Pent-up deal momentum...highest portion since Q4 11. Large household and personal care deals on the...

Issue 16

Q3 2013

Pent-up deal momentum

Consumer Products Deals Quarterly

Analysis of transactions in Q3 2013 in the global consumer products sector

Contents

Data analysis 4

Pent-up deal momentum

Data highlights Q3 13Top 10 deals Q3 13

Investment themes 7

This quarter’s top themesPrivate equity more activePortfolio optimization underpinning deal activityHousehold and personal care back in the spotlight

Underlying long-term trendsThe pursuit of growth opportunities and scale in emerging marketsConsolidation within developed and emerging markets

Deal analysis 10

Top 10 deals in Q3 13Suntory strengthens its brand portfolio Coca-Cola FEMSA drives Brazil’s bottling consolidationChina Mengniu Dairy secures a safe source of supplySCA makes further inroads in China with Vinda acquisitionMagic acquisition for L’Oréal in ChinaGrupo Nutresa expands its geographic reachRevlon reunited with Colomer after more than a decadeChina Fishery Group increases control over its supply chainUnilever sells non-core salad dressings business Embotelladora Andina consolidates its position in Brazil

WelcomeWelcome to Consumer Products Deals Quarterly — a report from EY that analyzes acquisitions and disposals in the global consumer products sector.

Recent quarters have been notable for the increasing interest among deal-makers in potential acquisitions. The number of inquiries from our clients continues to grow, engagements are rising, and our deal advisory teams are

in deal volumes recorded in the third quarter.

The quarter’s largest deal was Suntory Beverage & Food’s US$2.1b purchase of the Lucozade and Ribena soft drinks brands from GlaxoSmithKline. This deal illustrates the continuing drive by global consumer products groups to optimize portfolios by focusing on core, higher-growth businesses, which is one of the quarter’s

equity activity and an increase in the number of household and personal care transactions.

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 the data and the

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

David Murray Global Consumer Products Transactions Leader [email protected]

3Consumer Products Deals Quarterly Issue 16

4 Consumer Products Deals Quarterly Issue 16

Data analysisPent-up deal momentum

the year In Q3 13, 285 consumer products deals were announced, a modest decrease of 3% compared with Q2 13. Although disappointing, the rate of decline is far slower than the

quarters of the year.

exaggerated by the timing of deal announcements, and the ongoing weakness in activity does not match our current client workload and knowledge of the deal pipeline. We continue to see

an increasing level of interest from deal-makers, on both the buy side and the sell side, and it is also notable that the geographic focus for the sale and purchase of consumer products assets is becoming increasingly international.

Despite the unexpectedly disappointing level of activity over the last two quarters, we anticipate a rebound in mergers and acquisitions (M&A) activity toward the end of the year. Consumer products groups have excess cash on their balance sheets and we expect many to deploy that capital in the very near future, particularly those that wish to complete a transaction prior to the end of their calendar year.

Deal activity declined slightly in Q3 13 compared with the previous three-month period, marking a fresh quarterly low in total volume for the 12-quarter review period. Total disclosed deal value dropped sharply, exacerbated by the lack of megadeals announced during the quarter.

Decrease in deal volumes announced in Q3 13 compared with Q2 13

3%

Total value halves, with no megadeals announced

Disclosed deal value decreased to US$15b in Q3 13 from US$30b in Q2 13. There were no megadeals with a value greater than US$5b announced in the third quarter, and only four deals had a value of more than US$1b.

Data highlights Q3 13Deal volumes decline slightly pushing long-term average lower

Third quarter deal volumes decreased by 3% to 285 deals from 294 in Q2 13. The four-period long-term moving average of total deal volume decreased slightly from 319 deals to 311 deals.

Deal values Q4 10–Q3 13Deal volumes Q4 10–Q3 13

Data analysis

Data analysis — Pent-up deal momentum

Tobacco HPC Beverages Food Average LTM number of deals

0

50

100

150

200

250

300

350

400

450

500

258 33

8

331

312

232

231

222

206

221

243

193

186

76

84 72 81

69 66 60 65 69

68

66 52

49

36 53 54

52 40

25 43 25

32

33

46

3

2 4 8

4 4

2 3 3 4

2 1

Q4

10

Q1

11

Q2

11

Q3

11

Q4

11

Q1

12

Q2

12

Q3

12

Q4

12

Q1

13

Q2

13

Q3

13

Num

ber

Q1

11

Q4

10

Q2

11

Q3

11

Q4

11

Q1

12

Q2

12

Q3

12

Q4

12

Q1

13

Q2

13

Q3

13

0.0

0.2

0.4

0.6

0.8

1.0

Ave

rage

dea

l val

ue (U

S$b)

0

20

40

60

Tota

l dea

l val

ue (U

S$b)

Food Beverages HPC Tobacco Average deal sizeAverage LTM value

Consumer Products Deals Quarterly Issue 16 5

Corporate transaction volumes decline, but private equity activity rises

The number of corporate deals dropped by 8% from 241 in Q2 13 to 222 in Q3 13, which represented 78% of total deal activity. In comparison, private equity deals increased to 63 in Q3 13 from 53 in Q2 13, a rise of 19%. Private equity deal volume represented 22% of total volume, the highest portion since Q4 11.

