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1 Consumer Market | M&A Trends 2019 e Outlook2020

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Consumer MarketsItaly | M&A Trends 2019 and Outlook 2020

2 Consumer Market | M&A Trends 2019 and Outlook2020

Agenda

Consumer Markets: M&A activity during 2019

Fashion & Luxury

Food

Beverages

Specialty Retail & Leisure

Furniture & Design

Personal Care & Cosmetics

Expected impacts of Covid-19 on Italian Consumer Markets

The impact on consumption style and the response of companies

Contacts

3

8

12

14

16

18

20

22

24

29


The Italian M&A Consumer arena hosted 256 transactions in 2019 (+27% vs. last year) with

Fashion & Luxury recording an unprecedented growth in terms of number of deals vs. 2018 (+34),

followed by Food (+20). Beverages (+12) and Personal Care & Cosmetics (+7) recovered after a

decline of transactions in FY18.

34

Food Specialty Retail

& Leisure

Num

ber

of

deals

Furniture

& Design

Beverages Personal Care

& Cosmetics

Fashion

& Luxury

FY17 FY18 FY19

43

77

6057

80

35

48

34

18

29

24 23

15

27

11

7

14

Total number of deals

+13.5%

FY17 178

FY18 202

FY19 256 +26.7%

3 Consumer Market | M&A Trends 2019 and Outlook2020 Source: Aida, Cerved, MergerMarket,Orbis


Strategic investors have been more active in terms of number of deals (155, ca. 61%) and focused on

target companies with similar size compared to financial investors (average target revenues of €70m

vs. €66m). Corporate buyers were particularly active on Food and Beverages (47%), while financial

investors on Fashion & Luxury and Personal Care & Cosmetics (42%).

Number of deals by investor type

61% 39%

Strategic investor

155 vs. 111 in2018

€70m average turnover of target vs €138 in 2018

Financial investor

101 vs. 91 in 2018

€66m average turnover of target vs €78 in 2018

Deals by segment for Deal by segment

strategic investors for financial investors

Fashion & Luxury 45 (29%) vs. 20 32 (32%) vs. 23

Food 55 (35%) vs. 41 25 (25%) vs. 19

Specialty Retail and Leisure 23 (15%) vs. 29 11 (11%) vs. 19

Furniture & Design 10 (6%) vs. 7 14 (14%) vs. 22

Beverages 18 (12%) vs. 9 9 (9%) vs. 6

Personal Care & Cosmetics 4 (3%) vs. 5 10 (10%) vs. 2

4 Consumer Market | M&A Trends 2019 and Outlook2020 Source: Aida, Cerved, MergerMarket,Orbis


The number of domestic deals increased for the growing interest of Italian Corporate buyers,

who completed 92 deals in Italy (vs. 60 in 2018). Cross border transactions are increasing (+14),

in particular outbound (+13).

Domestic deals

158 vs. 118 65 vs. 64 33 vs. 20

Inbound deals Outbound deals

Most relevant deals


New Guards Group

Farfetch

Brand and

geographic expansion

inbound outbound outboundoutbound inbound inbound

270 stores of

Auchan Italy(deal value €1bn)

Brand and

geographic expansion

Entering the snack

business (deal value €1.2bn)

Penetration in the

premium and without-gas segment (deal

value €80m)

Enhancement of

the positioning in the Italian market

Auchan Italy

Conad

Famosa Group

Giochi Preziosi

Kellogg’s snack

Ferrero

Acque Minerali Lurisia

Coca Cola

Nuova Castelli

Lactalis


North-West hosted the highest number of deals (34%), followed by Centre (28%), which marked a

significant increasing trend (+19 deals of which +13 in Emilia Romagna and +6 in Lazio). The trend in

Central Italy is linked to the activity of financial investors (+10).

Number of deals by Italian macro-region of the target and investor type

Top 5 Regions

Source: Aida, Cerved, MergerMarket, Orbis6 Consumer Market | M&A Trends 2019 and Outlook2020

6

4

27

35

29

13

29

18

36

59Nord-West 88 vs. 78 in2018

Financial investor Strategic investor

Centre 71 vs. 52 in2018

Nord-East 45 vs. 41 in2018

Outbound 33 vs. 20 in 2018

South & Islands

Nu

mb

er o

f d

ea

ls

19 vs. 11 in 2018

Nord-West includes:Valle d’Aosta, Liguria, Lombardy, Piedmont

Nord-East includes:Friuli-Venezia-Giulia, Trentino-Alto Adige, Veneto

Centre includes:Emilia-Romagna, Lazio, Marche, Tuscany, Umbria

South & Islands includes:Abruzzo, Molise, Basilicata, Calabria,Campania, Apulia, Sardinia, Sicily

