Retail and Consumer Update

Deloitte Corporate Finance LLC

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Fourth quarter 2011

Industry trends
Luxury and deep discounts drive holiday sales The National Retail Federation reported that holiday sales rose 4.1%, better than its forecast of 3.8%. However, retailers depended heavily on discounts and promotions to drive sales, particularly in the final weeks of the holiday season. Retailers hopes were buoyed for a strong holiday season as the U.S. Census Bureau reported that total retail sales in November 2011 grew 7.0% compared to November 2010. However, total retail sales in December 2011 rose only 0.1% over the previous month and 6.5% compared to December 2010. Middle-class consumers remained cautious during the 2011 holiday season as many retailers conducted aggressive promotions to drive holiday sales. J.C. Penney saw same-store sales decrease -2.0% in November 2011, but realized a modest rebound in December with same store sales growth of 0.3%. Over the same months, Kohls realized same store sales decreases of -6.2% and -0.1% in November 2011 and December 2011, respectively. However, many upscale department stores continued to outperform. Nordstrom posted same-store sales increases of 5.6% and 8.7% in November 2011 and December 2011, respectively. Over the same months, Saks realized same store sales of 9.3% and 5.8% in November 2011 and December 2011, respectively. According to the U.S. Department of Commerces Bureau of Economic Analysis, the U.S. economy grew at a 2.8% annual rate in Q4 2011 compared to Q3 2011. Q4 reflected the strongest quarter of growth as 2011 real gross domestic product increased 1.7% compared to 2010. This compares to an annual increase of 3.0% in 2010.
Sources: U.S. Census Bureau. Advance Monthly Retail Trade Report. January 12, 2012. J.P. Morgan. North America Equity Research. Broadlines, Apparel & Footwear. January 5, 2012 Associated Press. National Retail Federation says holiday sales up 4.1 percent, but discounting clouds results. January 12, 2012 U.S. Department of Commerce. Bureau of Economic Analysis. Release dated January 27, 2012.

150% 140% 130%

S&P 500 Retailing Index vs. S&P 500 Index

120%
110% 100% 90% 80% 70%

60%
50% 40%

S&P 500 Index

Source: Capital IQ

S&P 500 Retailing Index

12.0x

Retail Index - Enterprise Value to EBITDA Multiples

9.9x 9.7x 8.9x 7.8x 10.0x 8.8x 9.2x 9.0x

10.0x
8.2x 8.0x 6.0x 4.0x 2.0x 0.0x 7.3x 7.2x

9.4x

8.2x

6.4x
5.7x

6.9x

Source: Capital IQ Retail Index includes: Tiffany & Co.; Coach, Inc.; Saks Inc.; Nordstrom, Inc.; Family Dollar; Dollar Tree; 99 Cents Only Stores; Dollar General Corp; Dominos Pizza; Yum! Brands, McDonalds; Starbucks Corp; Abercrombie and Fitch Co.; Urban Outfitters; American Eagle; Gap Inc.; Best Buy; Williams-Sonoma; Bed Bath & Beyond; Dicks Sporting Goods; Amazon.com; Overstock.com; and eBay, Inc.

Macroeconomic trends According to the U.S. Bureau of Labor Statistics (BLS), the unemployment rate dropped by 0.6% to 8.5% in December 2011, relative to 9.1% in September 2011, due to a surge in hiring in December. Decembers unemployment rate is the lowest rate in the last three years. Real gross domestic product (GDP) increased at an annual rate of 1.8% in Q3 2011. This measure compares to 2.5% growth in Q3 2010. Throughout the quarter, the Institute for Supply Management manufacturing index increased from 51.6 to 53.9, a positive indicator for manufacturers. A reading above 50 is considered expansionary. The University of Michigan reading on consumer confidence climbed for a fourth straight month to 67.7 in December from 64.1 in November, while personal expenditures sustained modest growth on a year-over-year basis.
Confidence Index

