Second quarter 2019

Food and beverage recap

Plant-based proteinIt’s nice to meat you

The most successful day-one IPO since the 2008 recession is, perhaps surprisingly, not a technology start-up, but Beyond Meat Inc. (Beyond Meat), a food manufacturer. Based in El Segundo, California, Beyond Meat is largely known for the meat alternative Beyond Burger, which is available through many grocers and restaurant chains (most notably A&W in Canada). Beyond Meat, with revenue of approximately $115m USD, has a market capitalization today of approximately $10b USD, larger than Maple Leaf Foods Inc., TreeHouse Foods Inc. and Sanderson Farms Inc. Together with its closest competitor, Impossible Foods Inc. (Impossible Foods), they are leading the burgeoning plant-based meat alternative category. The plant-based milk industry can serve as a case study for potential growth, with plant-based alternatives now making up 13% of the total fluid milk category. In contrast, plant-based meat alternatives represent under 1% of the meat category today. Meatless products are not new – vegetarian burgers have been available in grocery stores and restaurants for many years. So what has changed in 2019 to allow an alternative meat company that has only operated for 10 years to be valued higher than three established players in the meat industry with over 150 years of operations combined?

The difference in the current wave of meat alternatives is driven by advancements in food science and technology. Beyond Meat and Impossible Foods are marketing the meat-like taste, look and texture of their products to meat-eaters, with the goal of replacing some of their traditional meat purchases. For example, more than a quarter of Canadians have said they are trying to add more plant-based food items into their diets. This attitude is most popularly held by younger adults (under the age of 44), suggesting this is a trend here to stay. While those adhering to vegan and vegetarian diets make up a relatively small percent of the Canadian population today at 2% and 5%, respectively, flexitarians represent 25% of Canadian adults. Flexitarians do not avoid meat or dairy altogether, but choose to eat meatless meals some of the time as part of a broader quest for overall wellness. It is estimated that the number of individuals in Canada going meatless or eating less meat could exceed 10 million by 2025.

These statistics are only amplified when looking at the US and globally. In the US, 2018 sales of plant-based meats were up 24% year over year compared to an increase of 6% in the prior year. The global plant-based meat opportunity is estimated to be worth $100b USD in 15 years. Recognizing the significant market opportunity, Maple Leaf Foods has made two plant-based meat alternative

acquisitions in the past two years, Lightlife Foods Inc. and Field Roast Grain Meat Co. We expect to see more transactions occur in the category in the near term.

Despite understanding the potential health benefits of incorporating plant-based products into their diet, flexitarian consumers are unwilling to compromise on eating quality. Taste, texture and lack of variety in meat alternatives has traditionally been a barrier to consuming such products. The idea of Beyond Meat, Impossible Foods and others is to provide great-tasting alternative meat products for the mainstream consumer through traditional consumption channels, including retail grocers and popular quick-service restaurants.

There are receptive consumers for high-quality plant-based meat alternatives that can deliver a taste and texture experience that appeals to consumers’ palates, and these consumers are willing to pay a significant premium for these products. While the burger represents the quintessential North American meal, there remains a significant opportunity for many more meat alternative products such as plant-based burritos, tacos, fajitas, sausages and nuggets. And meat alternatives are just the beginning of a whole slew of new great-tasting plant-based food and beverage products coming to market.

Stephen Dewis Canadian Food and Beverage Leader Toronto, Ontario | +1 416 943 2063 | stephen.dewis@ca.ey.com

Food and beverage recap Second quarter 2019 | 3Data source: Capital IQ Inc.

All currencies in USD unless otherwise stated.

Alcoholic beverages

• Modesto, CA-based E. & J. Gallo Winery, Inc. entered into an agreement to acquire a portfolio of wine and spirits brands and six winemaking facilities of Constellation Brands, Inc. for $1.7 billion.

The acquisition includes more than 30 wine and spirits brands and six wineries.

