SELLER

ACQUISITION PROPOSAL – G RAND FRAIS

MARCEL KWIATKOWSKI, BENEDICTE SKJERVE JØRGENSEN, MARVIN LÜERS, ANDREAS KUZMA

0
COMPANY OVERVIEW
French leader in the specialized distribution of fresh food products with focus on price, quality, local manufacturers

Key facts Business plan

• Founded by the Seller in 1992 and headquartered in REDACTED in €m 2016A 2017E 2018E 2019E 2020E 2021E
Total Revenue 1.000 1.070 1.145 1.225 1.311 1.403
• Founder and minority shareholder of the Seller - redacted
growth 7.0% 7.0% 7.0% 7.0% 7.0%
• operates 191 stores (France: 189, Belgium: 1, Italy: 1) which EBITDA 85 91 97 104 111 119
margin 8.5% 8.5% 8.5% 8.5% 8.5% 8.5%
are located primarily on the outskirts of major cities, close to highly
EBIT 55 61 65 70 75 80
frequented roads, covering areas of 1,000sqm on average per store
margin 5.5% 5.7% 5.7% 5.7% 5.7% 5.7%
• TheThe Seller
Grand Frais concept is to gather under the same tradename 5 food Capex (30) (32) (34) (37) (39) (42)
sections: Fruit and Vegetables, Fish, Meat, Dairy, and Grocery
% of sales 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%
• In the past few years, Seller has opened 15-25 new stores a year, with Working Capital (65) (70) (74) (80) (85) (91)
the frequency of new site openings continuing to increase
% of sales 6.5% 6.5% 6.5% 6.5% 6.5% 6.5%

Product range Expansion beyond France

• Seller
Except from the store Grand Seller
Frais Messancy in Belgium, Grand Frais was
Fruit & Vegetables only present in France until September 2017
• Grand Frais has opened its first supermarket in Italy, located in Beinasco
Seller
Dairy near Turin, in September 2017
• It operates under the banner 'BRAND', inspired by the Italian tradition
of local markets
Fish
•

Meat
• Italian retailer Conad's CEO expressed a concern shared by many
European retailers regarding the market entry of the food retailer:
Grocery “ Seller
"Grand Frais is to arrive in Italy. If we just stand and stare, we will be the
pray, we will die."

1
 Seller
Grand Frais has established a strong position in France and is expanding further both
domestically and internationally
Seller’s success is mainly due to its specialized focus
Grand Frais’ success is mainly due to its specialised focus
Wide variety of fresh quality products..
• Freshness and quality are key criteria when
selecting their product portfolio
• Seller
Grand Frais was the first to set up misting
systems to hydrate fruits and vegetables in-
store
Unique position in France
• Seller
Specialized concepts like Grand Frais are
stealing market share from traditional
supermarkets 2)
• Still, no fresh food specialist or short food
supply chain operators have come close
Seller
to the size of Grand Frais3) and its
profitability level is well above its
competitors 2)
Source: Company website, 1) Statista.com 2) Les Echos, 3) Lebensmittelzeitung.net, 4) Esmmagazine.com 5) Nielsen 2016, 2017
2 Preferred brand in France
..at attractive prices..
• Suburban locations and large scale stores
Seller
allows Grand Frais to keep prices at low levels
• Ensuring customers high value for money
Further growth and expansion expected..
• In six years, the brand has doubled the
number of stores, and the frequency of new
site openings are continuing to increase 2)
• Analysts expects 192 stores with a turnover of
€1.5bn by 2017, representing a double digit
YoY growth3)
• International expansion is also on their
agenda, with the recent opening of one store
in Belgium and two in Italy (Banco Frasco)4)
• Switzerland may also be an attractive
Seller
candidate, as Grand Frais is currently
operating several stores near the border 3)
(behind Buyer)1)
..with the authentic food market experience
• Welcomed and advised by professionals within
the five categories operating independently
in-store
• Customers are informed about product
origins, conservation and cooking tips
Unique position
..supported in Franceconsumer trends
by favorable
• Despite an overall decline in sales volume in
physical stores for traditional retailers,
many specialized retailers are growing 5)
• Most European consumers prefer local and
fresh food 5):
38% of growth in food purchases was from fresh food
~60% want fruit/vegetables/meat from local brands
77% want more naturally prepared food
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STRATEGIC RATIONALE OF BUYING FRAIS
Strong rational for both Buyer‘s online platform (Online) and brick & mortar business (B&M)
Evaluation of strategic rationale
Expand brick and mortar strategy
to EU after Grocer move
Obtain fresh food brand
credibility
Acquire attractive real estate
Access to GF’s supplier network
Data mining
Take advantage of Grocer's
logistical and technological
capabilities
Cut grocery prices in major cities
and gain market share
Expand product offering
Primary benefit for
Online B&M
The Grocer acquisition in the US showed that Buyer is serious about shaking up the food retail
industry. Combining the #1 most favorite brand in France (Buyer) with the #2 is an extremely
powerful and disruptive combination for the grocery market in France and the EU
Leverage fresh food brand image and market-leading position while introducing Grocer in France. Use
customer base to accelerate AmazonFresh’s growth in France ✓
+180 stores located on the outskirts of major cities could be used as last-mile distribution platform in
order to deliver groceries into big cities. E.g. +20 stores all around Paris suitable for click & delivery. Also ✓
click & collect either through website or through Grocer could be introduced
It would take time for Buyer to develop the unique supplier network of. For example Smeva: the
refrigeration company supplies fish, cheese and fruits departments with self service counters ✓
Seller
Gather customer data from the Grand Frais stores and analyse customer behaviour. Leverage the insights
for the online platform AmazonFresh in order to make individual high-quality grocery suggestions
✓
Use Grocer's French and European supply chain infrastructure and distribution networks to offer fresh
food from local supplier faster and fresher. Apply Buyer Go (leave without checkout) in all GF stores ✓
aims to offer good products at the best prices. Grocer's business strategy in all segments is to win on
the price at all costs to drive market shares. This could lead to lower prices and higher shares ✓
✓
Expand the 5 departments-offering through an electronics department operated and supplied by
Buyer with a focus on Buyer products including kindle e-readers, fire tablets, fire TVs, and echo
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KEY RISKS OF EXECUTION
The transaction would be Buyer’s first supermarket acquisition in Europe..

