Recent M&A Trends in Food & Agriculture Industries: Consolidations, Divestitures, Addressing Consumer Sentiment and Fueling Growth

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1 Recent M&A Trends in Food & Agriculture Industries: Consolidations, Divestitures, Addressing Consumer Sentiment and Fueling Growth

2 Panel Tiffany Friesen Milone Assistant Managing Editor Bloomberg BNA Antitrust & Trade Regulation Report Mike Abbott Moderator Partner Faegre Baker Daniels Jon Levin Managing Director Consumer & Retail Mergers and Acquisitions Credit Suisse Securities (USA) Mark R. Belgya Vice Chair and Chief Financial Officer The J.M. Smucker Company

3 The J. M. Smucker Company

4 The J. M. Smucker Company Founded in 1897 by Jerome M. Smucker Listed on NYSE since 1965 Headquartered in Orrville, Ohio Five generations of family leadership Commitment to quality and consumer trust Principles-based company 7,500 Employees North American Focus

5 CY Our Key Acquisitions Acquisitions have brought new brands, categories and capabilities

6 Three Platforms for Growth COFFEE CONSUMER AND NATURAL FOODS PET FOOD AND SNACKS

7 Long-Term Value Creation $800 $700 $600 Indexed Total Return SJM versus Major Indices May 16, 2001 through May 16, 2016 CAGR % 1YR 5YR 10YR 15YR Smucker 12.9% 14.4% 16.2% 14.1% Smucker (14.1%) S&P 500 Food 18.5% 16.9% 12.9% 10.8% S&P % 11.6% 7.1% 5.3% $500 $400 Dow Jones - 0.6% 9.9% 7.3% 5.7% Note: These figures assume all dividends are reinvested when received and are based on $100 invested in our common shares and the referenced index funds on May 16, S&P 500 Food (10.8%) $300 $200 DJIA (5.7%) S&P 500 (5.3%) $100 $

8 Food & Beverage M&A Market Update

9 1. Overall 2015 M&A Review 5/19/2016 9

10 2015 was the Strongest Year on Record for Dollar Volumes Global transactions 2016 marks the third year of the current M&A cycle ($ in trillions) 46,683 44,325 42,840 40,757 42,191 42,220 42,314 39,846 38,909 35,279 40,051 $4.7 $4.5 38,110 32,340 32,325 30,368 29,476 29,114 $3.8 25,935 $3.4 $3.5 $3.5 23,861 26,747 $2.9 $2.7 19,750 $2.6 $2.4 $2.6 $2.6 $2.4 16,206 $2.1 13,919 13,994 $1.9 $1.7 $1.7 13,348 $1.0 $1.1 $1.2 $1.3 10,002 $0.4 $0.3 $0.3 $0.4 $0.6 14,181 12,393 $1.2 $ YTD April Dollar volume Number of transactions 2015 YTD April 2016 Source: Thomson Reuters based on announced transactions. 10

11 Global M&A Historical Multiples Median EV / EBITDA over time 10.5x 10.9x 10.9x 10.2x 10.7x 8.4x 8.7x 8.6x 8.6x 9.0x 7.6x Source: Note: Thomson Financial Securities Data Company. EBITDA multiples calculated for all global deals where information is available, deals with negative EBITDA multiples and multiples greater than 50 have not been included in the analysis. 11

12 2015 M&A Volumes were Dominated by Strategic Mega-Deals M&A transactions by dollar volume % 21% 16% 24% 14% 65% 78% 17% 59% < $10bn $10bn 30bn > $30bn Number of M&A transactions > $30bn $10bn 30bn $5bn 10bn Source: Thomson Reuters based on announced transactions. 12

13 While Financial Sponsors have been Active in Monetizing Assets, New LBO Activity has been Muted LBO activity Sponsor sell side activity ($ in billions) No. of deals $700 4,000 $600 3,500 $500 3,000 2,500 $400 2,000 $300 1,500 $200 1,000 $ $ Deal value Estimated financial sponsor cash ( dry powder ) ($ in billions) No. of deals $700 4,000 $600 3,500 $500 3,000 2,500 $400 2,000 $300 1,500 $200 1,000 $ $ Number of deals ($ in billions) $1,400 $1,200 $1,000 $800 $600 $400 $200 $0 $1,325 $1,190 $1,000 $1,050 $1,030 $1,075 $975 $1,000 $960 $800 $550 $400 $ Source: Thomson Reuters, Prequin. 13

