investment banking i industry spotlight - 53.com from financial advisor $51,000,000 lead arranger...

1

Consumer & Retail I Industry Spotlight

Q3 2017


Q3 2017

Consumer & Retail I Q3 2017

Investment Banking I Industry Spotlight

2


Q3 2017


Q3 2017

Charlie Hurt

Managing Director

(404) 279-4518

[email protected]

Red Farha

Principal

(704) 808-5129

[email protected]

Investment Banking

John Shoffner

Managing Director

(704) 688-1813

[email protected]

John Boisture

Director

(704) 688-4522

[email protected]

Bill Tyson

Co-Head, Capital Markets

(804) 916-1481

[email protected]

Eric Welsch

Sponsor Relationship Mgmt.

(216) 274-5793

[email protected]

Sponsor Coverage

Matt Holbrook

Managing Director (DCM)

(704) 808-5052

[email protected]

Kirk Johnson

Managing Director (DCM)

(513) 534-8922

[email protected]

Debt & Equity Capital Markets

Mike Ryan

Managing Director (ECM)

(615) 687-3123

[email protected]

Susannah Lunke

Director (ECM)

(615) 687-3047

[email protected]

Craig Wolf

C&R Group Head

(312) 704-2994

[email protected]

Kevin Combs

National Retail Vertical

(404) 279-4584

[email protected]

Corporate Banking

Consumer & Retail Investment Banking

Representative Transactions

Key Contacts Consumer & Retail Investment Banking

Fifth Third Securities’ Consumer & Retail Investment Banking Group advises middle market and mid-cap companies on M&A advisory, capital raising, and strategic alternatives in the following sectors:

Consumer Food, Beverage & Agribusiness

Restaurants Retail

Apparel, Accessories & Footwear

Building Products

Consumer Services

Personal & Household Products

Interior Furnishings

Personal Products

Entertainment, Lodging, & Leisure

Agricultural Inputs

Beverages

Dairy Products

Foodservice Distribution

Ingredients and Flavors

Packaged Food/ Snack

Protein Processing

Casual Dining

Coffee & Specialty

Family Dining

Fast Casual

Fine Dining & Polished Casual

Franchisees

Quick Service (QSR)

Apparel, Accessories & Footwear

Discount & Off-Price

Furniture & Furnishings

Grocery & Pharmacy

Internet & e-Commerce

Mass Merchandise

Specialty

$425,000,000

has been acquired by

Sell-Side Advisor

has been acquired by

a portfolio company of

Sell-Side Advisor

has received an investment from

Financial Advisor

$442,000,000

Senior Secured Credit Facilities

Joint Lead Arranger

$51,000,000


Lead Arranger

$650,000,000

Senior Unsecured Notes

Co-Manager

$74,000,000


Franchisee

Lead Arranger

$250,000,000

First and Second Lien Credit Facilities

Lead Arranger

3


Q3 2017


Q3 2017 Economic Dashboard

National Unemployment Rate Real GDP Growth Additions to Non-Farm Payrolls

Retail Gas Prices Consumer Sentiment Index Housing Starts

Source: Bureau of Economic Analysis Source: Bureau of Labor Statistics Source: Bureau of Labor Statistics

Source: University of Michigan Source: Energy Information Administration Source: United States Census Bureau

(in $’s per gallon)

(in thousands of employees)

(in thousands of units)

5.0%

2.3%2.0%

2.6%2.0%

0.9% 0.8%1.4%

3.5%

2.1%1.4%

2.6%

3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q

'14 '15 '16 '17

4.0%

5.0%

6.0%

7.0%

0

100

200

300

400

75

80

85

90

95

100

105

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

750

850

950

1,050

1,150

1,250

1,350

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Q3 2017


Q3 2017

(10.0%)

(5.0%)

0.0%

5.0%

10.0%

15.0%

20.0%

Sep-16 Dec-16 Mar-17 Jun-17 Sep-17

Consumer Retail S&P 500

$360

$370

$380

$390

$400

$410

$420

$430

Aug-14 Feb-15 Aug-15 Feb-16 Aug-16 Feb-17 Aug-17

e-Commerce Industry Growth ($ in Billions) [1]

Monthly Retail Sales ($ in billions) [2]

LTM Share Price Performance

Consumer & Retail Sector Insights

Source: S&P Capital IQ and Company Filings [1] U.S. Census Bureau [2] U.S. Federal Reserve. Excludes food services

+16.7%

+10.5% +7.8%

Median= $418

0.0%

4.0%

8.0%

12.0%

$0.0

$30.0

$60.0

$90.0

$120.0

Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

2013 2014 2015 2016 2017

e-Commerce Sales % of Total Retail Sales

Amazon Makes Early Strides as Whole Foods Parent

AMZN cuts prices on staple items like bananas, avocados, and eggs by as much as 43% on its first day as Whole Foods’ owner

Signals that the tech giant is serious about competing on low price value proposition in the grocery space

Prices have historically been a barrier to entry for Whole Foods

Sycamore Partners Wagers with Staples

In the largest Retail deal of the year, Staples bets on shifting the business model from servicing customers to catering to companies

Challenged U.S. retail business will be wound down to a more manageable store footprint

Nike Struggles with Competition & Retail Environment

Gross margins have missed guidance for the last 6 quarters, coupled with decelerating online e-commerce sales in high teens Y-o-Y

Adidas continues to take share away with “casualization” effect

Positive momentum with AMZN direct selling partnership

Google Launches its Google Home Product to Compete with AMZN

Google launched its hands-free smart “assistant” speaker, along with smart Wifi and Nest thermostat for the fully connected home

Recent partnership with Walmart enables customers to purchase products if ordered via Google Express or by voice on Google Home

Estimated 5 million Google Home units sold, representing ~25% market share in internet connected devices

Retailers Test New Concepts While Eliminating Others

Target tests new curbside pickup service in Minneapolis and has partnered with San Francisco-based “Curbside” on the service

Coty announces it will divest up to 8% of its fragrance brands in an effort to reduce fixed costs and focus on core brands

5


Q3 2017


Q3 2017

12.0x

16.0x

20.0x

24.0x

Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Sep-17


(20.0%)

0.0%

20.0%

40.0%

60.0%

80.0%

Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Sep-17


Public Equity Market Valuation Trends

5-Year EV / Forward P / E Performance [1] 5-Year Share Price Performance

Sub-Sector Indices’ Share Price Performance [1]

Source: S&P Capital IQ as of September 29th, 2017 * Each index is comprised of the companies noted on pages 20 [1] Forward P/E multiples in charts do not match, as 5-year performance chart is market capitalization weighted