Key risks involved in the execution of the deal

Brick and mortar business is out of scope of Grocer's core competence

Even though Buyer has taken a leap into the brick and mortar business with the recent acquisition of Grocer, it will take time to
obtain the A-Z know-how of how to operate the stores efficiently.

The number of online visitors may not meet target, reducing potential synergies realized
Customers may prefer in-store shopping due to the authentic food market experience or to hand-pick fresh products themselves
immediately when needed. Hence, the number of online visitors may not meet target, reducing potential synergies realized
through the platform and increasing marginal costs related to online shopping.

More fierce competition in the market

Grocer's move will provoke established players in the French food market, leading to tougher competition. The announcement of
the takeover of Grocer sent shockwaves all the way to Europe, sending large European retailers’ shares, such as Carrefour’s,
down. 1)

Changing customers’ perception of as an authentic food market with fresh quality products
Gsuccess story is due to its specialized focus with fresh quality products at attractive prices and an authentic in-store food market
experience. Introducing other products and services may change customers’ perception of the
specialization of the brand, at worst resulting in customers switching to competitors.

Source: 1) Reuters.com
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BUSINESS PLAN AND THE UNDERLYING ASSUMPTIONS
The Base Case and the Buyer Growth Case are high growth cases with regard to expansion potential and
synergies, whereas the Downside Case is based on the low growth of peers
Base Case 31/12 ($m) 2016A 2017E 2018E 2019E 2020E 2021E
Revenues 1,000.0 1,070.0 1,144.9 1,225.0 1,310.8 1,402.6
• Revenue growth: 7.0% growth per year (high growth supermarket) Growth 7.0% 7.0% 7.0% 7.0% 7.0%
EBITDA 85.0 91.0 97.3 104.1 111.4 119.2

• EBITDA margin: assumption of no margin improvement in % of revenues

D&A
8.5%
(30.0)
8.5%
(30.0)
8.5%
(32.1)
8.5%
(34.3)
8.5%
(36.8)
8.5%
(39.3)
in % of revenues (3.0%) (2.8%) (2.8%) (2.8%) (2.8%) (2.8%)
• Capex requirements: constant rate of 3.0% in terms of revenues EBIT
in % of revenues
55.0
5.5%
61.0
5.7%
65.2
5.7%
69.8
5.7%
74.7
5.7%
79.9
5.7%

• WC requirements: constant rate of (6.5%) based on core peers’ Capex (including development)
in % of revenues
(30.0)
(3.0%)
(32.1)
(3.0%)
(34.3)
(3.0%)
(36.8)
(3.0%)
(39.3)
(3.0%)
(42.1)
(3.0%)
Working Capital Requirement (65.0) (69.6) (74.4) (79.6) (85.2) (91.2)
average in % of revenues (6.5%) (6.5%) (6.5%) (6.5%) (6.5%) (6.5%)
Change in WCR 4.6 4.9 5.2 5.6 6.0
FCF before financing and tax 63.4 67.8 72.6 77.7 83.1