Deals in Veneto

32 vs. 30 in 2018

Deals inLombardy68 vs. 51 in 2018

Deals in Emilia-Romagna

39 vs. 26 in 2018

Deals in Lazio

14 vs. 8 in 2018

Deals in Tuscany

12 vs. 12 nel 2018

7 Consumer Market | M&A Trends 2019 e Outlook20207 Consumer Market | M&A Trends 2019 and Outlook2020

10x 20x 30x

Beverage

Fashion & Luxury

Food

Furniture & Design

Leisure

Personal Care & Cosmetic

Specialty Retailer

11.2x

10.4x

9.9x

12.1x

7.5x

12.0x

8.4x 6 deals

18 deals

15 deals

5 deals

5 deals

3 deals

6 deals

Transactions announced in 2019 confirmed an increasing trend of EV/EBITDA multiple, ranging from 7.5x

in Leisure deals to 12x in Personal Care & Cosmetics and Furniture & Design. On average1 multiples

paid by strategic investors are 1.5x higher than those paid by financial investors.

EV/EBITDA2 multiple by segment Average1 EV/EBITDA2 multiple by investor type

Strategic investor

10.3x

Financial investor

8.8x

Smoothed average computed excluding the highest and lowest multiple recorded Notes:

(1) Average multiple is computed excluding the highest and lowest multiple recorded by investor type

(2) Multiple computed as the ratio between EV (if publicly available) and 2018 EBITDAThe average multiple is computed on a sample of 58 transactionsThe reported multiples do not reflect the potential impact of Covid-19 on the segment

Source: Aida, Cerved, MergerMarket, Orbis

Expected impacts of COVID-19 on Italian Consumer Markets

9 Consumer Markets | M&A Trends 2019 and Outlook2020

Consumers Markets is one of the sectors most negatively impacted by Covid-19, with approximately

35% of Italian consumption at risk of delay or loss, with the most relevant impacts in Food Service,

Hospitality and Tourism.

Source: Oxford Economic/Haver Analytics

Food & Beverages, tobacco

Fashion & Luxury, Furniture & Design, and other consumer good

Entertainment & Leisure, and other services

16.1%of total Italian consumption

18%of total Italian consumption

19.1%of total Italian consumption

Not at risk

At risk of loss

At risk of delay

Not at risk

At risk of loss

At risk of delay

At risk of loss

At risk of delay

Not at risk


In the base case scenario developed by Cerved (emergency until May 2020, then 2 months for the

return to normal but with export restrictions), the Consumer Markets sectors most affected will be

Fashion, Furniture & Design and Entertainment & Leisure, with partial recovery expected in 2021.

Source: Cerved – March 2020, IMF – 14th April 2020

Note(1) The luxury sector is expected to drop by 19% globally, with a recovery within 5 years (Jefferies – 29th March 2020)(2) Estimate based on a sample of companies monitored by Cerved divided into 17 sectors and 223 business segments

Segments with the worst expected performance

(FY19-20 expected growth)

Cerved scenario: bas case (expected growth rate)

FY 20/19 FY 21/20 FY21/19

Agribusiness +1.2% +0.8% +2.0%

Consumer -2.1% +2.3% +0.1%

Distribution -7.2% +12.2% +4.1%

Fashion system 1 -6.8% +6.4% -0.7%

Household goods -5.9% +4.5% -1.7%

Non-financial services -10.1% +10.8% -0.4%

Total Cerved sample 2 -7.4% +9.6% +1.5%

IMF Forecast - Italy -9.1% +4.8%

Segments with the best expected performance

(FY19-20 expected growth)

Hotel -37.5%

Hospitality -31.3%

Tour Operator -35.5%

Events & Trade fairs -25.0%

Beauty salons -22.3%

E-commerce +26.3%

Food Retail +12.9%

Fruit and vegetable production +2.7%


In the previous economic crisis (2008-2009) the Consumer sector (together with Leisure)

recorded a significant drop in Private Equity investments. 2020 will presumably see a drop in sectors

related to Fashion, Furniture, Food Service, Hospitality.