+73.3%

+68.3%

+47.6%

22.2x

21.7x

18.3x

Median

Number of Enterprise Value

Sector/Sub-Sector Companies $ in Millions LTM Forward LTM Forward LTM Forward

Consumer 84 $4,297 2.0x 1.5x 12.4x 11.9x 26.0x 21.4x

Personal Products 13 19,537 2.9x 3.0x 14.9x 14.2x 26.0x 24.3x

Apparel, Accessories & Footwear 34 7,638 2.0x 1.5x 13.4x 11.8x 26.2x 21.4x

Household Products 16 4,297 2.1x 2.0x 11.9x 12.4x 21.7x 17.6x

Consumer Services 8 2,249 1.8x 1.4x 8.3x 7.7x 27.9x 35.0x

Recreational Products 13 2,970 1.4x 1.3x 12.4x 11.9x 22.2x 17.3x

Retail 132 6,172 0.8x 0.6x 9.1x 8.8x 17.2x 16.4x

Grocery & Pharmacy 15 28,006 0.4x 0.3x 9.1x 8.7x 14.9x 23.2x

Mass Merchandise Retail 13 15,877 0.5x 0.5x 6.8x 6.3x 17.2x 14.1x

Specialty Retail 54 3,865 0.7x 0.6x 9.1x 9.0x 15.6x 14.2x

Discount & Off-Price Retail 14 7,464 1.0x 0.5x 10.8x 10.2x 20.9x 18.6x

Apparel, Accessories & Footwear 25 4,881 1.2x 0.7x 7.2x 6.6x 17.2x 13.6x

Internet & e-Commerce 11 2,654 2.7x 2.0x 15.1x 16.6x 20.3x 24.9x

S&P 500 500 NM 2.4x 2.3x 12.3x 11.2x 26.5x 18.3x

Median TEV / Revenue Multiples Median TEV / EBITDA Multiples Median TEV / P/E Multiples

6


Q3 2017


Q3 2017 Public Equity Market Valuation Trends (Cont’d)

Source: S&P Capital IQ as of September 29th, 2017 * Each index is comprised of the companies noted on pages 20

EV / Forward EBITDA 5-Year Est. EPS Growth LTM EBITDA Margin P / 2017 EPS

Personal Products

Recreational Products

Household Products

Discount & Off-Price Retail

Internet & e-Commerce

Specialty Retail

Consumer Services

Grocery & Pharmacy

Mass Merchandise

Retail

Apparel, Accessories &

Footwear (Retail)

Median: 9.6x Median: 15.5x Median: 12.5% Median: 12.2%

Apparel, Accessories &

Footwear (Cons.)

16.6x

14.2x

12.4x

11.9x

11.8x

10.2x

9.0x

8.7x

7.7x

6.6x

6.3x

27.5x

22.6x

15.3x

15.7x

17.6x

16.9x

12.6x

13.2x

29.8x

11.8x

12.8x

12.1%

19.9%

17.4%

10.9%

14.4%

10.7%

9.8%

4.9%

19.1%

14.1%

7.6%

20.0%

7.6%

12.0%

12.5%

10.7%

15.1%

14.1%

10.0%

17.9%

12.4%

3.8%

7


Q3 2017


Q3 2017

8.0x

9.3x

8.7x

7.2x

8.1x8.4x 8.3x 8.4x

9.3x

9.9x 9.7x10.0x 10.2x

8.8x 8.7x9.0x

8.3x8.8x 9.0x

8.7x 8.7x 8.9x

9.6x9.3x

10.2x

8.5x

6.0x

8.0x

10.0x

12.0x

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 YTD8/2016

YTD8/2017

Financial Buyers Strategic Buyers

0

4,000

8,000

12,000

16,000

20,000

24,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 3Q 2016 3Q 2017

Under $25mm $25 to $500mm Above $500mm Undisclosed

U.S. M&A Volume and Valuation Trends

Median Transaction Multiples (Enterprise Value / LTM EBITDA)

Transaction Volume

Note: This data represents the entire U.S. market (all industries) Source: PitchBook, S&P Capital IQ, and S&P Capital IQ LCD

Recession Recession

’16 vs. ’17

▼ 15%

‘07 to ‘11 Median Financial = 8.4x Strategic = 8.8x

‘12 to ‘16 Median Financial = 9.3x Strategic = 8.9x

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Q3 2017


Q3 2017

8.6x10.0x 10.2x 9.5x

10.9x 11.1x9.8x 9.3x 9.5x

11.4x9.8x 9.5x

8.2x

9.8x 10.6x11.7x 11.1x

12.3x 11.7x10.0x

0.0x

5.0x

10.0x

15.0x

2009 2010 2011 2012 2013 2014 2015 2016 3Q2016 3Q2017

Middle Market > $1 Billion

$0

$100

$200

$300

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Middle Market > $1 Billion

Consumer & Retail Sector M&A Trends

U.S. Consumer & Retail M&A Announced Deal Value ($ in billions) [1,2]

U.S. Consumer & Retail M&A Announced Deal Volume

U.S. Consumer & Retail M&A Closed Deal Average EV / EBITDA Multiple [1,2]

Median Middle Market: $14.0

Median Middle Market: 10.0x

Median > $1 Billion: $26.2

Median > $1 Billion: 10.0x

Source: Fifth Third Securities, S&P Capital IQ [1] Middle Market transactions defined by transactions with an enterprise value below $1 billion [2] U.S. Consumer & Retail transactions include Consumer Discretionary and Consumer Staples transactions, and exclude outlier multiples

C&R M&A activity continued its slow pace through 3Q2017

Deal volume remained relatively flat while overall deal value declined

Lull in activity suggests that buyers are continuing to grapple with the “upstream” impact of a challenged retail environment and are instead focusing on organic growth

Consumer Products Activity Picks Up

Following a slow start to the year, M&A activity in the consumer products space is showing signs of a rebound

Q3 saw a number of sizeable tuck-in acquisitions as operators look to grow brand portfolios

Church & Dwight and V.F. Corporation, two leaders in the consumer space, bolstered their respective portfolios with significant acquisitions of Water Pik and Dickie’s, respectively

Sycamore’s Acquisition of Staples was a “Thesis”-Driven Investment

Successful Canadian retail that is the 2nd largest seller of Apple products

Successful U.S. wholesale that drives 90%+ repeat customers

0

250

500

750

1,000

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Q3 2017


Q3 2017 Consumer Precedent M&A Transactions

Consumer Precedent M&A Transactions ($ in millions)

Source: Company Filings, S&P Capital IQ [1] * Excluded from mean and median [2] Green shading indicates strategic acquisition

