First quarter 2019

Food and beverage recap

Key themes from Consumer Analyst Group of New York Conference

The Consumer Analyst Group of New York Conference (CAGNY) was held in February 2019. This annual event sees the largest global consumer packaged goods (CPG) companies convene to discuss strategic direction and the ever-elusive search for growth. This year, 31 food and beverage and consumer products companies presented their strategies to investors. There are several notable themes that arose from the presentations, many of which we have discussed before in these publications, but are good reminders of the current state of the food and consumer products industry.

Consumer-driven new product development As we have discussed in recent quarterly recaps, today’s consumer demands products that are natural, healthy and convenient. The attendees at CAGNY reiterated that these demands are driving new product innovation. Specifically, the following trends are of note: • Digestive wellness – functional food with

health purposes • Plant-based products – enhance taste

elements of plant-based products• Sugar re-invented – emphasis on natural,

no-added sugar and preservatives • Snack-ification – convenient, healthier and

for the moment

CPGs are establishing broader new product development ecosystems, using consumers and other partners to accelerate the process. For example, global ingredients company Ingredion

highlighted the co-creation with consumers of on-trend products such as low-sugar drinkable yogurt, indulgent spreadable cheese, gluten-free pizza dough, fibre-added multigrain bread and non-GMO chickpea flour pasta. Many CPGs have also established their own incubator programs or venture arms to invest in early-stage innovative start-ups.

Leveraging brands across adjacencies CPGs have spent decades developing portfolios of strong brand names. Many are now leveraging the strong foundation of their brands to move into adjacent product categories to gain new market share and accelerate growth. For example, Mondelez is leveraging its globally recognized Oreo cookie brand to move into adjacent categories such as snacks, yogurt and ice cream. Another strong example is J.M. Smucker’s Jif peanut butter brand. J. M. Smucker recognized that the peanut butter category is relatively mature, but has developed adjacent products, such as Jif Power Ups (a granola bar snack product), that leverage the Jif brand and market popularity in a higher-growth category.

Portfolio optimization & acquisitions The portfolio-shifting strategies that CPGs have undertaken over recent years were a consistent theme across presenters at CAGNY 2019. Capital continues to be allocated to acquisitions, and we have seen numerous CPGs make acquisitions that are smaller in size but are in niche or high-growth segments.

Larger portfolio shifts are often supported by divesting of non-core or underperforming assets. A relevant example is Kellogg’s recent divestiture of well-known cookie brands Keebler, Famous Amos and Mother’s among others, to focus on the snack and cereal segments.

Purpose driving profits Presenters spoke to the strong correlation between purpose and long-term business performance. Purpose relates to a commitment to environmental, social and corporate governance. Consumers are demanding sustainability and transparency and consumers view their selection of products and brands as an extension of their own personal values. Consumers want to align themselves with brands and companies they can stand behind. Operating a business with purpose has been proven to drive profits and is seen to be a sustainable source of growth. For example, Danone’s purpose-led Manifesto brands, which are committed to “protecting and nourishing the health of people and the health of the planet”, are growing three times faster than the average. Currently, Danone has 40 brands in the Manifesto program, with the ultimate goal of having all of Danone’s brands being a Manifesto brand.

Overall, what is clear is that achieving growth is not a simple problem to solve, and keeping up with a changing world and evolving consumers requires agility, flexibility and creativity.

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

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

All currencies in US$ unless otherwise stated.

Alcoholic beverages

• Metairie, LA-based Sazerac Company, Inc. acquired 19 spirits brands from Star Industries and The Black Prince Distillery, Inc. The financial terms of the transaction were not disclosed.

Star Industries, based in Syosset, NY, is an importer and supplier of wine and spirits. Black Prince Distillery, based in Clifton, NJ, operates as a contract bottler and supplier of a complete line of distilled spirits products.

• Leuven, Belgium-based Anheuser-Busch InBev SA/NV entered into an agreement to acquire Cutwater Spirits, LLC. The financial terms of the transaction were not disclosed.

Cutwater Spirits, LLC, based in San Diego, CA, produces craft whiskey, vodka, gin, rum, liqueur, mixers and canned cocktails.

Bakery

• Castleton-on-Hudson, NY-based Cell-Nique Corporation entered into an agreement to acquire Dancing Deer Baking Company, Inc. The financial terms of the transaction were not disclosed.

Dancing Deer Baking Company, Inc., based in Boston, MA, produces baked food products such as brownies, cookies, squares, cakes and others.

Beverage

• Stamford, CT-based Nestlé Waters North America Inc. acquired a bottling facility from Ice River Springs Water Co. Inc. The financial terms of the transaction were not disclosed.

Ice River Springs Water Co. Inc., based in Shelburne, Canada, is a private label bottled water producer for retail and food service operators and manufacturer of the Ice River Green brand of bottled water.

• Montreal, Canada-based Claridge, Inc entered in an agreement to invest in 49th Parallel Roasters Inc. The financial terms of the transaction were not disclosed.

49th Parallel Roasters Inc., based in Vancouver, Canada, engages in direct trade sourcing, micro-roasting and selling speciality grade coffee products.

• St. Louis, MO-based Ronnoco Coffee, LLC acquired Beverage Solutions Group. The financial terms of the transaction were not disclosed.

Beverage Solutions Group, based in Tennessee, operates as a seller of coffee equipment and supplies as well as soluble hot beverages to distributors that service convenience stores and foodservice accounts across the country.

• Austin, TX-based Peak Rock Capital acquired the Turkey Hill business of The Kroger Company. The financial terms of the transaction were not disclosed.

The Turkey Hill business of The Kroger Company, based in Conestoga, PA, manufactures iced teas, fruit drinks, milk, frozen dairy treats and ice cream products.