Large household and personal care deals on the rise

Four food deals and three beverage deals were among the top 10 largest deals in Q3 13. The remaining three top 10 deals were in the household and personal care sector, with disclosed values ranging from US$660m to US$1.1b.

Emerging markets prominent in top 10 deal activity

Despite the current slowdown, emerging markets remain high on the agenda. Of the quarter’s top 10 deals, a Latin America-based target featured in four of the transactions. Of the remaining top 10 deals, a further three featured a China/Hong Kong-based target.

Corporate vs. private equity deals Q4 10-Q3 13

0%

20%

40%

60%

80%

100%

319

67Q

4 10

339

121

Q1

11

343

117

Q2

11

334

121

Q3

11

278

79Q

4 11

285

56Q

1 12

261

48Q

2 12

264

53Q

3 12

258

60Q

4 12

292

55Q

1 13

241

53Q

2 13

222

63Q

3 13

Corporate Private equity

Disclosed value (US$m)

Suntory Beverage & Food

Coca-Cola FEMSA SAB de CV

China Mengniu Dairy Co Ltd

Svenska Cellulosa AB SCA

L'Oréal SA

Grupo Empresarial Antioqueno

Revlon

China Fishery Group Ltd

Pinnacle Foods

Embotelladora Andina SA

GlaxoSmithKline PLC-Lucozade ($2,119)

Spaipa SA Bebidas ($1,855)

Yashili Intl Hldg Ltd ($1,606)

Vinda International Hldg Ltd ($1,115)

Magic Holdings Intl Ltd ($843)

Tresmontes Lucchetti SA ($758)

The Colomer Grp Participations ($660)

Copeinca ASA ($647)

Unilever-Wish-Bone Salad ($580)

Cia de Bebidas Ipiranga ($566)

Food deals

Beverage deals

HPC deals



The top 10 deals had a combined value of US$11b — 70% of total disclosed deal value

70%Top 10 deals in Q3 13

Buyer name Buyer country Target name Target country Disclosed value (US$m)

Announced date Deal type Sector Cross-border or in-border

Suntory Beverage & Food Japan GlaxoSmithKline PLC-Lucozade

United Kingdom $2,119 09 Sep 13 Corporate Beverages Cross-border

Coca-Cola FEMSA SAB de CV Mexico Spaipa SA Bebidas Brazil $1,855 31 Aug 13 Corporate Beverages Cross-border

China Mengniu Dairy Co Ltd China Yashili Intl Hldg Ltd China $1,606 18 Jun 13 Corporate Food In-border

Svenska Cellulosa AB SCA Sweden Vinda International Hldg Ltd

China $1,115 09 Sep 13 Corporate HPC Cross-border

L’Oréal SA France Magic Holdings Intl Ltd

China $843 15 Aug 13 Corporate HPC Cross-border

Grupo Empresarial Antioqueno Colombia Tresmontes Lucchetti SA

Chile $758 18 Jul 13 Corporate Food Cross-border

Revlon United States The Colomer Grp Participations

Spain $660 05 Aug 13 Corporate HPC Cross-border

China Fishery Group Ltd China Copeinca ASA Peru $647 24 Jun 13 Corporate Food Cross-border

Pinnacle Foods United States Unilever-Wish-Bone Salad

United States $580 12 Aug 13 Corporate Food In-border

Embotelladora Andina SA Chile Cia de Bebidas Ipiranga

Brazil $566 10 Jul 13 Corporate Beverages Cross-border

Global consumer products corporate and PE transactions scorecard by subsector

Deals announced Q3 13 Q2 13 Seq % change Q3 13 Q3 12 YoY % change

Corporate deals by subsector

Beverages 36 50 -28% 36 56 -36%

Food 149 163 -9% 149 169 -12%

HPC 36 26 38% 36 36 0%

Tobacco 1 2 -50% 1 3 -67%

Total 222 241 -8% 222 264 -16%

PE deals by subsector (based on seller sector)

Beverages 16 16 0% 16 9 78%

Food 37 30 23% 37 37 0%

HPC 10 7 43% 10 7 43%

Tobacco 0

Total 63 53 19% 63 53 19%

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

Beverages 52 66 -21% 52 65 -20%

Food 186 193 -4% 186 206 -10%

HPC 46 33 39% 46 43 7%

Tobacco 1 2 -50% 1 3 -67%

Total 285 294 -3% 285 317 -10%



CVC Capital Partners, for example, at the end of the quarter agreed to buy Campbell Soup’s soup and sauce brands in continental Europe, for US$542m (€400m).2