Announced Enterprise LTM

Date Acquirer Target Value (EV) Revenue EBITDA Revenue EBITDA

8/11/17 V.F. Corporation (NYSE:VFC) Williamson-Dickie Manufacturing Company $820 875 75 0.9x 11.0x

8/4/07 Crown Crafts, Inc. (NasdaqCM:CRWS) Carousel Designs, LLC 10 7 - 1.3x -

8/3/17 Callaway Golf Company (NYSE:ELY) TravisMatthew LLC 125 - 11 - 11.8x

7/31/17 TOS S.r.l. Sebago USA LLC 14 - - - -

7/17/17 Church & Dwight Co., Inc. (NYSE:CHD) Water Pik, Inc. 1,033 265 80 3.9x 12.9x

7/11/17 Logitech G ASTRO Gaming, Inc. 85 - - - -

6/16/17 Wal-Mart Stores, Inc. (NYSE:WMT) Bonobos, Inc. 310 - - - -

6/6/17 Shanghai Chuangkai Enterprise Development Co., Ltd. Kellwood Company Apparel Group 1,298 - - - -

6/5/17 Compass Diversified Holdings LLC (NYSE:CODI) Crosman Corporation 152 - - - -

5/26/17 Kohlberg & Company, L.L.C. Newell Brands (Winter Sports Business) 240 330 25 0.7x 9.6x

5/10/17 KPS Capital Partners, LP Taylor Made Golf Company, Inc. 425 - - - -

5/8/17 Coach, Inc. (NYSE:COH) Kate Spade & Company (NYSE:KATE) 2,354 1,378 228 1.7x 10.3x

5/3/17 Hangzhou Great Star Industrial Co., Ltd. (SZSE:002444) Arrow Fastener Company, LLC 125 - - - -

3/31/17 JMJD Ventures, LLC Liquid Blaino Designs 28 - - - -

3/13/17 Mill Road Capital Lifetime Brands, Inc. (NasdaqGS:LCUT) 399 593 $44 0.7x 9.0x

2/16/17 Samson Holding Ltd. (SEHK:531) Kohler Interiors Group, Ltd. 30 - - - -

2/6/17 AB Electrolux (OM:ELUX B) Anova Applied Eletronics, Inc. 250 40 - 6.3x * -

2/1/17 Carter's, Inc. (NYSE: CRI) Skip Hop, Inc. 150 86 - 1.7x -

1/25/17 Textron Specialized Vehicles Inc. Arctic Cat Inc. 324 508 - 0.6x -

1/11/17 Callaway Golf Company (NYSE:ELY) OGIO International, Inc. 76 - - - -

1/3/17 Drylock Technologies Ltd. Presto Absorbent Products, Inc. 71 - - - -

12/13/16 Caleres, Inc. (NYSE:CAL) Allen Edmonds Corporation 255 - - - -

12/12/16 Newell Brands Inc. (NYSE:NWL) Smith Mountain Industries Inc. 100 - - - -

11/14/16 The Estée Lauder Companies Inc. (NYSE:EL) Too Faced Cosmetics, LLC 1,450 - - - -

11/14/16 Gildan Activewear SRL American Apparel, Inc. (Remaining Stake) 66 - - - -

10/31/16 Fairfax Financial Holdings Limited (TSX:FFH) Performance Sports Group Ltd. 693 - - - -

10/21/16 British American Tobacco p.l.c. (LSE:BATS) Reynolds American Inc. (NYSE:RAI) (Remaining Stake) 91,570 12,371 5,612 7.4x 16.3x

10/12/16 Stanley Black & Decker, Inc. (NYSE:SWK) Newell Brands (Tools business) 1,950 760 150 2.6x 13.0x

10/5/16 Constellation Brands, Inc. (NYSE:STZ) High West Distillery, LLC 160 - - - -

9/1/16 Vista Outdoor Inc. (NYSE:VSTO) Camp Chef 74 - - - -

8/2/16 Spin Master Corp. (TSX:TOY) Swimways Corporation 94 986 - 0.1x -

8/1/16 Compass Diversified Holdings LLC (NYSE:CODI) 5.11, Inc. 400 293 38 1.4x 10.5x

7/26/16 Gildan Activewear Inc. (TSX:GIL) Peds Legwear Inc. 55 80 - 0.7x -

7/25/16 G-III Apparel Group, Ltd. Donna Karan International Inc. 650 - - - -

7/22/16 L'Oreal SA (ENTXPA:OR) It Cosmetics, LLC 1,200 182 - 6.6x * -

Median - Strategic 1.5x 12.4x

Median - Financial 0.7x 9.6x

Median - All 1.3x 11.0x

EV / LTM

10


Q3 2017


Q3 2017 Retail Precedent M&A Transactions

Retail Precedent M&A Transactions ($ in millions)

Source: Company Filings, S&P Capital IQ [1] * Excluded from mean and median [2] Green shading indicates strategic acquisition

Announced Enterprise LTM

Date Acquirer Target Value (EV) Revenue EBITDA Revenue EBITDA

8/17/17 Sneaker Villa, Inc. DTLR, Inc. - - - - -

8/11/17 Aurum Holdings Ltd. Mayor's Jewelers, Inc. $105 - - - -

7/28/17 Aaron's Inc. SEI / Aaron's 140 - - - -

7/28/17 Sycamore Partners Staples, Inc. (NasdaqGS:SPLS) 6,552 18,033 1,255 0.4x 5.2x

7/6/17 QVC Group (NasdaqGS:QVCA) HSN, Inc. (NasdaqGS:HSNI) 2,604 3,503 244 0.7x 10.7x

6/20/17 Hangzhou Lianluo Interactive Information Technology Newegg Inc. 474 - - - -

6/17/17 Monomoy Capital West Marine 291 702 38 0.4x 7.7x

6/16/17 J.W. Childs Associates, L.P. EBL, Inc. ("Eblens") - - - - -

6/16/17 Amazon.com, Inc. (NasdaqGS:AMZN) Whole Foods Market, Inc. (NasdaqGS:WFM) 13,723 15,856 1,333 0.9x 10.3x

5/1/17 Camping World Holdings, Inc. (NYSE:CWH) Gander Mountain Company Inc. 34 - - - -

4/7/17 Samsonite LLC eBags, Inc. 105 159 - 0.7x -

4/18/17 PetSmart, Inc. Chewy, Inc. 3,350 - - - -

2/28/17 Barnes & Noble Education Inc. (NYSE:BNED) MBS Textbook Exchange, Inc. 174 500 55 0.3x 3.2x

