Global and Italian M&A Insights: Consumer Markets by PwC Italy

Global and Italian M&A Insights: Consumer Markets

March 2021 Pw C | M&A Industry Insights | Consumer Markets

Table of Contents Consumer Markets 1. Executive Summary

2. M&A Consumer Markets

Consumer Markets – Global M&A Quarterly Trends FY18-20

Consumer Markets – Global Deals Volumes - Corporate vs. PE

Consumer Markets – Global M&A Trend 2020 vs 2019

Top ten Global Consumer Markets deals 2020

Consumer Markets – M&A Trend by Region

Consumer Markets – Italian M&A Quarterly Trends FY18-20

Consumer Markets – Italian Deals Volumes - Corporate vs. PE

Consumer Markets – Italy M&A Trend 2020 vs 2019

Top ten Italian Consumer Markets deals 2020

3. Key Contacts

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Executive Summary Pw C | M&A Industry Insights | Consumer Markets

Executive Summary – Consumer Markets

1 | Executive Summary

M&A will be a key driver of economic recovery in consumer markets as businesses look to repair and reconfigure • Dealmakers in Consumer Markets have been challenged by the geopolitical and economic trends impacting the world for several years now.

• The shift in consumer preferences towards digital solutions has accelerated, with the future belonging to agile businesses.

• COVID-19 spread against a backdrop of economic fragility and uncertainty following Brexit, decline in US-China trade relations, growing concerns around the environmental and social impacts of consumption, rising nationalism and digitalisation.

• Direct-to-consumer business models with wellestablished online platforms and businesses, centred around health and wellbeing, as well as sustainability, emerged as winners.

• Italy was the first European country where the spread of the virus accelerated, and the first country outside of Asia to implement social distancing and lockdown measures. • Up until February 2020, in Italy, as well as in the rest of the World, mergers & acquisitions (M&A) valuations in Consumer Markets were high, leading to more selective deal making and an increased focus on M&A strategy underpinned by growth potential. • COVID-19 has reinforced these macroeconomic trends. As a result, large conglomerates used M&A lever as part of ongoing portfolio reviews aimed at constantly redefining their core.

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• Those that lagged behind, such as traditional bricks-and-mortar non-food retailers, have seen an uptick in distressed M&A, restructuring activity and in some cases failures, leading to increasing consolidation among larger players. • M&A activity among has evolved along different themes geographically, offering a preview of how deal-making trends are likely to play out in 2021. • In the Asia-Pacific region, for example, the convergence of physical and online shopping experiences has led e-commerce players to acquire brick-and-mortar retailers to expand their consumer reach.

• In Europe, the Middle East and Africa (EMEA), megadeals have continued to dominate the M&A landscape, triggered by portfolio reviews involving large grocery retailers and fast-moving consumer goods (FMCGs). • The pandemic has adversely affected large pockets of the retail, consumer, hospitality and leisure subsectors, but government support in the form of relief measures and aid packages has in some instances shielded businesses from the full force of the pandemic. • Businesses must use this period to rethink their M&A strategies and business models and take action to successfully recover from the crisis. • We believe the full impact of the COVID-19 crisis will unfold in the months to come, resulting in a further increase in restructuring-led M&A activity during 2021, with big carve-outs in Europe and rise of SPACs in US.

• In the Americas, mall owners have been acquiring ailing retailers out of bankruptcy in an attempt to maintain mall occupancy levels against the backdrop of declining footfall.

M&A hotspots and 2021 Consumer Markets outlook

1 | Executive Summary

M&A Consumer hotspots Grocery and health and wellbeing have continued to perform strongly in the second half of 2020 and have maintained their position as category winners. Over the past six months, ethical consumerism has fuelled a growing trend towards veganism, leading to an uptick in M&A activity involving clean and sustainable brands. M&A activity in the pet industry has also increased in the past few months as spending on pets continues to rise, resulting in increased demand for consumables, particularly at the premium end. As global trends continue to show consumers spending more time at home, certain pockets of retail, such as home improvements, have benefitted from a shift in consumer focus towards home and away from clothing and cosmetics. This also continues to benefit e-commerce giants. The pandemic has fuelled greater focus on environmental, social and governance (ESG) factors such as sustainable sourcing and production of goods, ethical supply chains and brand management—areas that are influencing investment decisions across the deals landscape. Pw C | M&A Industry Insights | Consumer Markets

