With roughly two-thirds of economic activity driven by consumer spending, the strength of the overall economy is dependent upon the health of the consumer sector. Non-discretionary consumer purchases remain robust: the year-over-year revenue growth of the Beverages, Food, and Household and Personal Care (HPC) sub-sectors exceeded the overall GDP growth. Furthermore, Westbury’s selected comparable companies within these sub-sectors outpaced the broader market. For example, the median revenue growth rates for Beverages, Food, and HPC were 5.3%, 7.8%, and 4.5%, respectively. Likewise, over the last twelve months ending March 28, 2013, these sub-sectors’ median stock price appreciation outperformed the broader market (as measured by the S&P500) by 17.6%, 10.5%, and 19.0%, respectively. Non-discretionary consumables such as gardening, home power generators, and lawn mowers have shown solid year-over-year revenue growth in excess of overall reported GDP growth. For example, the median year-over-year revenue improvement in Westbury’s Outdoor Products sub-category shows 4.1% growth. Over the last twelve months ending March 28, 2013, Westbury’s Outdoor Products median stock price appreciation outperformed the broader market (as measured by the S&P500) by 17.2%. Shipments of goods and the health of the logistics sub-category are also critical indicators of the economy’s direction. Westbury’s Logistics comparable companies demonstrate revenue growth over the past year with a median of 9.9% and the recent quarter’s stock performance (in-line with the broader market) suggest that there has been positive sentiment.
Selected Consumer Transactions
Coming off a challenging economic downturn, Westbury’s selected comparable Retail companies’ performance indicate that the consumer has been alive and well. The median one-year revenue growth rates for the Broadlines, Casual Dining, Food Retail, Hardlines and Discounters, Quick Service Restaurant (QSR), and Specialty are 10.6%, 3.8%, 6.8%, 4.5%, 4.3%, and 13.8%, respectively. Likewise, relative to the broader market (as measured by the S&P500), the retail sub-sectors have all outperformed the S&P500 during the last quarter ending March 28, 2013 except for the Specialty segment trailing by (2.5)%. Otherwise, Broadlines, Casual Dining, Food Retail, Hardlines and Discounters, and QSR exceeded the quarterly increase in the S&P500 by 0.5%, 6.5%, 18.4%, 6.7%, and 3.1%, respectively.
Selected Retail Transactions
Transaction Spotlight: Recent Significant Branded Consumer Food Acquisition
H.J. Heinz Company (NYSE: HNZ) (“Heinz” or the “Company”) announced on February 14, 2013 that it had entered into a definitive merger agreement to be acquired by an investment consortium comprised of Berkshire Hathaway and 3G Capital (the “Transaction”). Under the terms of the agreement, which has been unanimously approved by Heinz’s Board of Directors, Heinz shareholders will receive $72.50 in cash for each share of common stock they own, in a Transaction valued at approximately $28.7 billion, including the assumption of Heinz’s outstanding debt. The per share price represents a 20% premium to Heinz’s closing share price of $60.48 on February 13, 2013, a 19% premium to Heinz’s all-time high share price, a 23% premium to the 90-day average Heinz share price, and a 30% premium to the one-year average share price.
More than a decade ago, Heinz began a strategy of transforming itself from a U.S.-centric food company into a global one with a more focused portfolio of strong brands and favorable categories. With two-thirds of sales now generated outside of the United States and 25% of sales in emerging markets, the Company has built significant global reach and capabilities. Heinz is one of the world’s leading marketers and producers of healthy, convenient, and affordable foods specializing in ketchup, sauces, meals, soups, snacks, and infant nutrition. Heinz is a global family of leading branded products, including Heinz Ketchup, sauces, soups, beans, pasta, and infant foods (representing over one-third of Heinz’s total sales), Ore-Ida potato products, Weight Watchers Smart Ones entrées, T.G.I. Friday’s snacks, and Plasmon infant nutrition. Upon closing of the Transaction, Heinz will become a private enterprise and will remain headquartered in Pittsburgh, PA.
According to Bill Johnson, Company Chairman, President, and CEO, as noted from the related press conference on February 14th:
- The deal was offered at a 13.6x trailing EBITDA, 13.1x forward, and a 30% premium to the 10-year EBITDA trading average.
- At approximately $28.7 billion this will be the largest acquisition of any company in the history of the food industry.
- Since the buyers are considered primarily financial, anti-trust regulatory hurdles are considered minimal.
- The stock appreciation was 133% historically since 2006, and at the offer price, 177%.
- There are no financing contingencies to the Transaction.
Trading at approximately 13.1x its forward EBITDA, the Transaction compares reasonably to other recent consumer branded food acquisitions:
There are few consumer branded food companies of the scope and geographic breadth of Heinz:
The Heinz acquisition announcement has been favorable for valuations in the sector as a whole, particularly the lower valued food enterprises:
Westbury would expect more transformational and large combinations to take place in the food sector on the tail of the Transaction, but not necessarily approaching the size of Heinz. Also, bolt-on acquisition opportunities of fast-growth, smaller food companies by the larger packaged food manufacturers is a theme we believe will be prevalent in this low interest rate environment.
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