• New York, NY-based Pernod Ricard USA LLC entered into an agreement to acquire a majority interest in Rabbit Hole Spirits LLC. The financial terms of the transaction were not disclosed.

Rabbit Hole Spirits LLC, based in Louisville, KY, engages in the production of premium whiskey and gin for markets including Kentucky, Illinois, Tennessee, Wisconsin and Indiana.

Bakery

• San Antonio, TX-based C.H. Guenther & Son, Inc. acquired Mid South Baking Company LLC. The financial terms of the transaction were not disclosed.

Mid South Baking Company LLC, based in Bryan, TX, produces and supplies buns, rolls, muffins and sandwiches for restaurants.

• Sioux Falls, SD-based Orion Food Systems, LLC entered into an agreement to acquire Land Mark Products Inc. The financial terms of the transaction were not disclosed.

Land Mark Products Inc., based in Milford, IA, produces and markets prepared food for the food service industry. Products include pizza crusts, sandwiches and pre-topped retail pizzas.

• Collegedale, TN-based McKee Foods Corporation acquired Prairie City Bakery, Inc. The financial terms of the transaction were not disclosed.

Prairie City Bakery, Inc. based in Vernon Hills, IL, manufactures branded products including cinnamon rolls, honey buns, fruit pies, muffins and cookies.

Dairy

• Le Mars, IA-based Wells Enterprises, Inc. acquired Fieldbrook Foods Inc. The financial terms of the transaction were not disclosed.

Fieldbrook Foods Inc., based in Dunkirk, NY, produces ice cream products and frozen desserts for customers in the US, Canada, the Caribbean and Mexico.

• Montreal, Canada-based Saputo Inc. acquired the speciality cheese business of Lion Dairy and Drinks for $197 million.

The speciality cheese business of Lion Dairy and Drinks, based in Australia, comprises a portfolio of cheese products.

• Chicago, IL-based private equity group Arbor Private Investment Company acquired Darifair Foods, Inc. The financial terms of the transaction were not disclosed.

Darifair Foods, Inc., based in Jacksonville, FL, produces and supplies dairy products for restaurant chains and industrial manufacturers in the United States.

Food ingredients

• Chicago, IL-based private equity group Tilia Holdings, LLC acquired Proven Partners Group, Inc. The financial terms of the transaction were not disclosed.

Proven Partners Group, Inc., based in Elgin, IL, provides dried and powdered foods contract manufacturing and packaging services.

• Boston, MA-based private equity group Bain Capital Private Equity, LP agreed to acquire a 27.14% stake in CJ Foods America Corp. for approximately $320 million.

CJ Foods America Corp., based in La Palma, CA, a subsidiary of South Korea-based CJ Cheiljedang Corporation, engages in food and food ingredient, feed and livestock businesses. CJ Foods America Corp. recently completed the acquisition of Schwan’s Company for $1.84b. Schwan’s Company, based in Marshall, MN, produces a range of frozen food products.

• Parsippany, NJ-based B&G Foods North America, Inc. acquired Clabber Girl Corporation for approximately $80 million. The transaction represents an enterprise value that is approximately 1.1 times revenue.

Clabber Girl Corporation, based in Terre Haute, IN, manufactures and exports food products such as baking powder, baking soda and other ingredients for bakeries, restaurants, hospitals and schools.

Fresh produce

• Salinas, CA-based Taylor Fresh Foods, Inc. acquired Earthbound Farm, LLC. Earthbound Farm, LLC generated approximately $400 million of sales in 2018. The financial terms of the transaction were not disclosed.

Earthbound Farm, LLC, based in San Juan Bautista, CA, grows organic produce and offers salads, fruits, vegetables and frozen fruits.

• Beverly Hills, CA-based Butterfly Enterprises, LLC entered into an agreement to acquire Wm. Bolthouse Farms, Inc. for $510 million.

Wm. Bolthouse Farms, Inc., based in Bakersfield, CA, produces fresh produce and beverages including juices, smoothies and breakfast smoothies.