The overarching shift towards direct-toconsumer sales has led to a rise in partnerships and collaborations between businesses, particularly those with online platforms. The pandemic has also accelerated the trend towards adjacencies—expansions into related areas of business—with an uptick in deals in last-mile delivery, logistics and technologies supporting the direct-to-consumer channel, all of which play a critical part in fulfilling e-commerce sales. Consumer Markets businesses have seen an increase in convergence with technology and pharma as businesses seek to innovate to remain relevant. We expect key trends of M&A activity in 2021 to include further distressed M&A transactions and consolidation, particularly amongst bricksand-mortar non-food retailers (particularly fashion apparel and department stores) and certain pockets of hospitality and leisure (travel and restaurants).

2021 outlook • The pandemic has led to a seismic shift in consumer habits and accelerated emerging trends of digitalisation, innovation, direct-to-consumer sales and ESG considerations. M&A is seen as a key lever in helping businesses to stay agile, embed resilience and act to recover and create value. • The direct impact of the pandemic on brick-andmortar retailers and hospitality and leisure businesses will fully unwind over the course of 2021 as businesses wean themselves off government aid and relief measures, leading to more consolidations and distressed-asset sales, particularly involving those with outdated and challenged business models. • Over the course of 2021, we expect high liquidity levels to continue to drive M&A activity, to drive collaborations and partnerships, and to result in more IPOs and a rise in restructuring-led M&A activity.

Emanuela Pettenò, Markets Deals Leader and Consumer Markets Deals Leader

While we believe all consumer sectors will recover to some extent, the shape of trajectories will differ (1 of 2) New Normal Demand surges in response to outbreak and sustains growth

Sugar Rush Demand surges in response to outbreak but stabilizes at baseline over time

1 | Executive Summary

Bounce Back Demand suppressed during outbreak but later spikes due to pent up or deferred demand

Streaming Services

Grocery Stores

Salon / Spa Service

Grocery Delivery

Games / Toys

Restaurants/Foodservice Chains

E-commerce / E-sports •E-commerce •Online gaming •At-home fitness

Other products • Coffee & beverages • Home electronics • Personal care products • Home office equipment

Demand for streaming services spikes as consumers seek new original content, especially during the evening at hom e

Increased demand for delivery services as consumers trial during crisis and re-order post crisis

Increased demand for packaged food and petfood as consumers stock for at-home stays

Demand for indoor entertainment is elevated due to schools tem porarily closed and generally more time spending at home

Significant pent-up dem and follow ing months of neglect for nails / hair

Rebound of dine-in at lunchtime, as consum ers prefer out-of-hom e food post lockdow n period

Other products • Household durables • Non-consumable retail • Beauty & Personal care • DYT & Gardening

Source: Nasdaq, Reuters, FDA, Fortune, Forbes, Washington Post, PwC Strategy& Analysis

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While we believe all consumer sectors will recover to some extent, the shape of trajectories will differ (2 of 2) Down But Not Out Demand suppressed or restricted during outbreak and not yet recovered to the baseline

Gradual Recovery Demand falls during outbreak and slowly recovers to baseline

Movie Theaters

1 | Executive Summary

Enablers Cold Chain Demand for perishable food and beverage delivery w ill increase as consumers continue to order groceries online; this w ill drive dem and for tem perature-controlled logistics solutions from storage to transportation

Hotels & Resorts

Successful theatrical releases on streaming services during the crisis reduce reliance on the theater channel

Lack of travel due to stay-at-home is expected to resolve w hen travel restrictions are lifted, albeit slow ly, starting w ith dom estic travels

Last Mile Delivery Increases in online sales w ill require innovative solutions and technologies to manage last-m ile logistics

Mall-Based Retail

Theme Parks

Grow th in eCom m erce related to stay-at-home are likely a nail in the coffin for traditional shopping malls

Theme park attendance is expected to return to pre-dip levels over time, maybe w ith some restrictions for ensuring social distancing Mobile Paym ents

Other • Traditional gyms • Cruise Lines

Other • Airlines • Casinos & Gaming • Luxury Goods

Video Conferencing

Source: Nasdaq, Reuters, FDA, Fortune, Forbes, Washington Post, PwC Strategy& Analysis

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There are a number of investment themes tied to the impact of COVID-19 but in the short-term there are more opportunities in areas benefiting from current trends Theme