In emerging markets, private equity is emulating the traditional corporate approach toward gaining exposure to risky markets — namely to invest risk capital via a minority stake in order to learn about the business. During the third quarter, for example, KKR bought 9.5% of Indonesian food group Tiga Pilar Sejahtera Food for an undisclosed sum.3 Earlier in the year, KKR doubled

Consumer Corporation.4

Portfolio optimization underpinning deal activityThe quarter’s second notable investment theme is portfolio optimization. Companies are seeking to enhance performance

lower-growth units and acquiring faster-growing and/or higher-

the desire to move away from European soups and sauces, the company has also been on the acquisition trail elsewhere in Europe. In August, it purchased Kelsen Group, a Danish maker of baked snacks and sweet biscuits, with presence in mainland China and Hong Kong.5

The third quarter’s biggest deal, Suntory Beverage & Food’s purchase of the Lucozade and Ribena brands from

Investment themesThis quarter’s top themes

Three themes stood out in our analysis of deals this quarter: an increasing level of activity by private equity, portfolio optimization as a driver for deal activity and an increase in the number of household and personal care transactions among the quarter’s largest deals.

Private equity more activeThe number of private equity transactions increased to 63 deals in Q3 13 from 53 in Q2 13, a rise of 19%. Although improved,

It does not include private equity exits, which are currently a big component of deal activity. Based on our experience of a rising tide of inquiries by private equity clients, we expect this increase in activity to persist in the coming quarters.

private equity activity. Debt markets are now at their strongest since 2007. Lenders’ search for yield has underpinned an increase in debt leverage multiples and the reappearance of borrower-friendly terms more reminiscent of the pre-crisis bull market. With market interest rates now rising on the expectation that the US Federal Reserve will soon start to lessen the pace of monetary accommodation, borrowers have an incentive to lock in low rates now.

Equity markets too have rallied strongly, and there are signs that IPO sentiment is becoming more positive, which is likely to

is improving, according to EY’s latest global IPO research.1

One area of particular focus for private equity is the potential to acquire excess assets in the European and US food sectors.

David MurrayGlobal Consumer Products Transactions Leader, EY

“The deal between CVC and Campbell Soup for its European soup assets is a bellwether for the return of private equity, showing that there are good buyers for consumer products assets and that deals can be completed away from the glare of publicity.”

Andrew CosgroveGlobal Consumer Products Lead Analyst,EY

“The US$28b purchase of Heinz by 3G Capital

quarter of the year has provided a catalyst for the step-up in private equity activity. By showing the appetite and

private equity sector.”

1. “Global IPO activity slows in Q3 but set for uplift in coming months,” EY, www.ey.com, 25 September 2013.

2. “Campbell Soup selling European simple meals to CVC,” Time, www.business.time.com, 1 October 2013.

Just Food, www.just-food.com, 22 July 2013.4. “KKR More Than Doubles Stake in Vietnam’s Masan to $359 Million,” Bloomberg, www.bloomberg.com, 9 January 2013.5. CVC nears deal to buy Campbell Soup’s European brands,” The Financial Times, www.ft.com, 12 August 2013.

Investment themes — This quarter’s top themes


6. “Mondelez sells Huesitos, Yokke brands to Valor,” Just Food, www.just-food.com, 17 July 2013.7. retailers in Asia’s emerging markets, EY, September 2013.

GlaxoSmithKline represents portfolio optimization for both buyer and seller. For Suntory Beverage & Food, the two brands complement its existing Orangina Schweppes business, while for GlaxoSmithKline, the business was non-core and the disposal helps the company focus on its consumer health care and pharmaceuticals activities. Similarly, Unilever’s sale of its Wish-Bone salad dressings business to Pinnacle Foods is part of an ongoing optimization process and follows its disposal of Skippy peanut butter and its North American frozen foods business.

urbanization continues, emerging market consumers spend more on personal care products and household products for their new urban homes.

Against this backdrop, household and personal care groups are looking to acquire local brands and use the acquired companies as a platform to leverage the rest of their portfolio into high-growth markets. For example, in the third quarter, Svenska Cellulosa (SCA) acquired the remaining 74% it did not already own in Vinda International Holdings, China’s third-largest tissue maker. L’Oréal’s purchase of Magic Holdings International, China’s biggest

Underlying long-term trendsThe pursuit of growth opportunities and scale in emerging markets

enough for consumer products companies to focus on growing revenues and gaining market share in emerging markets. These markets must now become engines of

a forthcoming report from EY in the Brand new order series7

consumer products companies need to concentrate on to

the diversity of emerging markets by shaking off mature market mindsets and operating models, disrupting traditional approaches and rebuilding the offering around what is needed to be locally relevant.

