Q3-2017

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FOOD & BEVERAGE

M&A UPDATE

FOOD & BEVERAGE | M&A Update: Q3-2017

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Major U.S. indicesThe third quarter of 2017 (Q3-2017) showed positive performance for the broader U.S. equity market, as the S&P, DJIA and NASDAQ closed up 12.5 percent, 13.4 percent and 20.7 percent, respectively, for the quarter. In the LTM period ending September 30, the S&P, DJIA and NASDAQ closed up 16.2 percent, 22.4 percent and 22.3 percent, respectively.

Food and beverage relative performanceAs of September 30, 2017, three of the six food and beverage segments exhibited increases on a trailing 12-month basis. These increases were largely attributable to positive market sentiment, continued improvements in fundamental economic variables and the expectation of impending U.S. tax reforms.

The agribusiness segment performed the best of the six food and beverage segments. This segment exhibited stock gains of 12.1 percent, lagging the strong performance of the S&P 500 index’s 16.2 percent during the observed period.

Table 1: Food and beverage relative market performance

Table 2: Indexed market performance by sector

Source: S&P Capital IQ and Baker Tilly Capital research, November 2017 LTM as of September 30, 2017 EV = Enterprise value

FOOD & BEVERAGE | M&A Update: Q3-2017

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Table 3: Food and beverage guideline companies

Source: S&P Capital IQ and Baker Tilly Capital research, November 2017

FOOD & BEVERAGE | M&A Update: Q3-2017

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Table 4: Historical median trading multiples

Source: S&P Capital IQ and Baker Tilly Capital research, November 2017

FOOD & BEVERAGE | M&A Update: Q3-2017

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M&A activityThere were 58 reported M&A transactions that closed during Q3-2017, down from 65 transactions during the second quarter of 2017 (Q2-2017). Reported transactions in Q3-2017 increased 13.7 percent compared to 51 deals for the same period in 2016.

The aggregate deal value of the M&A transactions with reported values was $25.6 billion during Q3-2017. This is a decrease from the strong total deal value number of $37.2 billion in Q2-2017, which was largely driven by two transactions representing approximately $32 billion in combined value. For Q3-2017, the largest two transactions consisted of Mars, Incorporated’s $9.1 billion acquisition of the animal health company VCA Inc. and Rye Parent Corp’s (a platform holding company created by the private equity firm JAB Holdings for making acquisitions) $7.7 billion acquisition of Panera Bread Company. Additionally, we would note that quarters with peak values were driven by large individual transactions that took place during each respective period.

Table 5: Quarterly U.S. food and beverage M&A activity for transactions closed Aggregate transaction value and number of deals

As detailed in Table 6 and Table 7, the Q3-2017 transactions with reported deal multiples1 had higher median revenue multiple than the historic median multiples.

Source: S&P Capital IQ and Baker Tilly Capital research, November 2017 1Four revenue multiples reported

Table 6: Quarterly M&A TEV / revenue multiples1 Table 7: Quarterly M&A TEV / EBITDA multiples

FOOD & BEVERAGE | M&A Update: Q3-2017

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The branded packaged goods segment led the food and beverage industry’s M&A activity by volume, accounting for 62.5 percent of the total deals closed in Q3-2017. The beverage segment accounted for the second largest percentage of total deals for the period with 25.0 percent. The agribusiness segment followed, accounting for 10.7 percent. The natural / organic segment comprised the remainder of the total for the period, representing 1.8 percent.

Strategic buyers were most active by volume in Q3-2017 for the food and beverage industry, representing 68 percent of all closed transactions, with financial buyers representing 32 percent. It should be noted that the majority on the transactions involving financial buyers involved financial buyers making strategic purchases through existing platform companies.

U.S. middle-market food and beverage M&A activityThere were 10 reported middle-market2 transactions that closed during Q3-2017, up from the five closed middle-market transactions of Q2-2017. Reported middle-market transactions in Q3-2017 increased from the three closed middle-market deals for the same period in 2016.

The aggregate deal value of the middle-market M&A transactions with reported values was $785 million during Q3-2017. This is an increase from the total deal value of $335 million in Q2-2017.

Table 10: Middle-market food and beverage M&A activity for transactions closed Aggregate transaction value and number of deals

Source: S&P Capital IQ and Baker Tilly Capital research, November 2017 2Middle-market is defined as transaction values between $10 million and $200 million

Table 8: Quarterly M&A transactions by segment Table 9: Quarterly M&A transactions by buyer type

FOOD & BEVERAGE | M&A Update: Q3-2017

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Table 11: Select food and beverage transactions closed in Q3-2017

Source: S&P Capital IQ and Baker Tilly Capital research, November 2017

Tim Farquhar, CFA, CPAPartner314.290.3281tim.farquhar@rubinbrown.com

Jeff Barnes, CFAManager314.290.3276jeff.barnes@rubinbrown.com

Jeff Sackman, CPA, CGMAPartner & Vice Chair314.290.3406jeff.sackman@rubinbrown.com

PRIVATE EQUITY SERVICES LEADERS

Ben Barnes, CPA, CGMAPartner-In-Charge314.678.3531ben.barnes@rubinbrown.com

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