2/15/17 Wal-Mart Stores, Inc. (NYSE:WMT) New Moosejaw, LLC 51 - - - -

2/10/17 SportsDirect.com Retail Ltd. Eastern Outfitters, LLC 30 - - - -

1/25/17 Thomas H. Lee Partners, L.P. Art Van Furniture, Inc. - - - - -

1/5/17 Jet.com. Inc. Shoebuy.com, Inc. 70 - - - -

12/20/16 Orchestra Premaman Société Anonyme (ENXTPA:KAZI) Destination Maternity Corporation (NasdaqGS:DEST) 136 452 23 0.3x 5.8x

12/7/16 Cerberus Capital Management Staples, Inc., European Operations 59 - - - -

11/22/16 Bed Bath & Beyond Inc. (NasdaqGS:BBBY) PersonalizationMall.com, Inc. 190 - - - -

11/7/16 Bain Capital Blue Nile, Inc. (NasdaqGS:NILE) 456 472 16 1.0x 27.8x *

11/7/16 Dick's Sporting Goods, Inc. (NYSE:DKS) Golfsmith International Holdings, Inc. 43 - - - -

10/4/16 ThreeSixty Group Limited FAO Schwarz, Inc. - - - - -

10/3/16 Bass Pro Outdoor World, LLC Cabela's Incorporated (NYSE:CAB) 4,485 3,482 597 1.3x 7.5x

9/29/16 Tractor Supply Company (NasdaqGS:TSCO) Petsense, Inc. 116 - - - -

8/8/16 Wal-Mart Stores Inc. (NYSE:WMT) Jet.com, Inc. 3,300 - - - -

8/7/16 Steinhoff International Holdings N.V. (JSE:SNH) Mattress Firm Holding Corp. (NasdaqGS:MFRM) 3,743 3,142 234 1.2x 16.0x *

4/18/16 Vestis BSI Funding II, LLC Eastern Mountain Sports and Bob Store's 38 - - - -

3/14/16 Apollo Global Management (NYSE:APO) The Fresh Market (NasdaqGS:TFM) 1,312 1,857 191 0.7x 6.9x

2/17/16 DSW Shoe Warehouse, Inc. Ebuys, Inc. 118 - - - -

2/11/16 Sun Capital Partners, Inc. Furniture Factory Outlet, LLC - - - - -

1/7/16 Hudson's Bay Company (TSX:HBC) Gilt Groupe, Inc. 250 - - - -

1/5/16 KKR & Co. L.P. Mills e-commerce Enterprises, Inc. (Mills Fleet Farm) 1,200 - - - -

12/3/15 Thomas H. Lee Partners, L.P. Bargain Hunt Superstores - - - - -

11/30/15 Mattress Firm Holding Corp. (NasdaqGS:MFRM) Sleepy's, LLC 780 1,099 70 0.7x 11.1x

Median - Strategic 0.7x 10.5x

Median - Financial 0.6x 6.9x

Median - All 0.7x 7.5x

EV / LTM

11


Q3 2017


Q3 2017 Highlighted M&A Transactions

Consumer M&A Transactions

Retail M&A Transactions

* Estimated enterprise value Source: S&P Capital IQ

Sneaker Villa, Inc. Acquires DTLR, Inc.

Enterprise Value: N/A

Revenue Multiple: N/A

EBITDA Multiple: N/A

Merges two urban apparel retailers creating an industry leader

Combined footprint and e-Commerce platform will create a national retail presence

Aaron’s Acquires SEI / Aaron’s

Enterprise Value: $140 million



Aaron’s acquires its largest franchisee Acquisition will strengthen Aaron’s

presence in highly attractive markets Purchase is expected to enhance Aaron’s

ability to drive inventory supply-chain synergies between Aaron’s business and progressing leasing markets

Monomoy Capital Acquires West Marine


Revenue Multiple: 0.4x

EBITDA Multiple: 7.7x

Acquisition marks Monomoy’s third middle market acquisition of 2017

Monomoy paid a 32% premium

Logitech G Acquires ASTRO Gaming, Inc.




Creates a gaming tech powerhouse, combining two industry competitors

A starting point for Logitech’s long-term acquisition strategy to tap the game console market

QVC Group Acquires HSN, Inc.

Enterprise Value: $2.6 billion



Merger will give the combined company greater scale to invest in emerging technology

A direct response to the increase in online shopping

Combined company will give already loyal customers more product offerings

Callaway Golf Company Acquires TravisMatthew LLC




Callaway’s 4th tuck-in acquisition since 2016, continuing its efforts to expand in tangential golf businesses

Expands brand portfolio to include lifestyle and apparel products

Acquisition expected to be immediately and highly accretive

V.F.’s first major acquisition since 2011 Acquisition comes as V.F. seeks to

update its existing portfolio Management seeks to bring in and

rehabilitate an underperforming brand Investors have been clamoring for larger

deals in growth categories

V.F. Corporation Acquires William-Dickie Manufacturing Comp.




Church & Dwight Co., Inc. Acquires Water Pik, Inc.

Enterprise Value: $1.1 billion



Acquisition part of continued strategy to grow oral care portfolio

Consistent with strategy of acquiring #1 or #2 brands in key growth categories

Brings new category to portfolio: Showerheads and water conservation

12


Q3 2017


Q3 2017

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3Q

12

4Q

12

1Q

13

2Q

13

3Q

13

4Q

13

1Q

14

2Q14

3Q

14

4Q

14

1Q

15

2Q

15

3Q

15

4Q

15

1Q

16

2Q

16

3Q

16

4Q

16

1Q

17

2Q

17

3Q

17*

Deal Value ($) # of Deals Closed

Private equity exits increase significantly Year-over-Year

Q3 saw a strong uptick in PE exits compared to the same quarter in the prior year

Private equity investors, concerned about a market peak, are being opportunistic in seeking portfolio company exits

Private equity buyers are faced with strong industry headwinds

Recent sluggish organic growth in the restaurant industry fuels the need for M&A activity to drive returns

Investors may believe that restaurant margins will decline over time, as Amazon and other startups enter food delivery with a mission of lowering costs for consumers

Buyers have the dry powder necessary to make large acquisitions but remain hesitant

Private equity firms continue to sit on record levels of undeployed capital

While this excess cash can create a drag on returns for financial sponsors, overall concerns of a potential market correction and lack of enthusiasm about organic growth prospects have caused private equity buyers to remain wary in their deal making

Middle Market Private Equity Activity

U.S. Private Equity Deal Flow ($ in billions)

U.S. Consumer & Retail Private Equity Deal Flow ($ in billions)

U.S. Consumer & Retail Private Equity Exits ($ in millions)

Source: Fifth Third Securities, PitchBook ND – No Transaction Values Disclosed *3Q17 preliminary PitchBook data