Gregory StemlerConsumer Products Transactions Leader, Americas, EY

“In some instances, disposing of brands and businesses can be the solution to excess capacity and overall margin improvement, rather than portfolio optimization.”


Kristina RogersGlobal Consumer Products Emerging Markets Leader, EY

“Among the subsectors of the consumer products

most from the emerging markets growth story.”

Huesitos and Tokke chocolate brands to Chocolates Valor for

would shut its facility in Zaragoza, which produces the two brands, because it was operating at only 29% of the capacity. An opportunistic approach by Chocolates Valor for the brands provided an alternative to closing the plant.6

Shortly after the end of the quarter, Nestlé made its intentions clear on further portfolio optimization. Chief Executive Paul Bulcke told analysts that the company would make some disposals

Procter & Gamble, too, in a statement ahead of its AGM said that it would “exit those [businesses] that cannot deliver acceptable shareowner returns.”

Household and personal care back in the spotlightWhile the number of deals in the food and beverage sectors declined in Q3 13, the household and personal care sector bucked the trend with a solid increase in transaction activity from 33 deals in Q2 13 to 46 in Q3 13, including three deals in the top 10 transactions.

Food and beverage manufacturers often face stiff competition from local producers in emerging markets, but in household and personal care there is greater scope to introduce international brands to the new middle classes. As disposable incomes rise and


8. “Nestlé eyes more “agile” organization through disposals,” Just Food, www.just-food.com, 2 October 2013.9. “More divestitures could be coming at P&G,” s, www.dowjones.com, 8 October 2013.10. “Philip Morris’ deal addiction,” , www.pipeline.thedeal.com, 30 September 2013.

Companies’ efforts to meet the challenge of diversity are

increase their exposure to emerging markets. This range includes full acquisitions, such as this quarter’s purchase of Magic Holdings International by L’Oréal, which is aiming to leverage the power of a leading local brand in a fast- growing segment.

Building presence by initially taking minority stakes is a second route. In August, for example, Pernod Ricard was reported to be in talks to acquire a 15%–20% stake in India-based alcoholic beverage maker Tilaknagar Industries, for approximately US$98m, while Japan’s Suntory was also said to be interested in investing in the Indian company.8 Focusing on a smaller target is an alternative way to minimize the risk of an initial investment. In June, Japan’s Asahi Group Holdings teamed with Indofood CBP Sukses Makmur to buy Indonesia’s PepsiCo bottler for US$30m.9 After the end of the quarter, Philip Morris International announced it was acquiring 49% of United Arab Emirates-based Arab Investors for US$625m, giving the company access to Algeria’s estimated 30 billion-stick cigarette market.10

Minority stakes may, in time, lead to a full takeover, as, for example, with this quarter’s purchase of the remainder of Vinda International Holdings by SCA Group. The Vinda deal also illustrates the vital importance of distribution in emerging markets. SCA bought China’s Everbeauty in 2012 and will use Vinda’s nationwide distribution network to drive sales of Everbeauty’s incontinence and baby diaper products.

A third approach to capturing growth in emerging markets is to

a yogurt production and sales joint venture with China Mengniu Dairy, having earlier in the year taken an indirect stake in the Chinese company.

To meet growing demand in emerging markets, domestic challengers are also building scale and securing raw material supplies. In addition to the Danone joint venture, China Mengniu Dairy was also active in the M&A market during the quarter. To secure a safe source of supply, China Mengniu Dairy acquired Guangdong-based Yashili International Holdings, which sources all of its milk from New Zealand. Earlier this year, China Mengniu Dairy also bought a stake in China Modern Dairy


Holdings, the country’s largest raw-milk producer, to gain greater control over its milk supplies. On a similar theme, in August, China Fishery Group secured its supply chain with the acquisition of

Consolidation within developed and emerging marketsCompanies are keen to strengthen brand portfolios, increase scale and target higher-growth segments. While emerging markets are expected to continue to provide the main engine of future growth, the sheer scale of consumer products groups’ exposure to developed markets makes it vital that opportunities in these regions are also fully exploited. This consolidation theme has several strands:

• Consolidation within domestic markets

• Expansion into underdeveloped geographies

categories

• Securing of economies of scale

Among the top 10 deals in Q3 13, Suntory Beverage & Food strengthened its brand portfolio and extended its geographic reach with the acquisition of the Lucozade and Ribena brands from GlaxoSmithKline. Pinnacle Foods added a new brand to its portfolio of “iconic” brands with the purchase of Unilever’s Wish-Bone salad dressing business while Revlon took greater control of its distribution channels with the acquisition of salon-focused beauty-care company Colomer Group.

