1.2 1

.6

3.4

7.6

9.4

2.0 3

.8

2.1

0.1

5.1

2.8

3

.7

13.8 4

.4

6.0

3.3

9.8

16.0

3.6

6.0

2.7 3

4.9

0.4

1.7

2.4

1.0

6.1

1.4

1.5

0.4

6.6

0.8

0.5

3.8

0%

20%

40%

60%

80%

100%

North America Europe Asia-Pacific

Q3

2009

Q4

2009

Q1

2010

Q2

2010

Q3

2010

Q4

2010

Q1

2011

Q2

2011

Q3

2011

Q4

2011

Q1

2012

Q2

2012


17/20


Methodology

Deals include transactions between companies in the four

consumer products subsectors, consumer products companiesacquiring businesses in other subsectors and non-consumer

products companies acquiring consumer products companies.

PE deal activity includes both full- and partial-stake

transactions and was analyzed based on acquisitions by rms

classied as PE, alternative investment management groups,

certain commercial banks, investment banks, venture capital

and other similar entities.

For non-consumer products acquirers, deals were classied

based on the consumer products sector of the seller.

Equity investments were included (corporate and PE).

Joint ventures were not included.

The value and status of all deals highlighted in this report are

as of 31 June 2012.

All dollar amounts are in US dollars unless otherwise indicated.

There is no minimum US dollar 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 underdiscussion.

The disclosed value as stated in the top 10 deals table is the

total value of consideration paid by the acquiror, 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 only included if

it is being acquired as part of a 100% acquisition. If a portion

of the consideration paid by the acquiror is common stock, the

stock is valued using the closing price on the last full tradingday before the stock swap terms were announced. If the

exchange ratio of shares offered changes, the stock is valued

based on its closing price on the last full trading date prior to

the date of the exchange ratio change. For public target 100%

acquisitions, the number of shares at date of announcement

is used.

Consumer Products Deals Quarterly is based on Ernst & Youngs

analysis of Thomson Reuters data from Q3 09 to Q2 12. Data

was pulled from the Thomson Reuters database using standardindustrial classication codes together with Ernst & Youngs

identied deals. Please note that we have changed data sets last

quarter from FactSet Mergerstat to Thomson Reuters. All data

in the charts for previous quarters has been revised using the

Thomson Reuters data so that it is consistent.

For the purposes of this publication, our denition of consumer

products is only those companies in the food, beverages, tobacco

and HPC subsectors.Deal activity and valuations may uctuate slightly based on the

date that the Thomson Reuters database is accessed.

In January 2011, we reorganized the data set so that it can be

segmented globally into three regions (Europe, Asia-Pacic and

North America). All data in the charts from previous quarters

reects this reclassication.

Data source and industry scope

Qualifying deals


18/20


Contacts

Region Contact Email/telephone

Global/EMEIA David Murray

Global Consumer Products Transactions

Leader

[email protected]

+44 158 264 3248

Asia-Pacic John Hope

Transaction Advisory Services Leader

[email protected]

+852 2846 9997

Americas Gregory J. Stemler

Consumer Products Transactions Leader

[email protected]

+1 312 879 3351

Latin America Jeremy Barnes

Transaction Advisory Services

[email protected]

+55 11 3055 0115

Country Contact Email/telephone

Brazil Alfredo Della Savia

Consumer Products Leader

[email protected]

+55 11 2573 3788

Russia Dmitry Khalilov

Retail and Consumer Products Leader

[email protected]

+7 495 755 9757

India Ajay AroraTransaction Advisory Services [email protected]+91 124 464 4000

China Robert Partridge

Transaction Advisory Services Leader

[email protected]

+852 2846 9973

Sector Contact Email/telephone

Global Howard Martin

Global Consumer Products Leader

[email protected]

+44 20 7951 4072

Global Emmanuelle Roman

Global Consumer Products Market

Leader

[email protected]

+44 20 7951 1651

Global Andrew Cosgrove

Global Consumer Products Lead Analyst

[email protected]

+44 20 7951 5541

Beverages Steve WillsGlobal Leader [email protected]+44 20 7951 1336

Food Patricia Novosel

Global Co-Leader

[email protected]

+1 312 879 6715

Food Mike Sills

Global Co-Leader

[email protected]

+41 58 286 5538

HPC Anastasia Economos

Global Co-Leader

[email protected]

+1 201 750 0919

HPC Mark Twine

Global Co-Leader

[email protected]

+44 20 7951 0735

Tobacco Ed Hudson

Global Leader

[email protected]

+44 20 7951 4816


19/20


Notes


20/20

2012 EYGM Limited.

All Rights Reserved.

EYG no. EN0386

In line with Ernst & Youngs commitment to minimize

its impact on the environment, this document has

been printed on paper with a high recycled content.

This publication contains information in summary form and is

therefore intended for general guidance only. It is not intended

to be a substitute for detailed research or the exercise of

professional judgment. Neither EYGM Limited nor any other

member of the global Ernst & Young organization can accept

any responsibility for loss occasioned to any person acting

or refraining from action as a result of any material in this

publication. On any specific matter, reference should be made

to the appropriate advisor. The opinions of third parties set out

in this publication are not necessarily the opinions of the globalErnst & Young organization or its member firms. Moreover,

they should be viewed in the context of the time they were

expressed.

ED None

Ernst & Young

Assurance | Tax | Transactions | Advisory

About Ernst & Young

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How Ernst & Youngs Global Consumer

Products Center can help your business

The global recession has reset the consumer

products landscape. Value-seeking consumers,

intensified competition, increased commodity

costs, and growth opportunities in emerging

markets are driving change. Consumer

products companies now need to be leaner

and more agile, with a relentless focus on

execution. If you lead a consumer products

business, you need to anticipate trends,

identify implications and make informed

decisions that support your business goals.

Our Global Consumer Products Center enables

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and advisory professionals to share powerfulinsights and deep sector knowledge with

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combined with our technical experience,

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CPD QIssue11 10Aug12

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