$145.0 $100.0

$298.5 $196.8

$270.0

$142.2 $92.5

$267.5

$423.0

106 122

163 145

202 200 204

50 46

2010 2011 2012 2013 2014 2015 2016 3Q2016 3Q2017

Median Deal Size ($) # of Exits

$43.3 $50.4 $54.9

$78.5

$57.9

$117.7

$65.3

$16.8 $29.0

544 644 733 663 783882 795 203 140

2010 2011 2012 2013 2014 2015 2016 3Q2016 3Q2017

Capital Invested ($) # of Deals Closed

13


Q3 2017


Q3 2017

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

MM B-rated MM NR

6.12%

6.29%

Note: This data represents the entire U.S. middle market (all industries) Note: The middle market is defined as deal size < $100 million and borrower sales < $500 million [1] Includes both non-sponsored and sponsored transactions; sufficient data not available for MM NR loans in 1Q15 and 1Q17 Source: Bloomberg, S&P Capital IQ LCD, and Thomson Reuters LPC

U.S. Middle Market Loan Market Trends

Loan Volume: Low Level of Supply Continues ($ in billions) Non-Rated Term Loan Yields Tighten Further [1]

Covenant-Lite Volume Surges in 2Q17 ($ in billions) Leverage Multiples Remain Aggressive on Middle Market LBOs

$0.0

$10.0

$20.0

$30.0

$40.0

$50.0

$60.0

$70.0

Non-Sponsored Sponsored

$0.0

$1.0

$2.0

$3.0

$4.0

$5.0

$6.0

$7.0

0.0x

1.0x

2.0x

3.0x

4.0x

5.0x

6.0x

7.0x1st Lien Debt to EBITDA Junior Debt to EBITDA

14

Industry Spotlight Series: “The Amazon Effect”

15


Q3 2017 The Consumer Industry is Evolving Amidst Challenges

Source: S&P Capital IQ and Company Filings [1] U.S. Census Bureau [2] IRI Total US - Multi Outlet [3] Company Filings & Technomic

0.0%

4.0%

8.0%

12.0%

$0.0

$30.0

$60.0

$90.0

$120.0

Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

2013 2014 2015 2016 2017

e-Commerce Sales % of Total Retail Sales

e-Commerce Industry Growth ($ in Billions) [1]

Volume % Change Year Over Year - Total Retail Food & Beverage [2]

Restaurant Same Store Sales (SSS) Growth [3]

Traditional Mall-Based Retail Model is Evolving

Mall landlords are being forced to address increasing retail vacancies

– Retailers have announced nearly ~3,000 store closures in 2017

– Analysts predict that ~40% of U.S.-based malls will eventually close

Landlords have filled vacancies creatively with offices, churches, for-profit schools and open-air entertainment spaces, among other formats

Consumer Businesses are Forced to Address Amazon (AMZN) Competition in Different Ways

Nordstrom is considering a go-private transaction amid net earnings misses as a result of declining mall and retail foot traffic

Home Depot EPS has grown 16% YOY as a result of a 23% spike in online orders through its roll-out of “Buy Online, Pickup in Store”

Nike reached an agreement to sell shoes direct through AMZN

Consumers Desire Ease of Use & Mobile Accessibility

AMZN and Google launched “at-home” products (Alexa and Google Home) that allow consumers to order through voice activated commands

Food and consumer staples delivery services like Postmates and Handy make day-to-day tasks substantially easier for consumers

Retailers invest in mobile technology despite unproven return models, though some have been successful (see prior comment on Home Depot)

Packaged Foods Companies Respond to Evolving Consumer Tastes

Millennials respond to convenience while other generations are more brand-oriented, though both are seeking healthier options

Meal kit delivery services, ready-to-eat foods and private label grocery brands are stealing market share from the traditional channels

Weak Retail Traffic Growth Has Also Affected Restaurants Too

Same Store Sales (SSS) growth performance – the key indicator of organic growth – has grinded to a halt

The Casual Dining model has been upended by the more convenient Fast Casual segment, which is struggling itself to drive positive SSS growth

People still eat 3 meals a day, but, as spending habits shift to e-Commerce, fewer consumers are out and about shopping

(2.0%)

0.0%

2.0%

4.0%

6.0%

8.0%

Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

2015 2016 2017

Full Service Restaurants Limited Service Restaurants

0.4%

(0.7%)

0.9%

1.9%

1.0%

(0.9%)(1.3%)

1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 Est.

16


Q3 2017


Q3 2017 Amazon is Disrupting the Broader Consumer Industry

The Future The Present

[1] AMZN has not released prime membership data, and estimates on its actual size vary

Source: Bespoke Investment Group Source: Needham & Co.

AMZN’s business has been so disruptive, analysts at Bespoke have created the “Death By Amazon” Index, made up of 54 retailers all being

hit heavily by AMZN’s impact on the industry

Industry experts do not believe AMZN’s growth story will slow down anytime soon, as AMZN has positioned itself perfectly to continue its

development and capture more market share

Significant Dates

June 16th, 2017: AMZN announces acquisition of Whole Foods

− $21.7 billion in rivals’ market value destroyed

− KR down 8.0%; TGT down 5.1%; WMT down 4.9%

July 19th, 2017: AMZN announces alliance with Sears to sell Kenmore appliances

− $11.8 billion in rivals’ market value destroyed

− LOW down 5.6%; BBY down 3.9%; HD down 4.1%

AMZN’s ‘Secret Weapon’ for Sustainable Growth: Amazon Prime

Prime offers customers free shipping, television shows, music, discounts, and many other offerings for monthly or annual fees

− Research indicates that Prime memberships have doubled in the past 2 years [1]

− 80% of Prime members shop on Amazon once a month

− Prime members spend up to $1,500 a year on the site, more than twice the amount of non-members

34%37%

41%45%

47%50%

2016 2017 2018 2019 2020 2021

AMZN's % of Total U.S. e-Commerce Sales

17


Q3 2017


Q3 2017 Amazon’s Growth Has Captured Share in All Sectors

Key Takeaways

Note: $ in billions Source: S&P Capital IQ, Press releases

Summary of Amazon Activity

AMZN has prioritized growth over profitability

Despite its growth, AMZN has the lowest operating margin of peers

Online sales are thought to be less profitable than in-store sales

Despite the elimination of a major fixed expense (rent)

Likely driven by the focus on low-price/value of online shopping

The public market has rewarded AMZN for its growth

Investors assign AMZN a premium valuation with the expectation that someday (in the future) it will be more profitable

Of the retailers shown, however, AMZN may be the worst performer based on traditional methodologies

AMZN’s growth has been in diverse categories

Grocery, home furnishings, electronics and food/beverage

AMZN has effectively become a conglomerate, though with a different delivery model