As emerging markets mature, new global challengers are also pursuing these same investment themes, in both their domestic economies and other emerging markets. This quarter, for example, there were three more transactions in the Brazilian soft drink bottling industry. These were Coca-Cola FEMSA’s acquisitions of the two Brazilian bottling companies, Spaipa SA Indústria Brasileira de Bebidas and Companhia Fluminense de Refrigerantes, plus the Chilean Coca-Cola bottler Embotelladora Andina’s purchase of Brazilian rival Companhia de Bebidas Ipiranga. Elsewhere in Latin America, Colombian-based food maker Grupo Nutresa extended its geographic presence with the acquisition of Chilean snack-to-soup group Tresmontes Lucchetti.


Deal analysis Top 10 deals in Q3 13

Suntory strengthens its brand portfolioThe quarter’s biggest deal was Suntory Beverage & Food’s purchase of the Lucozade and Ribena soft drinks brands from GlaxoSmithKline for US$2.1b. Suntory was considered the most likely buyer for the brands after GlaxoSmithKline announced in April that it planned to dispose of them.11 In July this year,

non-alcoholic beverage group, with the stated intention of using the proceeds for acquisitions. For GlaxoSmithKline, the deal is a further optimization of its portfolio as the company sharpens its focus on its consumer health care businesses and the delivery of its late-stage pipeline of pharmaceuticals and vaccines.

The acquisition provides Orangina Schweppes, which Suntory

Lion Capital in 2009, with increased scale and geographic

are growing at 3% a year, meaning that the company needs acquisitions if it is to reach its stated sales target of 2 trillion yen by 2020.12 The deal will also allow Suntory to push Lucozade and Ribena through its global distribution network.

EBITDA, higher than the 11x multiple Suntory paid for Orangina Schweppes. Suntory launched an early bid for Lucozade and Ribena to pre-empt a possible auction for the brands, leading some commentators to suggest Suntory had paid a higher price to avoid a bidding war.13 Analysts at Canaccord Genuity said that the deal raised the prospect of further M&A activity in the UK soft drinks market and suggested that AG Barr, which had been named as a potential buyer for the Lucozade and Ribena brands, could become Suntory Beverage & Food’s next target.14

Coca-Cola FEMSA drives Brazil’s bottling consolidationAt the end of August, Coca-Cola FEMSA, the world’s largest Coca-Cola bottling company, announced that it had agreed to acquire Spaipa SA Indústria Brasileira de Bebidas, the second largest privately owned bottler in the Brazilian Coca-Cola system, for US$1.9b in an all-cash transaction.

The deal will increase Coca-Cola FEMSA’s volume in Brazil by 40%, giving the company a 39% share of the Coca-Cola bottling volume

with Coca-Cola FEMSA’s existing operations in Brazil. However, José Antonio Fernández Carbajal, the company’s President, also acknowledged “the challenges the company faces in the short term in Brazil because of adverse market conditions.”15

Analysts at Goldman Sachs said that the transaction was strategically important and would expand Coca-Cola FEMSA’s lead over its rivals in the northeast of the country. However,

last 12 months’ EBITDA, was above the recent deal average of 10.9x. The challenging demand and cost environment in Brazil has weighed on bottlers’ margins and Goldman Sachs expects that the deal could accelerate further consolidation of the remaining independent bottlers.16 Earlier in the quarter, Coca-Cola FEMSA also acquired Brazilian bottler Companhia Fluminense de Refrigerantes for US$448m, which represented a multiple of 11.2x EBITDA.17

The quarter’s biggest deal was the acquisition of the Lucozade and Ribena brands

US$2.1b

Anastasia EconomosGlobal Household and Personal Care Co-Leader, EY

“The intersection of the consumer products and pharmaceuticals sectors continues to be an exciting area for potential deals. Looking ahead, given the current trend for portfolio optimization, the question is how many more of the consumer assets currently in pharmaceutical companies’ portfolios will be put up for sale.”

11. “Suntory to buy GSK’s Lucozade, Ribena for $2.1 bln,” , www.cnbc.com, 9 September 2013.12. “Suntory: driven to drinks,” The Financial Times, www.ft.com, 9 September 2013.

13. “Suntory: driven to drinks,” The Financial Times, www.ft.com, 9 September 2013.14. “Will Suntory Food & Beverage buy AG Barr next?” Just Drinks, www.just-drinks.com, 9 September 2013.15. “Coca-Cola Femsa to buy Brazil rival for $1.86bn,” The Financial Times, www.ft.com, 1 September 2013.16. “Spaipa acquisition a game changer in Brazil: Buy on stock weakness,” Goldman Sachs Equity Research, 2 September 2013.17. “KOF Acquires Fluminense,” Morgan Stanley Research Latin America, 30 June 2013.