Packaged food products

• St. Louis, MO-based Post Holdings, Inc. entered into an agreement to acquire the ready-to-eat cereal business of TreeHouse Foods, Inc. Sales of the RTE cereal business were approximately $260 million in 2018. The financial terms of the transaction were not disclosed.

• New York, NY-based private equity group AUA Private Equity Partners, LLC invested in Gourmet Culinary Holdings, LLC. The financial terms of the transaction were not disclosed.

Gourmet Culinary Holdings, LLC, based in Pendergrass, GA, produces appetizers and breakfast items for the retail and foodservice channels.

• Orange, CA-based STIR Foods, LLC acquired Van Law Food Products, Inc. The financial terms of the transaction were not disclosed.

Van Law Food Products, Inc., based in Fullerton, CA, produces and distributes food products including pancake and waffle syrups, flavourings, beverage bases, sauces and marinades.

• Winston-Salem, NC-based Golding Farms Foods, Inc. acquired Arcobasso Foods, Inc. The financial terms of the transaction were not disclosed.

Arcobasso Foods, Inc., based in Hazelwood, MO, manufactures and develops custom sauces, dressings, beverages and marinades.

Protein

• Houston, TX-based Sysco Corporation acquired J & M Wholesale Meat, Inc. and Imperio Foods, Inc. J&M Wholesale Meat, Inc. and Imperio Foods, Inc. generate annual sales of approximately $44 million. The financial terms of the transaction were not disclosed.

J & M Wholesale Meat, Inc., based in Modesto, CA, operates as a wholesale distributor of meat and meat products.

• Thailand-based Charoen Pokphand Foods Public Company Limited acquired a majority stake in HyLife Ltd. for $498 million CAD. The transaction represents an enterprise value that is approximately 8.6 times EBITDA.

HyLife Ltd., based in Manitoba, Canada, produces and distributes pork products for customers worldwide and is the largest exporter of chilled pork products to Japan.

• New York, NY-based private equity group Aterian Investment Partners entered into an agreement to acquire Hain Pure Protein Corporation for approximately $80 million.

Hain Pure Protein Corporation, based in Fredericksburg, PA, owns and operates poultry processing facilities, offering organic chicken, antibiotic-free chicken and cooked chicken products.

Following are the brief summaries of selected transactions in the North American food and beverage industry for the second quarter of 2019:

2 | Food and beverage recap Second quarter 2019

Note: The indices used in this newsletter have been compiled by Ernst & Young Orenda Corporate Finance Inc. solely for illustrative purposes. The companies chosen are publicly traded companies that are commonly used for industry composites to show stock performances within a sector. The indices do not include all public companies that could be categorized within each sector, and were not created as benchmarks, nor should they imply benchmarking or recommendations for a particular stock and/or sector.

Charts: EY Orenda Corporate Finance Inc. Data source: Capital IQ, Inc., Bloomberg * Ernst & Young Orenda Corporate Finance Inc.

EY* food and beverage index Enterprise value trends by sector

EY food and beverage index Enterprise value trends by country

EY food and beverage index North American transaction volume and size

EY food and beverage index Our food and beverage index consists of the following publicly traded companies:

US food and beverage companies

Ticker symbol

Food processing

Tyson Foods TSNThe Kraft Heinz Company KHCMondelez International, Inc. MDLZGeneral Mills, Inc. GISConAgra Foods, Inc. CAGDean Foods Company DFCampbell Soup Company CPBMcCormick & Company, Incorporated

MKC

Hormel Foods Corporation HRLThe Hershey Company HSYKellogg Company K

Beverages

The Coca-Cola Company KOPepsico, Inc. PEPConstellation Brands Inc. STZ

Grocery and convenience retailSuperValu Inc. SVUKroger Co. KRWeis Markets, Inc. WMK