Unemployment and GDP Growth

10.0% 10.0%

Consumer Confidence and Personal Expenditures

Consumer Spending

120 100

5.0%

3.0%

5.0%

5.0%

80 1.0% 60

0.0%

0.0%

-1.0%

40
-5.0% -5.0%
20 0 -3.0%

-5.0%

-10.0% Quarterly GDP Percent Change Based on Chained 2005 Dollars

Source: Bureau of Economic Analysis and Bureau of Labor Statistics National Unemployment Rate

-10.0%
Consumer Confidence Index Personal Consumption Expenditures (YoY)
Source: Bloomberg and data compiled from University of Michigan, St. Louis Federal Reserve

DCF Retail and Consumer Update/Q4 11

Industry trends (continued)

350

Retail and Consumer M&A activity In Q4 2011, there were 185 transactions in the consumer and retail industry, as M&A activity continued at a modest pace, consistent with overall activity seen throughout 2009 and 2010. Total dollar volume for disclosed retail and consumer transactions was $1.6 billion in Q4 2011, relative to $5.9 billion in Q3 2011 and $17.7 billion in Q4 2010. Few large transactions in Q4 2011 resulted in the lowest average transaction value since Q4 2008. The largest transaction in Q4 2011 included Olympus Partners acquisition of NPC Acquisition Holdings for approximately $755 million. NPC is the largest Pizza Hut franchisee and one of the largest franchisees of any restaurant concept in the U.S. according to the 2010 Top 200 Restaurant Franchisees by Franchise Times. The second largest restaurant transaction was Landrys acquisition of McCormick and Schmicks for approximately $132 million. Multiple large transactions in Q2 2011 resulted in the largest average transaction value for the year. Transactions in the second quarter included the buyout of BJs Wholesale Club by Leonard Green & Partners and CVC Capital Partners for approximately $2.7 billion as well as the acquisition of Diversey Holdings by Sealed Air for approximately $4.3 billion.
Source: Thomson Financial

Consumer and Retail Industry Number of Transactions by Buyer Type

70 61 58

300 250 200

36 150 252 100 50 0 227 199

29

23

40

38

43

49 38

54

41

50

32

50

155 148 143 147 144 152 140 155 150 143 155

175
135

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2008 2008 2008 2008 2009 2009 2009 2009 2010 2010 2010 2010 2011 2011 2011 2011
Strategic Buyer
Source: Thomson Financial

Financial Buyer

350 300 250 200 150

Consumer and Retail Industry Average Transaction Size and Number of Transactions
$334

(millions) $400 $350

$328

$300 $250 $213

$184 $119 $140 $101 $155 $112

$200
$150

100 50 0

$127

$131
$100 $50 $-

$81 $80 $70 $18 $45 322 288 257 191 177 166 187 182 195 178 204 204 184 205 207 185
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2008 2008 2008 2008 2009 2009 2009 2009 2010 2010 2010 2010 2011 2011 2011 2011

Number of Transactions
Source: Thomson Financial

Average Transaction Value

Middle Market M&A activity across industries The average size of U.S. middle market disclosed transactions in 2011 has increased to $71 million compared to $68 million in 2010 and $44 million in 2009. In 2011, the average enterprise value to EBITDA purchase price multiple for disclosed U.S. middle market transactions has improved to 10.9x after a low of 8.5x in 2009. Despite improving purchase price multiples and the increasing average size for disclosed transactions, the number of U.S. middle 2011 market transactions remained consistent with the overall volume seen in 2009 and 2010, which was significantly less than the number of transactions seen in the pre-recession period of 2007 and 2008.
U.S. Middle Market M&A Announced Deals
No. of Deals 12,000 7,522 6,639 9,000 $66 6,000 $56 $44 6.0x 3,000 3,669 3,034 2,673 2,586 2,593 $30 5,531 5,608 5,558 $90 9.0x 210 8.5x Average EV ($mm) $120

U.S. Middle Market M&A Announced Deals

EV/EBITDA 12.0x 10.9x 10.4x 9.6x 200 10.9x No. of Deals 300

$68

$71
$60

140 110

140

119

100

0 2007 2008 2009 2010 2011

$0

3.0x
2007 2008 2009 2010 2011

Undisclosed Deals Disclosed Deals Average Size (Disclosed Deals)