Description

1 | Executive Summary

Example segments

Beneficiaries of accelerated digital trends

Digitally-focused businesses that are benefitting from the acceleration of digital trends driven by COVID-19

• • • • • •

Direct-to-consumer Brand incubators Retail tech & brand enablers Digital fitness Meal delivery eSports

Beneficiaries of sub-sector trends

Assets in sub-sectors that will benefit from the long-term behavioural shifts accelerated by the COVID-19 crisis

• • • • • •

Health & wellness Brands that do the right thing Athleisure & performance clothing Nesting Cycling Domestic holidays

Undervalued public-to-private opportunities

Publicly owned companies with depressed valuations due to COVID-19, but with strong underlying fundamentals and long-term growth prospects

• Various consumer, retail and leisure assets • Carve-out opportunities from consumer and retail

Assets with short-term liquidity challenges

Quality assets with strong market positions and good longterm fundamentals but which operate in sub-sectors that have been significantly impacted by COVID-19 and face short-term liquidity challenges

• • • •

Legacy turnaround assets

Businesses with strong and relevant brands / propositions but with legacy business models, many of which were struggling before COVID-19 and are now under further pressure

• Specialty retailers • Bingo halls • Cinemas

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companies

Travel Theme parks Restaurant chains Non-food retail

M&A Consumer Markets Pw C | M&A Industry Insights | Consumer Markets

Consumer Markets – Global M&A Quarterly Trends FY18-20 Consumer Markets suffered a contraction vs. FY19 (- 13% in deal volumes, but only - 3% in values), with E&L (-27%, -$29bn) and T&L (-9%, -$10bn) sectors most affected both in volumes and values. Strong performances of Food & Beverage (+36% - driven by Chia Tai Investment acquisition of several farms for a total deal value of $4.2bn) and Forest, Paper & Packaging (+45%, driven by the acquisition of Huajun International Group and Kangxin New Materials)

FY20 1,690 675 1,555 1,491 388

Delta FY20-19 (8%) (17%) (27%) (10%) (15%)

140000,0

Deal Volume Food&Beverage Fashion E&L T&L F&P Specialty Retail & Other R&C

3,330

(7%)

120000,0

Total

9,129

(13%)

Deal Value (€m) Food&Beverage Fashion E&L T&L F&P Specialty Retail & Other R&C

FY20 112,266 17,429 79,549 104,528 18,491

Delta FY20-19 36% 19% (27%) (9%) 45%

91,336

(13%)

Total

423,600

(3%)

Consumer Market, Global Deal Value and Volume Q1’18-Q4’20 3000,0

200000,0 180000,0

2500,0

160000,0

2000,0

1500,0

100000,0 80000,0

1000,0

60000,0 40000,0

500,0

20000,0 -

Q1'18

Q2'18

Food&Beverage

Q3'18

Q4'18

Fashion

Q1'19 E&L

Q2'19 T&L

Q3'19 F&P

Q4'19

Q1'20

Q2'20

Specialty Retail & Other R&C

Q3'20

Q4'20

Total Deal Value

(*) Specialty Retail and Other R&C includes, among others, jewellery, eyewear, electronics, and cosmetics.

Source: Refinitiv and PwC Analyses, based on closed and pending deals, allocated to quarters based on the announcement date. Deal value available for c. 40% of deals at Global level and c. 20% at Italian level

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Consumer Markets – Global Deals Volumes - Corporate vs. PE Corporate buyers deals activity remained high until Q3’20 (on avg. 75% of total volumes), then declined to 70% in 4Q’20 (mainly on domestic deals)

Corporate vs Private Equity - deal volumes Global Consumer Market Q1’18

Q2’18

Q3’18

Q4’18

Q1’19

Q2’19

Q3’19

Q4’19

Q1’20

Q2’20

Q3’20

Q4’20

FY18

FY19

FY20

Total

2,788

2,676

2,499

2,626

2,434

2,669

2,665

2,711

2,471

1,879

2,345

2,433

10,589

10,479

9,128

Corporate

76%

75%

76%

75%

74%

75%

73%

70%

75%

73%

24%

25%

24%

25%

26%

25%

27%

30%

25%

27%

Corporate PE Total

Corporate – Cross Border

Corporate - Domestic

Corporate - Unknow n

PE – Cross Border

PE - Domestic

FY20 6,657 2,471 9,128

Delta FY20 vs.FY19 -15% -6% -13%

PE - Unknow n

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Consumer Markets – Global M&A Trend 2020 vs 2019 Deal volumes declined across all sectors in Consumer Markets in 2020 with E&L most negatively affected