Buyer Growth Case 31/12 ($m) 2016A 2017E 2018E 2019E 2020E 2021E
Revenues 1,000.0 1,100.0 1,221.0 1,330.9 1,437.4 1,538.0
• Revenue growth: growth rate between 7.0% and 11.0% based on Growth 10.0% 11.0% 9.0% 8.0% 7.0%

revenue synergies and Grocer's expertise

EBITDA 85.0 93.5 103.8 113.1 122.2 130.7
in % of revenues 8.5% 8.5% 8.5% 8.5% 8.5% 8.5%
D&A (30.0) (30.0) (33.0) (36.6) (39.9) (43.1)

• EBITDA margin: assumption of no margin improvement in % of revenues

EBIT
(3.0%)
55.0
(2.7%)
63.5
(2.7%)
70.8
(2.7%)
76.5
(2.7%)
82.2
(2.7%)
87.6
in % of revenues 5.5% 5.8% 5.8% 5.7% 5.7% 5.7%
• Capex requirements: constant rate of 3.0% in terms of revenues Capex (including development)
in % of revenues
(30.0)
(3.0%)
(33.0)
(3.0%)
(36.6)
(3.0%)
(39.9)
(3.0%)
(43.1)
(3.0%)
(46.1)
(3.0%)

• WC requirements: constant rate of (8.6%) due to possible Working Capital Requirement

in % of revenues
(86.0)
(8.6%)
(94.7)
(8.6%)
(105.1)
(8.6%)
(114.5)
(8.6%)
(123.7)
(8.6%)
(132.3)
(8.6%)
Change in WCR 8.6 10.4 9.5 9.2 8.7
postponement of payments to suppliers (accounts payable) FCF before financing and tax 69.1 77.6 82.7 88.2 93.2

Downside Case based on matured peers 31/12 ($m) 2016A 2017E 2018E 2019E 2020E 2021E
Revenues 1,000.0 1,054.5 1,082.4 1,111.1 1,140.6 1,170.8
• Revenue growth: Low growth based on peer comparison Growth 5.5% 2.7% 2.7% 2.7% 2.7%
EBITDA 85.0 89.6 92.0 94.4 96.9 99.5

• EBITDA margin: assumption of no margin improvement in % of revenues

D&A
8.5%
(30.0)
8.5%
(30.0)
8.5%
(31.6)
8.5%
(32.5)
8.5%
(33.3)
8.5%
(34.2)
in % of revenues (3.0%) (2.8%) (2.8%) (2.8%) (2.8%) (2.8%)
• Capex requirements: constant rate of 3.0% in terms of revenues EBIT
in % of revenues
55.0
5.5%
59.6
5.7%
60.4
5.6%
62.0
5.6%
63.6
5.6%
65.3
5.6%

• WC requirements: WC requirements: constant rate of (6.5%) based Capex (including development)

in % of revenues
(30.0)
(3.0%)
(31.6)
(3.0%)
(32.5)
(3.0%)
(33.3)
(3.0%)
(34.2)
(3.0%)
(35.1)
(3.0%)
Working Capital Requirement (65.0) (68.5) (70.4) (72.2) (74.1) (76.1)
on core peers’ average in % of revenues (6.5%) (6.5%) (6.5%) (6.5%) (6.5%) (6.5%)
Change in WCR 3.5 1.8 1.9 1.9 2.0
FCF before financing and tax 61.5 61.4 63.0 64.6 66.4

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DCF VALUATION
The DCF valuation leads to a comparatively high valuation due to the favorable expansion potential of Grand
Seller Frais

Key Valuation Metrics – Base Case (€m) Comments

WACC 6.75%
• Overall the DCF valuation leads to an Enterprise Value of c. €991m
Terminal value growth rate 1.00%
• For the Terminal Value growth rate a 1% rate is applied due to the low
long-term growth prospects of retail supermarkets (mature companies)
• The WACC of 7.75% is based on a comparison with listed European
Sum of PVs 17E to 21E €218m supermarket chains

PV of Terminal Value €773m • In the Buyer growth case the Enterprise Value is c. €1,127m, of which
the Terminal Value accounts for c. €877m
• In the downside case based on matured peers the Enterprise Value is c.
€799m, of which the Terminal Value accounts for c. €610m
Enterprise Value (EV) €991m