Deal analysis — Top 10 deals in Q3 13


China Mengniu Dairy secures a safe source of supplyIn late June, China Mengniu Dairy offered to buy all the shares of Hong Kong-listed Yashili International Holdings, a manufacturer of infant formula milk powder backed by private equity group Carlyle, in a deal valuing the company at HK$12.5b (US$1.6b). By the closing date of the tender in August, China Mengniu Dairy had bought 89.8% of the outstanding shares, with a value of US$1.4b.

The deal is part of China Mengniu Dairy’s efforts to rebuild its reputation and secure safe supplies following a milk contamination scandal in China in 2008. Based in Guangdong province, Yashili International Holdings sources all of its milk from New Zealand and is also building a manufacturing plant there.18

The Yashili International Holdings deal is the latest in a series of moves by China Mengniu Dairy, both to secure its supply

dairy groups. Earlier this year, China Mengniu Dairy bought a stake in China Modern Dairy Holdings, the country’s largest raw-milk producer, to gain greater control over its milk supplies.

Dairy, previously announced in May, to produce yogurt products in China. In 2012, the Chinese company also formed a strategic partnership with Danish dairy group Arla Foods to improve quality inspection techniques.19

SCA makes further inroads in China with Vinda acquisitionIn a move to expand its presence in the Chinese market, SCA, the Sweden-based leading global hygiene and forest products company, announced a US$1.1b cash offer for the remaining 73.8% stake it did not already own in Vinda International Holdings, China’s third-largest tissue maker.

SCA already holds the global number two position in the consumer tissue market with a share of approximately 10%,20 and China is the world’s second-largest tissue market. The deal’s value represents a 38.4% premium to Hong Kong-listed Vinda’s most recent share price before the bid was announced,21 but the

implied multiple of 12.7x 2013e EBITDA is below the average for historical transactions in the Chinese household and personal care sector.22

In 2012, SCA acquired Everbeauty, a leading player in the Chinese incontinence and baby diaper markets. According to analysts at Morgan Stanley, the acquisition of Vinda will allow SCA to leverage the company’s nationwide distribution network to drive sales in Everbeauty’s products, increasing synergies between the two businesses. Morgan Stanley’s Erik Sjogren said: “While there are concerns among investors about slowing growth in the Chinese tissue market and ongoing capacity expansion (impacting Vinda’s share price this year), SCA sees potential (not

organization in China.”23

Magic acquisition for L’Oréal in ChinaIn August, L’Oréal, the world’s largest cosmetics maker, agreed to buy Hong Kong-listed Magic Holdings International, China’s biggest cosmetic facial mask maker, for US$843m in cash. The HK$6.30 per share offer represented a 25% premium to the last closing price before the bid was announced. The deal’s

30 June 2013 and 25x EBITDA.24

The acquisition gives L’Oréal the top-selling facial mask brand in China, where beauty and personal care product sales will expand 8% to US$34b this year, according to Euromonitor estimates.25

Magic’s MG brand is the leading brands in the facial mask category, which, according to L’Oréal, is one of the fastest-growing segments of the Chinese beauty market.26

Analysts viewed the deal favorably. In addition to giving L’Oréal access to a fast-growing market segment of the Chinese beauty market, Magic will improve the French company’s distribution capabilities. “This should allow L’Oréal to accelerate the growth of its own brands in China through a greater distribution reach,” said Chas Manso de Zuniga, an analyst at Société Générale, who

EBITDA.27

18. “Mengniu Dairy seeks to rebuild reputation with Yashili stake deal,” The Financial Times, www.ft.com, 18 June 2013.19. “China Mengniu Climbs Most in a Month on Yashili Offer,” , www.bloomberg.com, 19 June 2013.20. “SCA Annual Report 2012,” SCA, www.sca.com, 4 April 2013.

21. “Swedish tissue maker bids for Hong Kong rival,” The International Herald Tribune, www.iht.com, 10 September 2013.22. “Offer to acquire shares in Vinda,” , 9 September 2013.23. “Offer to acquire shares in Vinda,” , 9 September 2013.24. “S&P Capital IQ,” .25. “L’Oreal to Buy Magic Holdings International for $843m,” , www.bloomberg.com, 16 August 2013.26. “L’Oréal announces proposal to acquire Magic Holdings in China,” , 23 August 2013.27. “L’Oreal to Buy Magic Holdings International for $843m,” , www.bloomberg.com, 16 August 2013.



28. “Nutresa acquires Tresmontes Lucchetti,” Just Food, www.just-food.com, 19 July 2013.29. “Grupo Nutresa Arrives in Chile,” Itaú BBA Equity Research, 18 July 2013.

30. “Reunited: Revlon Pays $660M to Regain Spain’s Colomer Group,” , www.foxbusiness.com, 5 August 2013.31. “Revlon to Acquire Colomer Group for $660 Million,” Bloomberg, www.bloomberg.com, 5 August 2013.