Source: Thomson Financial

Average EV/EBITDA Number of Deals with Disclosed Multiples

Source: Thomson Financial

DCF Retail and Consumer Update/Q4 11

Industry trends (continued)

Retail and Consumer fixed income After a strong start in the first half of 2011, issuances in the retail and consumer fixed income market declined over the second half of 2011. While the average dollar amount of fixed income issuances slightly decreased from a peak of $436 million in Q1 2011 to $378 million in Q4 2011, the average issuance size has remained relatively stable compared to the number of issuances. The number of fixed income issuances within the retail and consumer industries decreased significantly from a 2011 peak of 386 issuances in Q2 to 126 issuances in Q4 2011. This compares to 378 issuances in Q4 2010. Notably, the number of senior secured issuances dropped from a peak of 164 issuances in Q2 2011 to 41 issuances in Q4 2011. In Q4 2011, the largest fixed income issuances included: CSC Holdings, LLC, a cable television provider, issued $4.0 billion of unsecured corporate debentures Chrysler Group LLC issued $3.2 billion of unsecured corporate debentures Coca Cola issued $3.0 billion of unsecured corporate debentures
Source: CapitalIQ

450 400

Consumer and Retail Number of Fixed Income Issuances and Average Size
$1,072

(millions)

$1,200 $1,000 $800 $600

350
300 250

200
150 100 $321 178 Q1 2010 367 Q2 2010 $436 $348 301 Q3 2010 $331 378 Q4 2010 341 Q1 2011 $306 386 Q2 2011 232 Q3 2011 $413 $378

$400 $200

50
-

126 $0 Q4 2011

Number of Issuances
Source: Capital IQ

Average Dollar Value

450
400 350 300 250 200 150 8 105

Consumer and Retail Fixed Income Issuances by Level of Security

67 51 175 174

70

24 153

97

176

134

14 129 4

100
50 -

125 65

132 76

164

155

81

89 Q1 2011 Q2 2011 Q3 2011

Other Levels

41

Q1 2010

Q2 2010

Q3 2010

Q4 2010

Q4 2011

Senior Secured
Source: Capital IQ

Senior Unsecured

Leverage in middle market and large corporate LBO transactions across industries From 2009 to Q3 2011, issuers have increased leverage in both middle market and large corporate LBO transactions, as the availability of senior debt has improved in both the middle market and large corporate markets. According to Standard and Poors, the average debt to EBITDA multiple for middle market LBO loans, which includes issuers with EBITDA less than $50 million, increased from 4.2x in 2010 to 4.6x during Q3 2011. The average debt to EBITDA multiple for large corporate LBO loans, which includes issuers with EBITDA greater than $50 million, increased from 4.7x in 2010 to 5.3x in Q3 2011.

8.0x 6.0x 4.8x 4.7x 4.0x 2.0x 0.0x

Average Debt Multiples of Middle Market LBO Loans (Defined as Issuers with EBITDA of less than $50M)

8.0x 6.0x

8.0x

Average Debt Multiples of Large Corporate LBO Loans (Defined as Issuers with EBITDA of greater than $50M)

8.0x

6.2x

5.6x 4.1x 4.0x 3.4x 3.9x 3.8x

4.2x

4.7x 4.7x

4.5x

4.2x 4.3x 3.3x

4.8x 4.0x 2.0x 0.0x

6.0x 5.7x 5.4x 4.8x 4.0x

4.2x 4.1x 4.0x

4.5x

4.9x

5.3x 5.4x

4.9x 4.0x

4.7x

5.2x 5.1x

6.0x

4.0x

2.0x

2.0x

0.0x

0.0x

First Lien Debt/EBITDA Other Senior Debt/EBITDA

Second Lien Debt/EBITDA Subordinated Debt/EBITDA

First Lien Debt/EBITDA Other Senior Debt/EBITDA

Second Lien Debt/EBITDA Subordinated Debt/EBITDA

Source: S&P LCDs Leveraged Lending Review 4Q11

Source: S&P LCDs Leveraged Lending Review 4Q11

DCF Retail and Consumer Update/Q4 11

Related content
In addition to information regarding the retail and consumer business industry being provided by Deloitte Corporate Finance LLC (DCF), you may be interested in additional events and informational sources available through DCF and the subsidiaries of Deloitte LLP.