Grocery Meal Delivery Electronics Home Furnishings

Mkt. Cap Mkt. Cap 10-Yr. LTM Sales LTM Sales 10-Yr. Op. Income e-Commerce

Company Sep-07 Sep-17 CAGR Sep-07 Sep-17 CAGR Margin % of Sales

$33.0 $469.9 30.4% $12.2 $150.1 28.5% 2.3% 69.6%

179.3 234.1 2.7% 179.3 240.9 3.0% 4.7% 3.0%

55.8 30.7 (5.8%) 61.9 69.6 1.2% 6.9% 4.4%

27.0 69.4 9.9% 64.4 123.3 6.7% 3.1% 4.0%

20.8 16.6 (2.2%) 38.0 39.9 0.5% 4.6% 11.0%

13.6 46.1 13.0% 17.9 33.9 6.6% 11.3% 1.0%

19.1 6.8 (9.9%) 16.3 18.5 1.3% 7.3% 45.4%

75.6 177.7 8.9% 77.8 97.4 2.3% 14.4% 5.9%

46.1 62.5 3.1% 48.0 67.9 3.5% 9.2% 3.5%

~$1.15 billion in Furniture Sales/

Upcoming Amazon Furniture Stores

18


Q3 2017


Q3 2017 Consumer Businesses Have Responded

Competitors’ Response to AMZN Strategy Key Takeaways

Source: S&P Capital IQ, press releases, company transcripts

Free two-day shipping for orders over $25

Launched Scan & Go app

New partnership with Google Shopping

Investing $7 billion in growth initiatives

Refitting stores to be more digitally integrated and to serve as distribution centers

Added GE appliances to portfolio

Added 12 distribution centers in the past year (7 to 19)

Building ‘interconnected’ retail experience

Successful rollout of “Buy Online, Pick Up in Store”

Invested in e-Commerce and mobile platforms

Investing in marketing to leverage brand recognition

Launched Buy Online, Pick-Up In-Store, Curbside Pickup, and Reserve Online & Try In-Store programs

Formed Kroger Specialty Pharmacy

Expanding online platform

Testing meal kits

Investing in its digital business and enhancing the consumer experience

Leveraging peer bankruptcies

Now selling products on Amazon.com

Investing in international market (less competitive)

Investing significantly in network ‘synchronization’

Launched direct-to-consumer subscription business

Launched meal kit “Tyson Tastemakers” sold through Amazon Fresh

Plans to grow e-commerce business to $1 billion by 2020

Exploring product innovation to match consumer trends

Omni-Channel investment abounds

Omni-channel in its simplest form means “accessing the consumer at different touchpoints”

In retail, omni-channel often means investing in digital platforms that integrate with brick-and-mortar business

Stores are more frequently doubling as potential ‘distribution’ centers

Convenience : adding delivery & pick-up services, or removing check-out lines altogether

Some consumer businesses use AMZN’s platform to bolster theirs

NKE will sell through AMZN, to the chagrin of its retail partners

AMZN can serve as a platform to distribute slow-moving inventory (how profitably depends)

KSS now accepts AMZN returns at select stores

Meanwhile, others are taking on AMZN head-to-head

Food/grocery sector is testing meal kits and creating strategic alliances to counter AMZN

WMT acquired Jet.com and 9 other e-Commerce businesses

19


Q3 2017


Q3 2017

9.9x 6.8x

9.6x 10.1x 13.9x

9.8x 7.9x 8.1x

15.1x

8.5x 12.1x 11.9x

17.9x 15.5x

11.7x 12.1x

Ingredients& Flavors

ProteinProcessing

/Dairy

BrandedProcessed

Foods

Private LabelFood

Manufacturing

Natural/Organic/

Better-for-You

Beverage Ready-To-Eat

S&P 500 Index

Aug-12 Aug-17

7.7x

11.5x

14.8x

10.9x 8.4x 8.2x 8.1x

11.5x 12.6x 14.0x

15.5x

12.7x 13.0x 12.1x

Branded Apparel & Footwear

Accessories &Jewelry

Activewear Personal Products RecreationalProducts

HouseholdProducts

S&P 500 Index

7.0x 6.7x

10.7x 8.3x 8.5x

6.8x 5.7x

13.6x

8.1x

4.3x

8.8x 9.7x 9.8x 8.1x

6.2x 6.4x

19.2x

12.1x

Apparel,Footwear &Accessories

Jewelry &Accessories

Discount Off-Price Supercenters DepartmentStores

Grocery Internet & e-Commerce

S&P 500 Index

Consumer & Food Correlate to S&P: Retail Has

Faltered

Retail Valuations & Change in Value from 2012 – 2017

Consumer Valuations & Change in Value from 2012 – 2017

Food & Beverage Valuations & Change in Value from 2012 – 2017

Source: S&P Capital IQ

Key Takeaways

50.2% 9.8% (5.4%) 42.5% 51.9% 59.0% 50.1%

(38.1%) 30.4% (10.0%) 17.3% (4.8%) 41.3% 50.1% (7.7%) 10.9%

52.3% 25.0% 25.8% 17.2% 47.3% 50.1% 29.2% 58.7%

The S&P EV/EBITDA multiple has grown from 8x to 12x over the past five years, a ~50% increase

Ultra-low cost of capital

40% fewer companies, but bigger and more concentrated sectors

Low-growth environment that rewards consolidators

Increased focus on share repo’s

Few Retail sector valuation multiples have increased similarly

Retail has been particularly challenged, especially in apparel and department stores

Consumer Products sectors, which benefit from exposure to consumer staples, have tracked the S&P

Only F&B companies have performed across the board, largely driven by consolidation and increasing consumer focus on healthy eating

AMZN disruption does seem to have created “winners and losers”

Few categories have been as challenged as Apparel and Department Stores

Meanwhile, e-Commerce (19x) and Natural/Organic Food (18x) have become the most valuable

20


Q3 2017

Options Commentary Examples

Embrace Omni-Channel

Successful retailers today are combining e-Commerce with brick-and-mortar to offer consumers a seamless shopping experience

Adding “Order Online, Pick-Up In-Store,” or similar services, has proven to increase performance for innovative retailers

Understanding the return model (ROIC) for omni-channel investments remains the greatest challenge, and objection, to evolving

Evaluate M&A Strategy

Larger bellwether companies like Wal-Mart have aggressively pursued e-Commerce acquisitions to supplement internal investment

Other consumer businesses have consolidated sectors or acquired complementary peer businesses to strengthen core competencies

Few companies display enough organic growth to avoid considering acquisitions, especially with the proliferation of activist shareholders

Elevate the Experience

“I don’t think retail is dead. Mediocre retail experiences are dead.” – Neil Blumenthal, Co-CEO of Warby Parker

As customers focus more on convenience, retailers focus on elevating the shopping experience to sustain (or restore) foot traffic

Experiential retail is becoming part of retailers’ DNA, but it is also a common focus/theme of acquisition strategy

Brace for Margin Compression

Consumer packaged goods companies are forced to pay a premium for shelf space at brick-and-mortar retail bellwethers like Wal-Mart

Consumer goods manufacturers should plan for long-term margin compression as AMZN gains similar buying leverage

Strategic mergers often create opportunities to right-size G&A or infrastructure, enabling consumer companies to buy contribution margin

Sources: S&P Capital IQ, Press releases

The Consumer Industry Will Continue to Adapt

?