Global deal volumes and values, 2019 vs 2020

E&L

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Sector

Deal Volume

Deal Value

Retail & Consumer

(8.8)%

15.8%

E&L

(27)%

Note: Bubble size represents deal volume in 2020 Source: Refinitiv and PwC Analyses, based on closed and pending deals, allocated to quarters based on the announcement date. Deal value available for c. 40% of deals at Global level and c. 20% at Italian level

Top ten Global Consumer Markets deals 2020 The ranking of top ten deals shows the dominance of PE-deals, with only 3 corporates in the ranking

Top 10 Global Consumer Markets Deals, 2020 Target

Buyer

Deal type

Sector

Deal size (US$m)

Food

11,300

Dunkin Brands Group Inc

Inspire Brands Inc - Roark Capital Management LLC

Tesco Stores

CP ALL pcl

Corporate

Food

9,900

eBay Classifieds Holding BV

Adevinta ASA

Corporate

Specialty

8,844

ASDA Group Ltd

Bellis Acquisition Co 3 Ltd

Food

8,764

HD Supply Holdings Inc

Home Depot Inc

Specialty

8,713

Haier Electronics Group Co Ltd

Haier Smart Home Co Ltd

Specialty

6,673

GCL Investment Management Inc

Imola Merger Corp

Specialty

6,225

IQ Student Accommodation Group

Blackstone

E&L

6,060

FamilyMart Co Ltd

Retail Investment Company LLC Corporate

Food

5,403

MGM Resorts (Grand Las Vegas Assets)

MGMT Growth Properties (REIT) & Blackstone Real Estate

E&L

4,600

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Consumer Markets – M&A Trend by Region

Of all the 3 regions, Asia-Pacific is clearly leading the M&A recovery in 2H’20, with Americas showing a peak in deal value in Q4’20, driven by Specialty Retail (pet care, electronics) Consumer Market, Deal Value and Volume by Region Q1’18-Q4’20

M&A activity remained quite high, even in 2Q, boosted by expectations of a faster recovery compared to RoW

Deal Value ($m )

Deal volum e

Strong downturn in 2Q (-26% in volumes and -78% in value), followed by accelerated recovery in 3Q and 4Q

EMEA

Deal Value ($m )

Asia Pacific

Deal Value ($m )

Americas

Severe drop in 2Q (-44% in volumes and -42% in value), followed by a recovery in 2H’20

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Consumer Markets – Italian M&A Quarterly Trends FY18-20 Italian Consumer Market suffered a contraction vs. FY19 in volumes (- 25%) but an increase in deal values (up to USD 8.5bn, +181%). The recovery in Q4’20 is driven by 2 important acquisitions in the gaming sector, CVC, Advent & FSI acquisition of Serie A rights (still pending) and Moncler/Stone Island business combination Consumer Market, Italy Deal Value and Volume Q1’18-Q4’20 • Atlantia acquisition of 23.9% Hochtief AG for US$2.7bn • Atlantia acquisition of 34% of Cellnex Telecom for US$2.1bn • Ferrero acquisition of the US confectionery business of Nestle SA for US$2.8bn

120,0

100,0

• Permira acquisition of Golden Goose $1.4bn

18000,0 16000,0 14000,0

80,0

12000,0 10000,0

60,0 8000,0 40,0

6000,0 4000,0

20,0 2000,0 -

Q1'18

Q2'18

Food&Beverage

Q3'18

Q4'18

Fashion

Q1'19 E&L

Q2'19 T&L

Q3'19 F&P

Q4'19

Q1'20

Q2'20

Specialty Retail & Other R&C

Q3'20

Q4'20

Total Deal Value

• Gamenet Acquisition of Lottomatica Videolot Rete and Lottomatica Scommesse $1.2bn • Moncler acquisition of Stone Island $1.5bn • CVC, Advent & FSI acquisition of Serie A rights $2bn Deal Volume Food&Beverage Fashion E&L T&L F&P Specialty Retail & Other R&C Total

FY20 73 30 37 38 14

Delta FY20-19 (30%) (52%) (31%) 52% 27%

(25%)