Deloitte Annual Holiday Survey: Down Economy? Bah Humbug! Online and mobile shoppers may keep retailers spirits bright Gen Y consumers are most likely to embrace the Black Friday tradition as more than four out of 10 (42 percent) 18-24 year old respondents plan to shop that day compared to an average of 24 percent among those age 25 and older. Nearly the same amount (37 percent) intend to partake in Cyber Monday shopping, compared with just 20 percent among those in older age groups. Deloittes 26th annual survey of holiday spending intentions and trends titled 2011 Annual Holiday Survey reveals that online and mobile shoppers may keep retailers spirits bright. Click here to read the report.

Know What Your Customers Want Before They Do Retailers need to target customers with the right deal at the right time. Heres how to nail the next best offer. In Know What Your Customers Want Before They Do, published in the December 2011 issue of Harvard Business Review, John Lucker, Principal, Deloitte Consulting LLP and Tom Davenport, Senior Advisor to Deloitte Analytics, collaborated with Leandro Dalle Mule of Citibank to provide a framework for crafting next best offers that steer consumers to the right merchandise or service at the right moment and price. Shoppers once relied on familiar salespeople to help them find exactly what they wanted and sometimes to suggest additional items they hadn't even thought of. But today's distracted consumers, bombarded with information and options, often struggle to find products or services that meet their needs. Advances in information technology, data gathering, and analytics are making it possible to deliver something like the personal advice of yesterday's sales staffs. Click here to read the article.

Fortresses and Footholds Emerging market growth strategies, practices and outlook In mid-2011, Deloitte Consulting LLP conducted a survey of 628 executives to understand where they perceived the greatest revenue opportunities in emerging markets, which growth strategies have proved most effective and the challenges companies face. The survey respondents included 389 executives from companies that currently generate revenues from one of 10 key emerging market countries or regions. The companies surveyed found the greatest success in emerging markets came not from simply establishing a sales office and selling their existing products and services. Instead, these companies came to understand the special requirements of customers in each emerging market and then designed offerings to meet their needs at market appropriate prices. A key ingredient in success was to establish company-owned production, service, distribution, R&D and other operations in emerging markets to become closer to customers and part of the local business community. Click here to read the survey report.

Managing Inflation Risk in Retail Leveraging advanced analytics to weather the storm Retailers have long been awash in data, but the emergence of advanced analytics has made generating insights from it more feasible. Advancements in technology have enabled retailers to run more sophisticated analyses, using massive sets of transactional data, to provide precise answers to questions once left up to gut instinct. While an element of art is inherent to merchandising, it is the science that underpins new tools now available that have the immediate potential to help merchants make more informed, data-driven decisions. Click here to read the report.

