Global and Italian M&A trends in Food & Beverage

Global and Italian M&A Insights: Issue 2/21 –

Food & Beverage market

May 2021 PwC | Global and Italian M&A Insights | Food & Beverage market

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Table of Contents M&A Food & Beverage (“F&B”) How the pandemic has affected the Food & Beverage industry An interview to Alessandro Strati and Olga Bologna from Illy Caffè SpA

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F&B – Global M&A Quarterly Trends

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F&B – Italian M&A Quarterly Trends

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F&B – Global Deals Volumes - Corporate vs. PE

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F&B – Italian Deals Volumes - Corporate vs. PE

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Top ten Italian deals FY20 – F&B

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Key Contacts

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PwC | Global and Italian M&A Insights | Food & Beverage market

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How the pandemic has affected the Food & Beverage industry An Interview to: Alessandro Strati – CFO Olga Bologna – Head of Corporate Finance, Financial Communication & PMO

In November 2020 illycaffè chose Rhône Capital as its partner to accelerate international development. After a rigorous selection process, which lasted more than a year, the deal was closed at the end of February 2021.

What are the competencies/abilities a family-owned business with a global unique brand look for in a private equity to implement a plan that creates value?

For more than 85 years Illy has been a family business, with a clear vision for the future, including the managerialization of the company under the solid family leadership. The search for a minority investor is part of this vision, and Rhône Capital was chosen based on: their ability to understand the value, heritage and potential of the brand, their entrepreneurial attitude which eases the dialogue with both family and management, their cultural fit.

PwC | Global and Italian M&A Insights | Food & Beverage market

One of illycaffè’s strategic pillars is the development of the US as a second domestic market; Rhône, being an Anglo-American operator, is the right partner to support us in this next phase of international growth, both through doors openings and consolidation of traditional channels (i.e. Ho.Re.Ca., modern trade, ecommerce).

Your business model is based on multiple distribution channels (directly operated stores, franchising, ecommerce, Ho.Re.Ca., Modern Trade, vending) that makes the business more complex but more diversified at the same time. How did you readapt your distribution model to be resilient in these turbulent times?

The COVID-19 pandemic has had a severe impact, as a large part of our revenues originate from the Ho.Re.Ca. channel. However, we accelerated the deployment of other business drivers, identified as key differentiating factors, even before the sanitary

emergency. First of all, digital transformation that goes beyond pure e-commerce, and focuses on developing a consumer-centric proposition, aimed at providing a positive customer experience and increasing customer loyalty. During the lockdown period, we experienced a +50% increase in online sales to new customers, evidence of a brand-new experience-driven commerce activating multiple business levers (ADV, social media, loyalty program…).

We invested in the creation of a corporate digital team back in 2018 and now see the results of this strategic decision.

We pushed the Modern Trade channel, through the consolidation of Nespresso-compatible coffee capsules, an initiative launched in 2019 in partnership with JDE. During the Covid-19 emergency, consumption habits drastically shifted from Ho.Re.Ca. to other channels and we are now replicating this success in the Italian market across other key geographies.

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How the pandemic has affected the Food & Beverage industry The pandemic has radically impacted our everyday life and changed consumer behaviours. How can Food & Beverage Brands gain a competitive advantage by addressing these emerging trends? What are your expectations for the recovery of traditional consumption channels (Ho.Re.Ca., stores, tasting and public events, etc.) and consumers’ habits in the “post COVID”?

The pandemic radically changed consumer habits and we expect that some of these changes will consolidate in the future. Consumption at-home vs out-of-home is likely to reduce compared to 2020, but not returning to pre-COVID19 levels due to online purchases and digital acceleration. We envisage consumers to become more beware and selective in choosing consumption occasions and places. Working from home may become the norm for around 25-40% of the time, meaning an increase in home consumption and a reduction of commuters. We also observe a “premiumization” trend, where consumer preferences move towards premium products as a way of selfgratification. Multiple brands (both F&B and luxury players) have been revising their retail strategy in the light of COVID-19, re-focusing their physical presence PwC | Global and Italian M&A Insights | Food & Beverage market

and evolving the value proposition to match changing consumer needs. In this more complex environment, we can say that Retail B2C remains an essential asset for illy to support the brand, especially in regions where the awareness is lower, and a key complement to an omnichannel strategy.

business model, such the manufacturing and supply chain process.

You’ve started to implement a digital transformation strategy for a couple of years, in which stage of this transformation are you and what are the next steps?

How has COVID-19 accelerated and/or changed this process?

Between 2017 and 2018 illy commenced its digital transformation process, envisaging three phases. The first phase focused on the digitalization of the customer experience, was completed in ca. two years.