21


Q3 2017


Q3 2017 Appendix: Company Symbol & Trade Name

Personal Products AVP – Avon Products Inc. CHD – Church & Dwight Co. Inc. CL – Colgate-Palmolive Co. CLX – The Clorox Company COTY – Coty Inc. EL – The Estee Lauder Companies Inc. ENXTPA:OR – L’Oreal SA ENXTPA: IPAR – Inter Parfums Inc. KMB – Kimberly-Clark Corporation LSE: ULVR – Unilever PLC NUS – Nu Skin Enterprises Inc. PG – The Proctor & Gamble Company REV – Revlon, Inc. Apparel, Accessories & Footwear VFC – V.F. Corporation PVH – PVH Corp. RL – Ralph Lauren Corporation GIII – G-III Apparel Group, Ltd. SHOO – Steven Madden, Ltd. ICON – Iconix Brand Group, Inc. DECK – Deckers Outdoor Corp. GCO – Genesco Inc. OXM – Oxford Industries Inc. CROX – Crocs, Inc. PERY – Perry Ellis International Inc. VNCE – Vine Holding Corp CHKE – Cherokee Inc. RCKY – Rocky Brands, Inc. HBI – Hanesbrands Inc. ENXTPA:MC – Louis Vuitton ENXTPA: RMS – Hermès International BIT: LUX – Luxottica Group S.p.A. SEHK: 1913 – Prada S.p.A. LSE: BRBY – Burberry Group plc KORS – Michael Kors Holdings Limited COH – Coach, Inc. SEHK: 1910 – Samsonite International BIT: SFER – Salvatore Ferragamo S.p.A. FOSL – Fossil Group, Inc. BIT: TOD – Tod’s S.p.A. KATE – Kate Spade & Company VRA – Vera Bradley, Inc. TSX: GIL – Gildan Activewear, Inc. NKE – Nike, Inc. UA – Under Armour, Inc. LULU – Lululemon Athletica Inc. COLM – Columbia Sportswear WWW - Wolverine Worldwide Inc. Household Products CENT – Central Garden & Pet TSX: DII.B – Dorel Industries Inc.

ENR – Energizer Holdings Inc. HELE – Helen of Troy Limited HRG – HRG Group, Inc. LCUT – Lifetime Brands, Inc. MIDD – Middleby Corp. NWL – Newell Rubbermaid Inc. PBH – Prestige Brands Holdings, Inc. SMG – The Scotts Miracle-Gro Company SODA – SodaStream International Ltd. SPB – Spectrum Brands Holdings, Inc. SWK – Stanley Black & Decker, Inc. TUP – Tupperware Brands Corporation WDFC – WD-40 Company WHR – Whirlpool Corp. Consumer Services CLUB – Town Sports International CNK – Cinemark Holdings, Inc. MYCC – ClubCorp Holdings, Inc. NTRI – Nutrisystem, Inc. PLNT – Planet Fitness, Inc. RGC – Regal Entertainment Group RGS – Regis Corp. WTW – Weight Watchers International Recreational Products BC – Brunswick Corporation BDE – Black Diamond, Inc. ELY – Callaway Golf Co. HAS – Hasbro Inc. HOG – Harley-Davidson, Inc. JAKK – JAKKS Pacific, Inc. JOUT – Johnson Outdoors Inc. MAT – Mattel, Inc. MPX – Marine Products Corp. PII – Polaris Industries Inc. SKUL – Skullcandy, Inc. PSG – Performance Sports Group Ltd. Grocery & Pharmacy Retail IMKT.A – Ingles Markets, Incorporated KR – The Kroger Co. NGVC – Natural Grocers SFM – Sprouts Farmers Market, Inc. SVU – SUPERVALU Inc. VLGE.A – Village Super Market Inc. WMK – Weis Markets, Inc. ENXTAM: AH–Koninklijke Ahold N.V. ENXTPA: CA – Carrefour SA LSE:TSCO – Tesco PLC CVS – CVS Health Corporation DPLO – Diplomat Pharmacy, Inc. RAD – Rite Aid Corporation WBA – Walgreens Boots Alliance, Inc.

Mass Merchandise Retail COST – Costco Wholesale Corporation KSS – Kohl’s Corp. PSMT – PriceSmart Inc. TCS – The Container Store Group, Inc. TGT – Target Corp. WMT – Wal-Mart Stores Inc. BONT – Bon-Ton Stores Inc. DDS – Dillard’s Inc. JCP – J.C. Penney Company, Inc. JWN – Nordstrom Inc. M – Macy’s, Inc. SHLD – Sears Holding Corporation SSI – Stage Stores Inc. Specialty Retail AZO – AutoZone, Inc. AAP – Advance Auto Parts Inc. CPRT – Copart, Inc. GPC – Genuine Parts Company LKQ – LKQ Corp. KAR – KAR Auction Services, Inc. ORLY – O’Reilly Automotive Inc. AN – AutoNation, Inc. GPI – Group 1 Automotive Inc. KMX – CarMax Inc. PAG – Penske Automotive Group, Inc. SAH – Sonic Automotive Inc. AAN – Aaron’s, Inc. BBBY – Bed, Bath & Beyond Inc. CONN – Conns Inc. ETH – Ethan Allen Interiors Inc. HVT – Haverty Furniture Companies KIRK – Kirkland’s Inc. LZB – La-Z-Boy Incorporated PIR – Pier One Imports, Inc. RCII – Rent-A-Center, Inc. RH – Restoration Hardware Holdings SCSS – Select Comfort Corporation TPX – Tempur Sealy International Inc. LNF – Leon’s Furniture Ltd. WSM – Williams-Sonoma Inc. BGFV – Big 5 Sporting Goods Corp. DKS – Dick’s Sporting Goods Inc. FINL – Finish Line Inc. FL – Foot Locker, Inc. HIBB – Hibbett Sports, Inc. SPWH – Sportsman’s Warehouse BBW – Build-A-Bear Workshop Inc. BBY – Best Buy Co., Inc. BKS – Barnes & Noble, Inc.