Source: MergerMarket

Deal Value (€bn) – Deals by Private Equity (global)

FY07 FY08 FY09

Consumer 50.7 14.0 3.2

Leisure 7.8 2.5 0.6

Total Private Equity investments 234.4 86.1 29.7

Expected trends

In the previous economic crisis (2008-2009), Consumer Markets (including Leisure segment) recorded a significant drop in Private Equity led investments, re-directed towards more defensive targets in the Pharma, Chemicals and Business Service sectors

In the last 2 years Private Equities remained focused on these sectors and on products / services with high technological content (including in part Leisure)

In 2020 we expect slowdown, in particular on some segments (Fashion, Furniture, Food Service, Hospitality), however mitigated by the higher amount of dry-powder

FY18 FY19 FY20

Consumer 9.2 8.2

Leisure 12.2 13.8

Total Private Equity investments 171.8 154.8 ?

SpecialtyRetail &Leisure


34 deals in Specialty Retail & Leisure (vs. 48 in 2018), with a majority of domestic transactions.

M&A appetite in Food Service (and in particular in restaurant chains) remained strong compared to

the rest of Europe, but heavily Covid-19 impacts in 2020.

Domestic

22 vs. 27

Inbound

9 vs. 18

Outbound

3 vs. 3

Strong impacts of Covid-19 on Food Service

(lock-down and closure of restaurants),

Tourism (travel ban) and Fairs (delay /

cancellation of events)

New formats in Food Service

Further concentration in the Gaming

sector

Change of traditional segments to meet

new preferences / behavior styles after

COVID-19

- Alice Pizza / DeA Capital

- IPO di Sirio SpA

- Trudi e Famosa Group / Giochi Preziosi

- Gamenet Group SpA / Apollo Global

- Grand Hotel Palazzo della Fonte /

Forte Village Sardinia

Strategic investor

23 vs. 29 in 2018

Financial investor

11 vs. 19 in 2018

Deals by investor type International features Expected trends

Some of the most relevant deals

(target / bidder)

Fashion & Luxury


Italian Fashion & Luxury confirms to be one of the most attractive markets: 77 deals in 2019

(vs. 43 in 2018). The interest of corporate buyers increases, with 45 deals announced during the

year and the number of cross-border transactions grows too (+13). Significant Covid-19 impacts

in 2020.

Deals by investor type


(target / bidder)

International features Expected trends

Domestic

43 vs. 22

Inbound

23 vs. 14

Outbound

11 vs. 7

Strong impact of Covid-19 (cancellation of

Cruise and 2020 Spring/Summer Fashion

Shows, events postponed in Sept. 2020,

lockdown of stores and factories)

Impacts of trade war and Hong Kong

turmoil

Prudent approach to valuation of brands

from financial investors and increasing

interest in the creation of integrated

platforms

Vertical integration in the luxury space

E-commerce development and

rationalization of traditional retail

Increasing focus on omni-channel

strategy

Focus on environmental issues and

sustainability of the supply chain

- New Guards Group / Farfetch

- Roberto Cavalli / Damac Property Group

- Buccellati Holding Italia / Richemont S.A.

- Elisabetta Franchi / SPACTIV

- Blumarine / Eccellenze Italiane Holding

Strategic investor

45 vs. 20 in 2018

Financial investor

32 vs. 23 in 2018

Furniture& Design


24 deals in Furniture & Design (vs. 29 in 2018), with a decrease in transactions led by corporate buyers

and, in general, cross-border deals.

Domestic

17 vs. 20

Inbound

5 vs. 8

Outbound

2 vs. 1

Significant impacts of Covid-19 (cancellation

of Salone del Mobile, next date in April 2021)

Expansion of product portfolio and

strengthening of positioning in foreign

markets from Italian companies

Concentration in the segment

Creation of platforms

Focus on technology (home

automation) and sustainability

(packaging, recycling, supply chain)

- Alessi / Oakley Capital

- Mollura Home Design / Made in Italy

fund

- Interni SpA / Progressio SGR

- L&S Lighting / Clessidra

- Laminam / Alpha Group

Strategic investor

10 vs. 7 in 2018

Financial investor

14 vs. 22 in 2018



(target / bidder)

Personale Care & Cosmetics


14 deals in Personal Care & Cosmetics (vs. 7 in 2018), with a significant increase in transaction

lead by financial investors mainly focused on brand and contract manufacturers.

Domestic

10 vs. 2

Inbound

3 vs. 4

Effects of Covid-19 mainly on products

dedicated to beauty salons, heavily

impacted by lock-down (cancellation of

Cosmoprof, next date in Spring 2021).