Kristina RogersGlobal Consumer Products Emerging Markets Leader, EY

Chinese market with a relatively inexpensive brand, which should complement Kéraskin, its high-end skin care brand.”

buying Mumbai-based Cheryl’s Cosmeceuticals for an undisclosed sum. Cheryl’s Cosmeceuticals is a provider of skin care products and treatments within the salon and spa market in India.

Grupo Nutresa expands its geographic reachIn July, Colombian-based food maker Grupo Nutresa extended its presence in Latin America with the acquisition of snack-to-soup group Tresmontes Lucchetti for US$758m. Tresmontes is a market leader in Chile, with a top-three position in all of its product lines.28 The company is the market leader in cold instant beverages in Chile and the second-largest player in pasta and coffee.

According to analysts at investment bank Itaú BBA, the deal’s

below Grupo Nutresa’s own valuation of 13.2x and which is in line with other transaction multiples in the region.29

With the acquisition, Nutresa will gain exposure to new market segments, such as cold instant beverages, tea, snacks, oils, juices and soups. The company also expects to gain synergies with the pasta and coffee segments and with Tresmontes Lucchetti’s distribution network in Mexico.

Revlon reunited with Colomer Group after more than a decadeIn August, Revlon announced it had agreed to buy salon-focused beauty-care company Colomer Group for US$660m in cash from

regains control over its brand in the professional salon market, 13 years after Revlon sold its professional-products division to CVC for US$315m.30

Revlon is following rivals such as Procter & Gamble and Unilever in adding or expanding salon-focused businesses. The Colomer deal gives Revlon the Creative Nail Design and Shellac nail polish brands as well as American Crew men’s hair care among others. In 2009, Unilever bought the Toni & Guy brands and then in 2011 acquired Alberto-Culver, giving it the Nexxus hair care brand. Procter & Gamble has also added more salon brands since acquiring Wella in 2003.31

In addition to the professional salon market, Colomer also sells brands directly to retail channels, including Natural Honey Body Lotions and Llongueras hair care. About half of the company’s sales are in Europe, the Middle East and Africa, with 40% in the US and the balance in the rest of the world.

China Fishery Group increases control over its supply chainDuring the third quarter, China Fishery Group, in which private

oil producer Copeinca. China Fishery launched its offer for Oslo- and Lima-listed Copeinca in February, subsequently extending the deadline and raising its offer from NOK53.9 to NOK68.2 to

company Cermaq. In August, China Fishery announced that it had received acceptances from 99% of shareholders for its tender offer, which, including China Fishery’s pre-existing stake, valued the company at US$806m (NOK4.8b).



32. “China Fishery bids $556M for Copeinca,” , www.marketwatch.com, 26 February 2013.33. “L’Oréal buys Cheryl’s Cosmeceuticals,” Cosmetics Business, www.cosmeticsbusiness.com, 24 September 2013.34. Pinnacle Foods to Buy Unilever’s Wish-Bone for $580 Million,” Bloomberg, www.bloomberg.com, 12 August 2013.35. “Salad dressings are getting squeezed,” The Wall Street Journal, www.wsj.com, 12 August 2013. 36. “Andina Acquires Ipiranga,” Morgan Stanley Research Latin America, 10 July 2013

by volume, according to the International Fishmeal and Fish

32

The deal will also reduce Copeinca’s reliance on its core Russian contract supply business, which faces increasing uncertainty following an investigation by the Russian authorities into the

acquisition, the portion of revenues derived from Peruvian

dependence on the contract supply business.33

Unilever sells non-core salad dressings businessIn August, packaged foods company Pinnacle Foods, which is

agreed to purchase Unilever’s Wish-Bone salad dressings business for US$580m. Pinnacle CEO Bob Gamgort described Wish-Bone

iconic brands.34

The sale is Unilever’s second disposal of a food business this year, as the consumer products group focuses its portfolio on higher-growth food businesses and personal care brands. Unilever sold the Skippy peanut butter brand to Hormel Foods Corporation for US$700m in January, which followed last year’s sale of its North American frozen meals business to ConAgra Foods for US$265m.

In many food categories, companies with mid-priced products are being squeezed. Kraft Foods Group CEO, Tony Vernon, recently called the salad dressings market a “competitive Armageddon,” as private label has eaten into the share of established brands in the value segment and high-end niche fresh and organic brands have taken share in the premium segment.35

Embotelladora Andina consolidates its position in BrazilClosing out the top 10 deals was another Latin American bottling consolidation transaction. In July, Chilean Coca-Cola bottler Embotelladora Andina announced the purchase of Brazilian rival Companhia de Bebidas Ipiranga for US$566m via its Rio de Janeiro Refrescos subsidiary.