262

(25%)

Deal Value (€m) Food&Beverage Fashion E&L T&L F&P Specialty Retail & Other R&C Total

FY20 718 3,271 3,888 109 753

Delta FY20-19 129% 177% 317% 16% 443%

(236)

(166%)

8,501

181%

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Consumer Markets – Italian Deals Volumes - Corporate vs. PE Corporate buyers deals activity remained high until Q3’20 (on avg. 65% of total volumes), then dropped to 40% in Q4’20 (strongly impacted by domestic corporates slowdown, partially replaced by domestic PE)

Corporate vs Private Equity - deal volumes Italian Consumer Market Q1’18

Q2’18

Q3’18

Q4’18

Q1’19

Q2’19

Q3’19

Q4’19

Q1’20

Q2’20

Q3’20

Q4’20

FY18

FY19

FY20

Total

109

299

350

262

Corporate

74%

63%

69%

63%

69%

58%

57%

64%

75%

58%

72%

40%

67%

62%

61%

26%

38%

31%

37%

31%

42%

43%

36%

25%

43%

28%

60%

33%

38%

39%

Corporate PE Total

Corporate – Cross Border

Corporate - Domestic

Corporate - Unknow n

PE – Cross Border

PE - Domestic

FY20 159 103 262

Delta FY20 vs.FY19 -26% -23% -25%

PE - Unknow n

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Consumer Markets – Italy M&A Trend 2020 vs 2019 In Italy Retail & Consumer is among the hardest hit sub-sectors (-33.2% deal volume vs. 2019). In terms of deals value, few large tickets allowed to recover both in Retail & Consumer and E&L Italy deal volumes and values, 2019 vs 2020 Sector

Deal Volume

Deal Value

Retail & Consumer

(33.2)%

61.2%

E&L

(31.5)%

316.6%

•

Impacted by the acquisitions Lottomatica Videolot / Gamenet ($1.2bn) and Serie A Rights/CVC-Advent-FSI ($2.0bn)

E&L

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Top ten Italian Consumer Markets deals 2020 Top ten Italian Consumer Markets deals 2020 are well balanced between corporate and PE investors, with predominance of deals in the Fashion and E&L subsectors, the most severely hit by the pandemic Top 10 Italian Consumer Markets Deals, 2020 Target

Buyer

Deal type

Serie A rights

CVC, Advent & FSI

E&L

2,015

Stone Island

Moncler

Corporate

Fashion

1,495

Golden Goose

Permira

Fashion

1,395

Gamenet

Corporate

E&L

1,151

Covivio

Corporate

E&L

639

Style Capital

Fashion

~ 400

Ferrero

Corporate

Food

317

Coima SGR SpA, Prada Corporate Holding SpA and Covivio SA

T&L

213

MBE Worldwide SpA

Oaktree

T&L

129

Catelli Food

Barilla

Corporate

Food

125

Lottomatica Videolot Rete and Lottomatica Scommesse Varde Partners - European Hotels Portfolio (8)

Zimmermann

Biscuits business of Boparan Holdings Scalo Porta Romana of Ferrovie Dello Stato Italiane SpA

8 9 10

Sector

Deal size (US$m)

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Key Contacts Pw C | M&A Industry Insights | Consumer Markets

Key Contacts

Emanuela Pettenò

Partner | Consumer and Markets Deals Leader +39 348 8519841 Email

Elena Borghi

Partner | Transaction Services +39 348 1565355 Email

Pw C | M&A Industry Insights | Consumer Markets

Giovanni Tinuper

Partner | Transaction Services And Data Analytics Leader +39 348 2207050 Email

Alessandro Vitali Partner | M&A +39 349 5212022 Email

Raffaele Cestari

Partner | Value Creation in Deals Leader +39 348 2740433 Email

Fabrizio Franco de Belvis Partner | Strategy, PwC Italy +39 348 2740433 Email

Thank you!

This content is for general information purposes only, and should not be used as a substitute for consultation w ith professional advisors. © 2021 Pw C. All rights reserved. Not for further use and distribution w ithout the permission of Pw C. “Pw C” refers to the netw ork of member firms of Pricew aterhouseCoopers International Limited (Pw CIL), or, as the context requires, individual member firms of the Pw C netw ork. Pw C | M&A Industry Insights | Consumer Markets