Accelerated by the COVID-19 pandemic, we are now running the second phase which contemplates the digitalization of corporate processes, aimed at pushing the transformation into an omnichannel business model (i.e. e-store and PoS integration, development of IoT applications to coffee machines). The next phase foresees the digitalization of the overall 4

How the pandemic has affected the Food & Beverage industry Over the last few years, you adopted a corporate governance model focused on the segregation between managers and shareholders, with board composition mostly made up of independent members. In your experience, what are the critical elements for a successful integration between managers, family and PE? In 2016 for the first time, illycaffè appointed a “nonfamily member” as CEO, Mr Massimiliano Pogliani, and defined a new corporate governance model. The aim was to ensure a full separation of delegation and attorney entitles between CEO, Board of Directors and Chairman. This model continuously evolves and is now changing again following the Rhone Capital acquisition: two new directors have recently been appointed and we expect their perspectives will support our developments.

How are you addressing additional ESG aspects, such as environmental and health & safety, in the business model? And how do you plan to communicate to your stakeholders?

Sustainability is part of illy’s DNA. Fifty years ago, Ernesto Illy approached sustainability of procurement, by paying a premium to coffee producers to support farmers and local communities. Nowadays, the concept is widely extended: consumers expect the coffee to be sustainable, as well as the packaging and the entire value chain.

sustainable business model, working responsibly and transparently for the communities interacting with us.

We have the ambitious goal of reaching carbon neutrality by 2033, the year of our centenary. We are now finalizing the roadmap and will start implementing it in the coming months.

Sustainability is illy’s first strategic pillar. We focus on 360 degrees of sustainability across our organization.

We are working on the development of sustainable coffee systems for the Ho.Re.Ca. channel as well as for B2B clients with smart coffee machines.

We have recently been certified as B-Corp, strengthening our commitment to pursuing a

PwC | Global and Italian M&A Insights | Food & Beverage market

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Food&Beverages – Global M&A Quarterly Trends Despite the COVID-19 pandemic, F&B market shows an increase in terms of deal value, with +36% vs. FY19, while volumes show a declining trend (-9.6%). Deal value peak in Q4’20 is driven by Coca-Cola deals ($5.7bn), Nestlè acquisition in Freshly Inc ($1.5bn) and Bellis in ASDA Group Ltd ($8.8bn). Deals completed by corporates accounted for 76% of volumes

PwC | Global and Italian M&A Insights | Food & Beverage market

Deal value (US$m)

Deal volumes

F&B, Global Deal Value and Volume Q1’18-Q4’20 Deal Volumes

FY20

Delta FY19-20

Agribusiness (crops, fertilizer, animal processing)

587

(5.8%)

Beverages

205

(4.2%)

Food

838

(8.8%)

Food supplements

57

100.0%

Grocery, drug, discount, and mass

516

(16.2%)

Wine & Spirits

125

(17.8%)

Total

2,328

(9.6%)

Deal Value

FY20

Delta FY19-20

Agribusiness (crops, fertilizer, animal processing)

12,393

21.0%

Beverages

17,935

2.8%

Food

28,377

3.9%

Food supplements

941

(23.4%)

Grocery, drug, discount, and mass

50,402

109.0%

Wine & Spirits

2,462

12.0%

Total

112,509

36.3%

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Food&Beverages – Italian M&A Quarterly Trends Deal value shows a positive trend (+129% vs. FY19) in line with global market demostrating a relevant resilience to COVID-19 pandemic. Main deal value are concentrated (i) in 3Q20 with Massimo Zanetti Group delisting (F&B), Kipre acquisition by WRM (meat, F&B), BP investment in Consorzi Agrari (Agri, c. $180m) and (ii) in 4Q20 Ferrero (F&B) and Barilla acquisitions (F&B) (c.$450m). Deals completed by Corporate accounted for 59% of volumes E&L, Italy Deal Value and Volume Q1’18-Q4’20 •

Ferrero SpA of Italy acquired the US confectionery business of Nestle SA (Nestle), a Vevey-based producer and wholesaler of chocolate drinks, cereals, baby foods, soups, confectionery, frozen foods and ice cream, and refrigerated foods for ($2.8bn).

3,464

•

• •

Parmalat SpA of Italy, a unit of Groupe Lactalis SA, ultimately owned by BSA SAS, acquired the Canadian natural cheese business of Kraft Heinz Canada ULC ($1.2bn) (F&B) Luigi Lavazza SpA of Italy acquired drinks business of Mars Inc ($673m) (F&B) Soc Financement Industrie Laitiere SAS (Sofil) of France acquired 9.5% stake, in Parmalat SpA (Parmalat) manufacturer of fluid milk, ($567m). (F&B)

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M Zanetti Industries SA, raise its stake from 2.9%, to 32% ordinary shares in Massimo Zanetti Beverage Group SpA manufacturer of coffee ($65m) (F&B) WRM Group of Luxembourg, a unit of Time and Life SA, acquired the entire share capital of Kipre Holding SpA, a Modena-based meat processor ($46m); (F&B) BF SpA acquired a 37% stake in Consorzi Agrari d'Italia Srl, a Romebased provider of crop production services ($71m) (Agri)

• •

Ferrero SpA acquired fox's biscuits business of Boparan Holdings Ltd ($317m) (F&B) Rhone Capital LLC, acquired an minority stake in Illycaffe SpA ($243m) (F&B) Barilla Holding SpA agreed to acquire Catelli Foods Corp a Winnipeg-based manufacturer of dry pasta, from Ebro Foods SA ($125m) (F&B) Deal value (US$m)