The acquisition will reinforce Andina’s position as one of the major Coca-Cola bottlers in Latin America, with operations in Argentina, Brazil, Chile and Paraguay. The transaction follows last year’s merger of Embotelladora Andina’s Chilean operations with rival Embotelladoras Coca-Cola Polar.

Analysts at Morgan Stanley calculated that the deal’s value

multiple Coca-Cola FEMSA paid for its two Brazilian acquisitions

synergies in the Embotelladora Andina deal.36

Andrew CosgroveGlobal Consumer Products Lead Analyst, EY

“Unilever has stated that it remains committed to the food business, but with three disposals in just over a year, it raises the question of which parts of its food portfolio may be deemed as non-core and put up for sale.”



paradox for global consumer products companies and retailers in Asia’s emerging markets.

Luxury and cosmetics

EY’s factbook 2013 edition is now available. Despite the slowing of global growth from 13.1% in 2011 to 10.4% in 2012, the value of global personal luxury market is at an all-time high of over €200b.

Find out more at www.ey.com/consumerproducts

Find out more at www.ey.com/consumerproducts

Available at www.ey.com/consumerproductsFollow us on Twitter@EYConsumerGoods

Consumer Products Deals Quarterly Issue 1614


Methodology

• Deals include transactions between companies in the four consumer products subsectors, consumer products companies acquiring businesses in other subsectors and non-consumer-products companies acquiring consumer products companies.

• Private equity deal activity includes full and partial-stake transactions and was analyzed based on acquisitions by

, alternative investment management groups, certain commercial banks, investment banks, venture capital and other similar entities.

•based on the consumer products sector of the seller.

• Equity investments were included (corporate and private equity).

• Joint ventures were not included.

• The value and status of all deals highlighted in this report are as of 14 September 2013. Q3 2013 represented deals announced between 15 June 2013 and 14 September 2013.

• All dollar amounts are in US$ unless otherwise indicated.

• There is no minimum US$ 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 under discussion.

• The disclosed value as stated in the top 10 deals table is the total value of consideration paid by the acquirer, 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 included only if it is being acquired as part of a 100% acquisition. If a portion of the consideration paid by the acquirer is common stock, the stock is valued using the closing price on the last full trading day prior to the announcement of the terms of the stock swap. If the exchange ratio of shares offered changes, the stock is valued based on its closing price on the last full trading day 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 EY’s analysis of Thomson Reuters data from Q4 10–Q3 13. Data was pulled from the Thomson Reuters database using standard industrial

products includes only those companies in the food, beverages, tobacco and HPC subsectors.

date that the Thomson Reuters database is accessed.

Data source and industry scope

Qualifying deals

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How EY’s Global Consumer Products Center can help your business Consumer products companies are operating in a brand new order, a challenging environment of spiraling complexity and unprecedented change. Demand is shifting to rapid-growth markets, costs are rising, consumer behavior and expectations are evolving, and stakeholders are becoming more demanding. To succeed, companies now need to be leaner and more agile, with a relentless focus on execution. Our Global Consumer Products Center enables our worldwide network of more than 18,000 sector-focused assurance, tax, transaction and advisory professionals to share powerful insights and deep sector knowledge with businesses like yours. This intelligence, combined with our technical experience, can assist you in making more informed strategic choices and help you execute better and faster.

© 2013 EYGM Limited. All Rights Reserved.

EYG No. EN0521CSG/GSC2013/1151196ED 0114

In line with EY’s commitment to minimize its impact on the environment, this document has been printed on paper with a high recycled content.

This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice.

ey.com

EY | Assurance | Tax | Transactions | AdvisoryContactsRegion Contact Email/telephone

Global/EMEIA David Murray Global Consumer Products Transactions Leader

[email protected] +44 158 264 3248

John Hope Transaction Advisory Services Leader

[email protected] +852 2846 9997

Americas Gregory J. Stemler Consumer Products Transactions Leader


Latin America Jeremy Barnes Transaction Advisory Services


Country Contact Email/telephone

Brazil Alfredo Della Savia Consumer Products Leader


Russia Dmitry Khalilov Retail and Consumer Products Leader


India Ajay Arora Transaction Advisory Services


China Robert Partridge Transaction Advisory Services Leader

[email protected] +852 2846 9973

Sector Contact Email/telephone

Global Mark Beischel Global Consumer Products Leader


Global Kristina Rogers Global Consumer Products Emerging Markets Leader


Global Emmanuelle Roman Global Consumer Products Markets Leader


Global Andrew Cosgrove Global Consumer Products Lead Analyst


Beverages Steve Wills Global Leader


Food Patricia Novosel Global Co-Leader


Food Mike Sills Global Co-Leader


HPC Anastasia Economos Global Co-Leader


HPC Mark Twine Global Co-Leader


Tobacco Ed Hudson Global Leader


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