14 Regional M&A Trends Highlight Strong M&A inflows into North America Cross-border M&A flow has been strong in stable, developed markets < < > < > < < Cross border flows $200bn+ $ bn $50 100bn $5 50bn LBO activity Sponsor sell side activity % of YoY M&A volumes by region 2015 share change $328 $216 $237 $280 $105 $150 North America Europe Asia Pacific Central & South Inbound Outbound America $27 $5 $10 $56 Middle East & Africa North America 51% 58% Asia Pacific 26% 61% Europe 19% 8% Central and South America 2% (29%) Middle East and Africa 2% (2%) Source: Thomson Reuters. (1) Includes activity only across regions (for example, Europe inbound to North America), but excludes intra-regional (for example, UK / Germany) cross border. Regional and intra-regional cross-border activity was 33% of total global M&A. 14

15 2. Food & Beverage M&A Observations 5/19/

16 Food & Beverage M&A Activity Remains Consistent with Overall M&A Cycles Food & Beverage M&A activity reached all-times high in terms of dollar volume in 2015 ($ in billions) $297 $186 $146 $159 $153 $67 $61 $38 $53 $71 $59 $87 $86 $100 $88 $ Food & Beverage Dollar Volume Food & Beverage Transactions Source: Thomson Reuters based on announced transactions. 16

17 Food & Beverage M&A Historical Multiples Median EV / EBITDA over time North America: 9.5x Europe: 10.8x Rest of World: 12.2x 11.9x 11.6x 11.8x 11.4x 10.7x 9.7x 9.8x 10.1x 9.1x 8.4x 8.0x Source: Note: Thomson Financial Securities Data Company. EBITDA multiples calculated for all global deals where information is available, deals with negative EBITDA multiples and multiples greater than 50 have not been included in the analysis. 17

18 New Food & Beverage LBO Activity Remains Near All-time Highs Percentage of Food & Beverage deals with sponsor involvement 12.4% 12.1% 12.1% 8.1% 3.4% 4.7% 5.8% 5.9% 1.9% 2.4% 3.9% 3.5% 10.1% 5.0% 5.2% 6.4% 3.9% 2.5% 9.4% 5.7% 3.6% 9.9% 5.7% 4.1% 6.6% 3.4% 3.1% 5.5% 4.1% 1.5% 8.6% 7.3% 6.5% 5.1% 2.0% 2.1% 6.7% 5.4% 1.3% 8.2% 5.6% 2.6% 8.6% 3.8% 9.9% 10.2% 2.2% 1.9% % Leveraged Buyout % Sponsor Sellside Source: Thomson Reuters based on announced transactions. 18

19 Food & Beverage M&A Volume has Grown Across the Globe Europe 127 transactions North America $145bn total volume 83 transactions $122bn total volume Central & South America 24 transactions $3bn total volume Middle East & Africa Asia Pacific 35 transactions 276 transactions $3bn total volume $25bn total volume % of YoY M&A volumes by region 2015 share change Europe 95% 624% North America 80% 158% Asia Pacific 17% (16%) Central & South America 2% (4%) Middle East & Africa 2% 96% Source: Thomson Reuters. 19

20 M&A in Food & Beverage has been Driven by a Variety of Catalysts Objective Desire for accretive growth Selected examples + + Mergers for scale in competitive environment Split / Spin Activism Portfolio pruning (corporate carve-outs) Impact of non-traditional investors Source: Thomson Reuters based on announced transactions. 20

21 M&A Dynamics within Consumer Subsectors Level of consolidation Strong category growth High public valuation Synergies PE ownership / Assets in play Commentary Food Mid-cap consolidation; growth assets; portfolio pruning Agribusiness & Protein International, value-add products Alcoholic beverages Craft beer acquisitions; potential spirit mergers if social issues resolve Nonalcoholic beverages New age beverages Note: Likelihood of M&A activity denoted by: High Medium Low 21

22 What to Expect in 2016 Fewer mega-deals Fewer separation transactions Continued consolidation of mid-caps Continued acquisition activity for growth assets Valuations may contract overall Asset reshuffling between large and mid-caps Increase in domestic transactions US buyers will be cautious investing overseas Limited sizeable LBO activity Sellside processes will have a strategic bias Sponsor activity will generally be smaller and with lower leverage 22

23 Discussion Tiffany Friesen Milone Assistant Managing Editor Bloomberg BNA Antitrust & Trade Regulation Report Panelists Jon Levin Managing Director Consumer & Retail Mergers and Acquisitions Credit Suisse Securities (USA) Mark R. Belgya Vice Chair and Chief Financial Officer The J.M. Smucker Company Moderator Mike Abbott Partner Faegre Baker Daniels

24 Questions Tiffany Friesen Milone Assistant Managing Editor Bloomberg BNA Antitrust & Trade Regulation Report Mike Abbott Moderator Partner Faegre Baker Daniels Jon Levin Managing Director Consumer & Retail Mergers and Acquisitions Credit Suisse Securities (USA) Mark R. Belgya Vice Chair and Chief Financial Officer The J.M. Smucker Company

25 Recent M&A Trends in Food & Agriculture Industries: Consolidations, Divestitures, Addressing Consumer Sentiment and Fueling Growth