Restaurant and foodserviceStarbucks Corporation SBUXMcDonald’s Corp. MCDJack in the Box Inc. JACKYum! Brands, Inc. YUMDarden Restaurants, Inc. DRIBrinker International, Inc. EATDine Equity Inc. DIN

Canadian food and beverage companies

Ticker symbol

Food processing

Maple Leaf Foods Inc. MFIGeorge Weston Limited WNSaputo Inc. SAPHigh Liner Foods Inc. HLF

Beverages

Molson Coors Brewing Company

TAP

Cott Corporation BCBLassonde Industries Inc. LAS.ACorby Spirit & Wine Limited CSW.A

Grocery and convenience retailLoblaw Companies LMetro Inc. MRU.AAlimentation Couche-Tard Inc. ATD.B

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EY food and beverage index - North American transaction volume and size

Number of transactions Aggregate transaction value

1 Q1 2015 figure exludes Heinz's acquisition of Kraft Foods Inc. ($62B) for presentation purposes.

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EY* food and beverage index - Enterprise value trends by sector

Food processing Beverages Grocery & convenience retail Restaurant & foodservice

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EY food and beverage index - Enterprise value trends by country

Canadian food companies US food companies

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Restaurants

• Quebec, Canada-based MTY Food Group Inc. entered into an agreement to acquire Papa Murphy’s Holdings, Inc. for $184 million. This represents an enterprise value of approximately 8.8 times EBITDA.

Papa Murphy’s Holdings, Inc., based in Vancouver, WA, together with its subsidiaries, owns, operates and franchises Take ‘N’ Bake pizza stores.

• Quebec, Canada-based MTY Food Group Inc. entered into an agreement to acquire the assets of Allô! Mon Coco. The financial terms of the transaction were not disclosed.

Assets of Allô! Mon Coco, based in Quebec, Canada, consist of a chain of gourmet breakfast and lunch restaurants.

• Quebec, Canada-based MTY Food Group Inc. entered into an agreement to acquire certain assets of Yuzu Sushi. The financial terms of the transaction were not disclosed.

Yuzu Sushi, based in Quebec, Canada, owns and operates 50 sushi locations in the provinces of Quebec and New Brunswick.

• Greenwich, CT-based private equity group L Catterton Partners entered into an agreement to acquire Del Frisco’s Restaurant Group, Inc. for approximately $280 million. The transaction represents an enterprise value of approximately 2 times revenue.

Del Frisco’s Restaurant Group, Inc., based in Irving, TX, operates restaurants across the US under the Del Frisco’s Double Eagle Steakhouse, Barcelona Wine Bar, bartaco and Del Frisco’s Grille brand names.

Retail

• Toronto, Canada-based Fresh City Farms, Inc. acquired Mabel’s Bakery & Specialty Foods. The financial terms of the transaction were not disclosed.

Mabel’s Bakery & Specialty Foods, based in Toronto, Canada, owns and operates a chain of bakeries offering homestyle baked goods, prepared foods, ready meals and artisan breads and cheeses.

• Toronto, Canada-based Fresh City Farms, Inc. acquired The Healthy Butcher Inc. The financial terms of the transaction were not disclosed.

The Healthy Butcher Inc., based in Toronto, Canada, retails organic meat through stores and its online platform.

Snacks

• Luxembourg-based Ferrero International S.A. entered into an agreement to acquire the cookies and fruit snacks business of Kellogg Company for $1.3 billion. The transaction represents an enterprise value of 1.4 times revenue.

The cookies and fruit snacks business of Kellogg Company produces cookie, fruit-flavoured snacks, ice cream cones and pie crusts.

• Deerfield, IL-based Mondelez International, Inc. entered into an agreement to acquire a majority stake in Perfect Bar, LLC. As of December 31, 2018, Perfect Bar, LLC reported approximately $70 million in net revenue. The financial terms of the transaction were not disclosed.

Perfect Bar, LLC, based in San Diego, CA, produces organic, non-GMO, nut butter-based protein bars and bites.

Data source: Capital IQ Inc.