2,580

•

719 186

PwC | Global and Italian M&A Insights | Food & Beverage market

Deal Volumes

FY20

Delta FY19-20

Agribusiness (crops, fertilizer, animal processing)

3

(40.0%)

Beverages

11

120.0%

Food

38

(20.8%)

Food supplements

2

100.0%

Grocery, drug, discount, and mass

11

(59.3%)

Wine & Spirits

8

(57.9%)

Total

73

(29.8%)

Deal Value

FY20

Delta FY19-20

Agribusiness (crops, fertilizer, animal processing)

76

69.4%

Beverages

335

1926.1%

Food

514

3037.8%

Food supplements

n.a.

n.a.

Grocery, drug, discount, and mass

22

(78.7%)

Wine & Spirits

13

(89.8%)

Total

961

206.7%

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Food & Beverages – Global Deals Volumes - Corporate vs. PE Corporate buyers deals activity remained at c.80% of total volumes over FY18-Q1’20 period, then slightly reduced to c.75% in last 3 quarter ‘20 (partially replaced by PE deals increased to c. 26% of total volumes)

Corporate vs Private Equity - deal volumes Global Consumer Market Q1’18

Q2’18

Q3’18

Q4’18

Q1’19

Q2’19

Q3’19

Q4’19

Q1’20

Q2’20

Q3’20

Q4’20

FY18

FY19

FY20

Total

654

629

607

629

633

627

658

656

608

503

583

634

2,519

2,574

2,328

Corporate

80%

80%

81%

80%

79%

80%

77%

75%

79%

76%

75%

73%

80%

78%

76%

PE

20%

20%

19%

20%

21%

20%

23%

25%

21%

24%

25%

27%

20%

22%

24%

Deal Volumes

FY20

Delta FY19-20

Corporate

1,761

(12.1%)

PE

567

(0.5%)

Total

2,328

(2.9%)

Similar analysis on deal value in progress (not feasible based on the current database but available in next days)

PwC | Global and Italian M&A Insights | Food & Beverage market

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Food & Beverages – Italian Deals Volumes - Corporate vs. PE Corporate buyers deals activity remained high until Q2’20 (on avg. 60% of total volumes), then slightly reduced at 57% in Q4’20, and partially replaced by domestic PE increase (from 39% on average in 1Q-3Q to 43% in 4Q20)

Corporate vs Private Equity - deal volumes Italy Consumer Market Q1’18

Q2’18

Q3’18

Q4’18

Q1’19

Q2’19

Q3’19

Q4’19

Q1’20

Q2’20

Q3’20

Q4’20

FY18

FY19

FY20

Total

17

23

11

19

14

27

22

41

21

12

17

23

70

104

73

Corporate

65%

57%

73%

53%

79%

70%

55%

66%

52%

67%

65%

57%

60%

66%

59%

PE

35%

43%

27%

27%

21%

30%

45%

34%

48%

33%

35%

43%

40%

34%

41%

Deal Volumes

FY20

Delta FY19-20

Corporate

43

(37.7%)

PE

30

(14.3%)

Total

73

(10.8%)

Similar analysis on deal value in progress (not feasible based on the current database but available in next days)

PwC | Global and Italian M&A Insights | Food & Beverage market

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Top ten Italian deals FY20 – Food & Beverages

1 | Executive Summary

Top 10 Italian Food & Beverages Deals, 2020 Target

Buyer

Deal type

Sector

Deal size (US$m)

Corporate

Food

317

PE

Beverages

243

1

Boparan Holdings Ltd - Fox's Biscuits Business

Ferrero SpA

2

Illy Caffè SpA

Rhone Capital LLC

3

Catelli Foods Corp

Barilla G e R Fratelli SpA

Corporate

Food

125

4

Consorzi Agrari d'Italia Srl

BF SpA

Corporate

Agribusiness

71

5

Massimo Zanetti Beverage Group SpA

MZB Holding SpA

Corporate

Beverages

65

6

Kipre Holding SpA

WRM Group

PE

Food

46

7

Centrale del Latte d'Italia SpA

Newlat Group SA

Corporate

Beverages

19

8

PVZ Srl-Callmewine Business

Italmobiliare SpA

Corporate

16

9

Grocery, drug, discount, and mass

Health & Weal di Zullo Loriana

Valsoia SpA

Corporate

Food

15

10

Raphael Dal Bo AG

Provinco Italia SpA

Corporate

Wine & Spirits

8

Source: Refinitiv, Dealogic and PwC Analyses (based on publicly announced deal information)

PwC | Global and Italian M&A Insights | Food & Beverage market

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Key Contacts Emanuela Pettenò Partner | Transaction Services Consumer Deals Leader & Markets Deals Leader +39 348 8519841 Email

Elena Borghi Partner | Transaction Services +39 348 1565355 Email

Domenico Creanza Director | Transaction Services +39 348 1565460 Email

Maria Teresa Ceglia Director | Transaction Services +39 345 6828434 Email

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