Consumer & Retail

GME – GameStop Corp. GNC – GNC Holdings Inc. MIK – The Michaels Companies, Inc. ODP – Office Depot, Inc. PRTY – Party City Holdco Inc. SBH – Sally Beauty Holdings Inc. SIG – Signet Jewelers Limited SPLS – Staples Inc. ULTA – Ulta Salon VSI – Vitamin Shoppe, Inc. HD – The Home Depot, Inc. LOW – Lowe’s Companies, Inc. TSCO – Tractor Supply Company TTS – Tile Shop Holdings, Inc. TILE – Interface Inc. LL – Lumber Liquidators Holdings Discount & Off-Price Retail BIG – Big Lots Inc. DG – Dollar General Corporation DLTR – Dollar Tree, Inc. FRED – Fred’s, Inc. TSX: DOL – Dollarama Inc. BURL – Burlington Stores, Inc. CATO – The Cato Corporation CTRN – Citi Trends, Inc. FIVE – Five Below, Inc. ROST – Ross Stores Inc. SMRT – Stein Mart Inc. TUES – Tuesday Morning Corporation TJX – The TJX Companies, Inc. Apparel, Accessories & Footwear AEO – American Eagle Outfitters, Inc. ANF – Abercrombie & Fitch Co. AROP.Q – Aeropostale, Inc. ASNA – Ascena Retail Group Inc. BEBE – Bebe Stores, Inc. BOOT – Boot Barn Holdings, Inc. CHS – Chico’s FAS Inc. CRI – Carter’s, Inc. DEST – Destination Maternity DSW – DSW Inc. EXPR – Express Inc. FRAN – Francesca’s Holdings GES – Guess? Inc. GPS – The Gap, Inc. LB – L Brands, Inc. PLCE – The Children’s Place, Inc. SCVL – Shoe Carnival Inc. TYLS – Tilly’s, Inc. URBN – Urban Outfitters Inc. ZMZ – Zumiez, Inc. CPSE: PNDORA – Pandora A/S

MOV – Movado Group, Inc. SIG – Signet Jewelers Limited TIF – Tiffany & Co. Internet & e-Commerce AMZN – Amazon.com Inc. CHGG – Chegg, Inc. EBAY – eBay Inc. FLWS – 1-800-Flowers.com Inc. NFLX – Netflix, Inc. OSTK – Overstock.com Inc. PETS – PetMed Express, Inc. SFLY – Shuttefly, Inc. STMP – Stamps.com Inc. W – Wayfair Inc.

22


Q3 2017


Q3 2017 Notes & Definitions

S&P 500 Index- A broad index that includes American Companies. EBITDA- A company's earnings before interest, taxes, depreciation, and amortization, is an accounting measure calculated using a company's net earnings, before interest expenses, taxes, depreciation and amortization are subtracted, as a proxy for a company's current operating profitability. Dry Powder- Refers to cash reserves kept on hand to cover future obligations or to purchase assets. GDP- Gross domestic product is the market value of the goods and services produced by labor and property located in the United States Consumer Sentiment Index- The University of Michigan Consumer Sentiment Index is a consumer confidence index published monthly by the University of Michigan. The index is normalized to have a value of 100 in December 1964 National Unemployment Rate- the percentage of the total labor force that is unemployed but actively seeking employment and willing to work. Non-Farm Payroll- Nonfarm payroll employment is a compiled name for goods, construction and manufacturing companies in the US. It does not include farm workers, private household employees, non-profit organization employees, or government employees . It is an economic indicator released monthly by the United States Department of Labor as part of a comprehensive report on the state of the labor market. Housing Starts- are the number of new residential construction projects that have begun during any particular month. The Economist- offers authoritative insight and opinion on international news, politics, business, finance, science, technology and the connections between them LBO -- leveraged buyout (LBO) is the acquisition of another company using a significant amount of borrowed money to meet the cost of acquisition. The assets of the company being acquired are often used as collateral for the loans, along with the assets of the acquiring company. Industrial Production Index (IPI)- is an economic indicator published by the Federal Reserve Board of the United States that measures the real production output of manufacturing, mining, and utilities Capital Goods Orders. Covenant-lite loans- means that debt is being issued, both personally and commercially, to borrowers with less restrictions on collateral, payment terms, and level of income. IRR-Internal Rate of Return.

23

About Fifth Third Capital Markets

Fifth Third Capital Markets is the marketing name under which Fifth Third Bank and its subsidiary, Fifth Third Securities, Inc., provide certain securities and investment banking products and services. Banking products and services are offered by Fifth Third Bank. Securities products and services are offered by licensed securities representatives of Fifth Third Securities, Inc., who may be employees of Fifth Third Bank. Important notice This document has been prepared by Fifth Third Bank (“Fifth Third”) or one of its subsidiaries for the sole purpose of providing a proposal to the parties to whom it is addressed in order that they may evaluate the capabilities of Fifth Third to supply the proposed services. It is not intended to provide specific investment advice or investment recommendations and does not constitute either a commitment to enter into a specific transaction or an offer or solicitation, with respect to the purchase or sale of any security. The information contained in this document has been compiled by Fifth Third and includes material which may have been obtained from information provided by various sources and discussions with management but has not been verified or audited. This document also contains confidential material proprietary to Fifth Third. Except in the general context of evaluating our capabilities, no reliance may be placed for any purposes whatsoever on the contents of this document or on its completeness. No representation or warranty, express or implied, is given and no responsibility or liability is or will be accepted by or on behalf of Fifth Third or by any of its subsidiaries, members, employees, agents or any other person as to the accuracy, completeness or correctness of the information contained in this document or any other oral information made available and any such liability is expressly disclaimed. This document and its contents are confidential and may not be reproduced, redistributed or passed on, directly or indirectly, to any other person in whole or in part without our prior written consent. Past performance is No Guarantee of Future Results. Fifth Third Capital Markets is a wholly owned subsidiary of Fifth Third Bank offering investment banking++, debt capital markets+, bond capital markets++, equity capital markets++, financial risk management+, and fixed income sales and trading++. Fifth Third Bank provides access to investments and investment services through various subsidiaries, including Fifth Third Securities. Fifth Third Securities is the trade name used by Fifth Third Securities, Inc., member FINRA/SIPC, a registered broker-dealer and registered investment advisor registered with the U.S. Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training. Securities and investments offered through Fifth Third Securities, Inc. and insurance products: + Services and activities offered through Fifth Third Bank ++ Services and activities offered through Fifth Third Securities, Inc © Fifth Third Bank 2017

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