DCF Retail and Consumer Update/Q4 11

Transaction highlight
Deloitte Corporate Finance LLC (DCF) is pleased to announce its role as the exclusive financial advisor to Unilever United States, Inc. (Unilever) in the sale of Culver Specialty Brands (CSB) to B&G Foods, Inc. (B&G) for $325 million. CSB is led by its flagship Mrs. Dash, the pioneer of salt-free seasonings and a recognized brand in the seasonings blends segment. The remainder of the CSB portfolio is comprised of Molly McButter flavored sprinkles, Sugar Twin sugar substitutes, Bakers Joy baking sprays, Static Guard anti-static sprays and Kleen Guard furniture polish. DCF leveraged its deep consumer products industry knowledge and experience in carve-out deals to assist Unilever in completing this transaction. About Unilever United States, Inc. Unilever United States, Inc. is a subsidiary of Unilever Plc (LSE: ULVR), one of the worlds leading suppliers of fast moving consumer goods with strong operations in more than 100 countries and sales in 180. Consumers buy 170 billion Unilever packs around the world each year, and Unilever products are used over two billion times a day. Unilevers portfolio includes some well known and loved brands, including twelve 1 billion brands, and global leadership in many categories in which they operate. Their portfolio features iconic brands such as: Knorr, Hellmanns, Lipton, Dove, Vaseline, Persil, Cif, Marmite and Pot Noodle. About B&G Foods, Inc. B&G Foods (NYSE: BGS) and its subsidiaries manufacture, sell and distribute a diversified portfolio of high-quality, shelf-stable foods across the United States, Canada and Puerto Rico. B&G Foods products include hot cereals, fruit spreads, canned meats and beans, spices, seasonings, hot sauces, wine vinegar, maple syrup, molasses, salad dressings, Mexican-style sauces, taco shells and kits, salsas, pickles, peppers and other specialty food products. B&G Foods competes in the retail grocery, food service, specialty, private label, club and mass merchandiser channels of distribution. Based in Parsippany, New Jersey, B&G Foods products are marketed under many recognized brands, including Accent, B&G, B&M, Brer Rabbit, Cream of Rice, Cream of Wheat, Don Pepino, Emerils, Grandmas Molasses, Joan of Arc, Las Palmas, Maple Grove Farms of Vermont, Ortega, Polaner, Red Devil, Regina, Sa-sn, Sclafani, Trappeys, Underwood, Vermont Maid and Wrights.

Additional recent transactions

Babcock International Group PLC has sold Eagleton Engineering LLC

to

Keystone Capital, Inc.

The undersigned acted as exclusive financial advisor to Babcock International Group PLC

Deloitte Corporate Finance LLC

DCF Retail and Consumer Update/Q4 11

Deloitte Corporate Finance LLC

DCF provides deal execution and lead financial advisory services to large corporate, middle market, private equity and venture capital firms. DCF and its affiliates maintain a presence in key U.S. financial centers. For additional information or to find out more about how DCF can assist the deal initiation and execution process, please contact one of our DCF Managing Directors: Hector Calzada Managing Director Email: hcalzada@deloitte.com Phone: +1 404 631 3015 Ellen Clark Managing Director Email: elclark@deloitte.com Phone: +1 313 396 2682 Bob Coury Managing Director Email: rcoury@deloitte.com Phone: +1 313 396 3811 Martin Battaglia Managing Director Email: mbattaglia@deloitte.com Phone: +1 312 486 2572 Ejaz Elahi Managing Director Email: eelahi@deloitte.com Phone: +1 312 486 4731 Kevan Flanigan National Managing Director Email: keflanigan@deloitte.com Phone: +1 213 688 6560 Will Frame Managing Director Email: wframe@deloitte.com Phone: +1 312 486 4458 Simon Gisby Managing Director Email: sgisby@deloitte.com Phone: +1 212 436 2495 Matt Meyer Managing Director Email: mattmeyer@deloitte.com Phone: +1 213 892 6053 Constantine Korologos Managing Director Email: ckorologos@deloitte.com Phone: +1 212 436 4820 Michael McArthur Managing Director Email: mimcarthur@deloitte.com Phone: +1 213 688 3257 Kevin McFarlane Managing Director Email: kemcfarlane@deloitte.com Phone: +1 213 553 1423 Jonathan Ohm Managing Director Email: johm@deloitte.com Phone: +1 212 436 2287 Justin Silber Managing Director Email: jsilber@deloitte.com Phone: +1 404 942 6960 Irene Walsh Managing Director Email: iwalsh@deloitte.com Phone: +1 212 436 4620 Paul Warley Managing Director Email: pwarley@deloitte.com Phone: +1 404 220 1331

For additional information on members of the retail and consumer products team of Deloitte LLP and it affiliates, please contact: Ramesh Swamy U.S. Retail & Distribution Leader, Deloitte Financial Advisory Services Email: rswamy@deloitte.com Phone: +1 213 688 3356 Alison Paul Vice Chairman and U.S. Retail & Distribution Leader Email: alpaul@deloitte.com Phone: +1 312 486 4457 Patrick Conroy National Managing CP Partner Email: pconroy@deloitte.com Phone: +1 317 656 2400

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DCF Retail and Consumer Update/Q4 11

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