Make-up segment was one of the most

heavily impacted, differently from skin-

care and perfumes, partially converted to

production of detergents and disinfectants

Growth of «direct-to-consumer» and

direct e-commerce from Consumer

players

Focus on natural ingredients for

cosmetics products and

sustainability issues (cruelty –free,

bio packaging, etc.)

- Proraso / Nuo Capital

- Pool Service / Bluegem Capital Partners

- Biofarma SpA / Nutrilinea Srl

- Cotril SpA / MIR Capital

- La Bottega dell’Albergo / The Equity Club

Strategic investor

4 vs. 5 in 2018

Financial investor

10 vs. 2 in 2018

Outbound

1 vs. 1



(target / bidder)

Development of specific e-commerce

offering from fashion players


Food confirmed to be one of the most attractive sectors in the M&A landscape, with 80 deals in

2019 (vs. 60 in 2018). 25 cross-border deals (of which 15 inbound) confirm that «Made in Italy»

products are still very attractive for foreign investors.

Domestic

55 vs. 38

Inbound

15 vs. 16

Outbound

10 vs. 6

Limited impacts of Covid-19, with

consumer spending focused on this

segment during the lockdown period

Rising attention on the origin of

products, and on Fresh and Bio food

Growth opportunities in Food

Supplements

Further aggregation expected in Food

Ingredients

Review of packaging formats and

materials

Increased focus on e-commerce,

door-step delivery and click & collect

- Kellogg’s – snack business / Ferrero

- Auchan Italy – ca. 270 stores / Conad

- Nuova Castelli / Lactalis

- Delverde Industrie Alimentari / NewLat

- Italcanditi / InvestIndustrial

Strategic investor

55 vs. 41 in 2018

Financial investor

25 vs. 19 in 2018



(target / bidder)

Beverages


The Beverages segment recorded a significant growth with 27 deals (vs. 15 in 2018), of which 18 from

strategic investors and 16 cross-border. The largest transactions were in the Wine & Spirits, Coffee and

Soft Drink Segment.

Domestic

11 vs. 9

Inbound

10 vs. 4

Outbound

6 vs. 2

Impacts of Covid-19 in the HoReCa

segment

Focus on healthy propositions

(sugar-less, no-gas, alcohol-free)

Wine and Sparkling Wine (ultra)

premiumisation

International expansion

Further consolidation in the Coffee

segment

- Farnese Vini / Platinum Equity LLC

- La Galvanina / The Riverside

Company

- Lurisia / Coca Cola

- Rhumantilles / Campari

- Euro Foods Brands / Illycaffè

Financial investor

Strategic investor

18 vs. 9 in 2018

9 vs. 6 in2018



(target / bidder)

The impact on consumption style and the response of companies


Covid-19 has radically changed consumption styles in the short term and some behavioral

patterns will also remain in the medium term. This will require companies to react quickly, modifying

products offering, marketing and operating models.

New consumption style

Impact on the market

More time spent at home, avoiding

crowded places

Higher attention to spending,

especially to consumption not

essential

Attention to fresh loose food. Stock of

packaged goods and hygiene

products

Reduction of non-essential

contact opportunities

Increased purchases of

DIY, home entertainment, gym

equipment. Postponement of

apparel, footwear, cosmetic purchases

Reduction in frequency

of restaurants, bar, gyms, events.

Preference for short-haul travel / vacation

Greater focus on

essential consumption (food) and

supplements. Increased spending on high

quality / bio food

Major expenses focused

on home electronics / entertainment, rather

than on fashion & luxury or holidays

The short-term trend

consolidates in the medium term, with

availability of expenditure to be

allocated to BIO / DOC/ DOP products

Significant growth of e-commerce, also in Food

Retail and Food Delivery

The short term trend

consolidates in the medium term.

Increased use of «click &

collect» and payment machines

Short Term

Medium Term

Preference of packaged

or fresh pre-packed food vs. loose.

Potential stock-out risk

on basic, non-essential products

Timeline


The response of companies to market changes – Retail

The challenge for Retail is refocusing product offering, discounts and marketing in the short term, in the

medium term a review of the channel mix and investments on online platforms.