Dairy

• Warren, MI-based Lipari Foods, LLC acquired Troyer Cheese, Inc. and Amish Wedding Foods, Inc. The financial terms of the transaction were not disclosed.

Troyer Cheese Co., based in Millersburg, OH, manufactures and sells cheese, meats, butter and other specialty items. Amish Wedding Foods, Inc., based in Millersburg, OH, produces fruit butter, jam and jellies, mustards, peanut butter, and cider.

• Des Moines, IA-based Midwest Growth Partners, LLLP acquired Maytag Family Farms, Inc. The financial terms of the transaction were not disclosed.

Maytag Family Farms, Inc., based in Newton, IA, produces and sells cheese products, such as blue cheese, white cheddar, cheese spreads, and popcorn.

• Montreal, Canada-based Saputo Inc. acquired Dairy Crest Group plc for approximately $1,580 million. The transaction represents an enterprise value that is approximately 13.8 times EBITDA and 2.6 times revenue, respectively.

Dairy Crest Group, based in Surrey, United Kingdom, processes and markets branded dairy products in the United Kingdom and internationally.

Food ingredients

• Middleton, WI-based SACO Foods, Inc. acquired California Sun Dry Foods Inc. The financial terms of the transaction were not disclosed.

California Sun Dry Foods Inc., based in Danville, CA, supplies sun-dried tomato products.

• Minneapolis, MN-based Pipeline Foods LLC acquired the Specialty and Organic Soy and Corn Business of SunOpta Inc. for $66.5 million. The transaction represents an enterprise value that is approximately 8.8 times EBITDA and 0.6 times revenue, respectively.

The Specialty and Organic Soy and Corn Business of SunOpta Inc., based in Mississauga, ON, supplies non-GMO-based organic food ingredients.

Foodservice distribution

• Houston, TX-based Sysco Corporation entered into an agreement to acquire Waugh Foods, Inc. The financial terms of the transaction were not disclosed.

Waugh Foods, Inc., based in East Peoria, IL, operates as a food service distributor, offering various products, including appetizers, bakery products, and beef, and has sales of $40 million.

• Richmond, Virginia-based Performance Food Group Company entered in an agreement to acquire Eby-Brown Company, LLC. The financial terms of the transaction were not disclosed.

Eby-Brown Company, LLC, based in Naperville, IL, distributes pre-packaged candy, snacks, specialty beverages, and tobacco products for the convenience industry.

Fresh food

• Milwaukee, WI-based American Pasteurization Company acquired FreshCo Foods. As part of the acquisition, FreshCo Foods has been renamed APC Manufacturing. The financial terms of the transaction were not disclosed.

APC Manufacturing, based in Milwaukee, WI, is a contract manufacturer producing high pressure processing specialty food products. Products produced include hummus, fresh salsa, salad dressing and other fresh dips.

• Montreal, Canada-based Aliments Fontaine Santé Inc. agreed to acquire Garden Fresh Salsa Company, Inc. The financial terms of the transaction were not disclosed.

Garden Fresh Salsa Company, Inc., based in Ferndale, MI, produces and sells refrigerated salsa products.

Frozen food

• Los Angeles, CA-based Strand Equity Partners, LLC acquired a minority stake in The Real Good Food Company, LLC. The financial terms of the transaction were not disclosed.

The Real Good Food Company, LLC, based in Glendale, CA, produces frozen packaged products that focus on high-protein, low-carb and low-sugar alternatives.

Health

• Purchase, NY-based PepsiCo, Inc. entered into an agreement to acquire the CytoSport business of Hormel Foods Corporation for $465 million. The transaction represents an enterprise value that is approximately 1.6 times revenue.

CytoSport, based in Walnut Creek, CA, produces sports nutrition products for customers in the United States.

• Evanston, IL-based Glanbia Nutritionals, Inc. acquired Watson Foods Co., Inc. for $89 million. The transaction represents an enterprise value that is approximately 0.9 times revenue.

Watson Foods Co., Inc., based in West Haven, CT, produces and supplies human health and nutrition products and ingredient systems for food and supplement industries.

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

2 | Food and beverage recap First 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 excludes 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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The information and opinion within this document has been derived from various sources of research including but not limited to Capital IQ, Bloomberg, Just-Food, Canadian Grocer and various equity research reports.

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Prepared food

• Tokyo, Japan-based Mitsui & Co., Ltd. and KENKO Mayonnaise Co. Ltd. acquired Hans Kissle Company, LLC, from the Roche Family for $108 million. Under the terms, Mitsui & Co., Ltd. will own 80% and KENKO will own 20% in Hans Kissle, post completion.

Hans Kissle Company, LLC, based in Haverhill, MA develops, manufactures, and sells a wide range of high-quality, wholesale delicatessen main and side dishes, desserts, and other prepared foods for supermarkets and grocery stores in the Northeastern United States.

Restaurants

• New Canaan, CT-based private equity J.H. Whitney Capital Partners, LLC acquired Firebirds International, LLC. The financial terms of the transaction were not disclosed.

Firebirds International, LLC, based in Charlotte, NC, owns and operates restaurants. The company also provides catering services.

Snacks

• Chicago, IL-based Evans Food Group Ltd. acquired Turkey Creek’s Snacks Inc. The financial terms of the transaction were not disclosed.

Turkey Creek’s Snacks Inc, based in Thomaston, GA, produces pork rinds, cracklins, and hot sauce.

• Calgary, Canada-based District Ventures Capital invested in OHi Food Company. The financial terms of the transaction were not disclosed.

OHi Food Company, based in Costa Mesa, CA, produces refrigerated plant-based superfood bars in multiple flavours.

Data source: Capital IQ Inc.