Offering Operating model

Short Term

- Review of products offered / assortment:

- Grater focus on household products, DIY,

consumer electronics compared to clothing /

shoes

- Long-life / packaged food compared to loose

- High-end restaurants will have to focus on the

development of menus dedicated to Home

Delivery

- Review of pricing policies, with ad hoc discounts /

promotions for better managing stock

- Communication on ingredients, supply chain safety

and social commitment

- Review of the channel mix:

- Greater attention to e-commerce (dedicated

offer, differentiated pricing policies)

- Regarding traditional retail, more space to

convenience store compared to shopping malls

and major focus on the retail experience

- Development of «click & collect» formulas

- Review of opening hours, with regular closures for

cleaning

- Use of data analytics tools to anticipate consumption

trends and adapt purchase and supply policies

- Review of agreements with logistics and home delivery

partners, assessing punctuality of deliveries

- Review of rental contracts for lockdown periods

- Smaller player will aggregate with each other or with

bigger players to share investments in online platforms

and logistics services

- Brick & mortar retailers will increase investments in i)

payment machines / lockers / click & collect to reduce

the opportunities for physical in-store contacts and ii)

online platforms to make appointments, with attention

to prioritization of the consumer base

- Further investments in online platforms will be necessary

for i) managing higher traffic volumes, offering

customization opportunities, ii) develop avatars to allow

customers to try on garments (fashion retailers)

- More efficient customer service to tackle higher

volumes of online transactions and increasing number of

returns (e.g. the same article ordered in multiple colors,

models and / or size in order facilitate the choice)

Medium Term

- Consumer loan for larger tickets, directly offered by

retailers


The response of companies to market changes – Consumer goods

Consumer market is preparing to face the same challenges of Retail sector to support the development of

e-commerce, as well as to review the sustainability of the supply chain.


- Development of multi-pack offers for products typically

subject to multiple purchase

- Replacing demand from certain types of customers

(e.g. catering, export) to large-scale / direct supplies

- Review of distribution strategies and pre and post

sales support for consumer electronics and home

equipment

- Consumer loan for higher tickets (eventually co-

developed with retailers)

- Focus on brand, used to communicate on product

content, increasing trust on supply chain safety, and

leverage on social commitment

- Focus on understanding the Target Consumers, in

order to customize the offering and be able to anticipate

behavioural patterns

- Review of channel mix, with increasing attention to

direct e-commerce to enhance customer

engagement with the most appropriate merchandising

/ communication media (email vs SMS vs social)

- Identification of alternative suppliers to face potential

shortages, analysing the impacts on purchase costs,

logistics and how much can be passed through to

customers

- Identification of i) key products / components to

prioritize in purchasing / production strategies and ii)

optimal stock level

- Valuation of impact on NWC and cash flows

- Use of data analytics tools for an efficient monitoring

of stock levels across geographies

- Review of supply chain, including supply chain of key

suppliers to identify potential issues / bottlenecks

- Re-shoring of core activities and suppliers (in Italy or

neighboring areas)

- Further investments in online platforms will be

necessary for managing direct e-commerce, the

development of dedicated communication strategies,

marketing and pricing policies

- Investments in consumer services and distribution

adequate to the development of the direct e-

commerce channel

Short Term

Medium Term


The response of companies to market changes – Services

The Entertainment & Leisure sector is facing the greatest challenge: re-thinking operating models to meet

the expected changes in short-term consumptions patterns, which will potentially consolidate in the

medium.


- Seasonal operators (such as amusement parks and

tourist attractions) will need to propose a more

flexible calendar and reduce prices to encourage

"last-minute" bookings, in order to foster recovery in

the second half of the year

- Tour operators will need to develop the possibility

of canceling reservations and to promote new

reservations with special discounts

- Companies in the Sport & Entertainment segment

will need to increase the offer of streaming events

- Appropriate insurance policies must be designed to

encourage travel, in particular abroad

- Tour operators and the cruise segment will have to

focus on local / proximity tourism

- To cope with the lower spending capacity of

consumers, operators will have to offer the possibility of

deferring payments over time with flexible and

convenient formulas

- Improvement of customer services to facilitate the

cancellation of reservations and new initiatives

- Improvement of seasonal staffing policies,

especially in the tourism and restaurant segments

- Flexibility in scheduling advertising events and

promotions to ensure that they can be easily (re)

scheduled when they can be most successful

- Review of agreements with insurance operators

Short Term

Medium Term

Contacts


Raffaele CestariPartner | Value Creation in DealsLeader

[email protected]

Alessandro Vitali Associate Partner |M&A

[email protected]

Fabrizio Franco De BelvisAssociate Partner |Strategy

[email protected]

Giovanni TinuperPartner | TransactionServices and Data Analytics Leader

[email protected]

Elena BorghiAssociate Partner | TransactionServices

[email protected]

Emanuela PettenòPartner | TransactionServices Markets Deals Leader

[email protected]

Contacts

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