Base Case Valuation incl. Synergies Implied Enterprise Value Sensitivity – Base Case (€m)
• For estimating the synergies of a potential Buyer / merger, we had a Discount Enterprise Value at a
close look at the Buyer / Grocer merger in June 2017 The market thought Rate Perpetual Growth Rate of
• upon the AMZN / WFM merger announcement that this acquisition
(WACC) 0.50% 1.00% 1.50%
created $14.3bn in value through synergies – the total combined
increase in market value across the two companies
• This translates into synergies as % of WFM 2017E sales of 92% 6.25% 1,002 1,081 1,176
• Seller
Grand Frais 2017E sales: €1.07bn; we can apply the 92% synergies of 6.50% 962 1,034 1,120
Seller
sales to Grand Frais and get to a synergy run rate of €981 p.a. 6.75% 925 991 1,069
• Since these are market expectations for future synergy potential, we 7.00% 892 952 1,022
modelled a phasing in of the synergies from 20% in 2017 to 100% in 2021
7.25% 860 916 980
• The theoretical EV of €9.7bn reflects massive sales synergy potential

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RELATIVE VALUATION – TRADING MULTIPLES
Seller
The peer group of Grand Frais consists discount supermarkets, hypermarkets and supermarkets serving the
upper price segment
Summary of key peers
Peer Group I:
Discount Supermarkets

CORE PEERS

Seller

Peer Group III: Upper price segment Peer Group II: Hypermarkets
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 RELATIVE VALUATION – TRADING MULTIPLES
The EV/Sales & EV/EBITDAR multiples should be used in the analysis of trading comparables

Trading Multiples
Market Cap EV / Revenues EV / EBITDAR EV / EBITDA EV / EBIT P/E
Company (€bn) EV (€bn) 2016A 2017E 2018E 2016A 2017E 2018E 2016A 2017E 2018E 2016A 2017E 2018E 2016A 2017E 2018E
Upper price segment
Ahold Delhaize 23.17 24.85 0.57x 0.41x 0.41x 5.7x 4.6x 4.4x 9.3x 6.2x 5.9x 17.9x 10.7x 10.1x 24.7x 14.5x 12.9x
Morrison's 5.04 6.01 0.42x 0.36x 0.36x 6.7x 6.1x 6.0x 7.8x 7.2x 7.0x 14.5x 13.8x 13.3x 18.2x 18.1x 16.7x
Casino 5.48 19.25 0.47x 0.51x 0.49x 7.5x 6.5x 6.2x 15.7x 10.0x 9.5x 41.1x 16.6x 15.1x 10.8x 17.9x 14.9x
Median 0.47x 0.41x 0.41x 6.7x 6.1x 6.0x 9.3x 7.2x 7.0x 17.9x 13.8x 13.3x 18.2x 17.9x 14.9x
Mean 0.48x 0.42x 0.42x 6.6x 5.7x 5.5x 10.5x 7.6x 7.3x 22.0x 13.5x 12.6x 16.9x 16.7x 14.7x
Hypermarkets
Carrefour 13.69 22.94 0.30x 0.29x 0.28x 4.5x 5.0x 4.7x 6.7x 6.3x 6.0x 11.9x 11.3x 10.4x 21.6x 15.4x 14.3x
Jeronimo Martins 10.18 10.39 0.63x 0.65x 0.60x 8.6x 8.1x 7.5x 11.1x 11.3x 10.5x 17.2x 17.5x 16.0x 15.6x 24.4x 22.2x
Sainsbury's 5.21 6.38 0.28x 0.23x 0.23x 3.4x 3.0x 2.9x 5.8x 4.7x 4.5x 11.5x 10.0x 8.9x 15.2x 12.9x 11.4x
Tesco 17.00 21.73 0.37x 0.37x 0.36x 6.0x 5.4x 4.9x 8.9x 7.5x 6.8x 20.3x 13.9x 12.0x n.m. 19.7x 15.6x
Median 0.34x 0.33x 0.32x 5.2x 5.2x 4.8x 7.8x 6.9x 6.4x 14.5x 12.6x 11.2x 15.6x 17.5x 15.0x
Mean 0.37x 0.36x 0.34x 5.3x 5.1x 4.7x 7.9x 7.1x 6.6x 14.8x 12.9x 11.5x 17.2x 17.5x 15.4x
Discount Supermarkets
Dia 2.64 3.78 0.42x 0.43x 0.41x 4.0x 4.3x 4.2x 7.0x 6.3x 6.2x 12.5x 10.6x 10.2x 16.7x 10.9x 10.9x

Peer Groups Multiples and Valuation

Grand Frais belongs to the retail sector and therefore the valuation should
Seller
• Seller:Frais:
Three different peer groups were found suitable for Grand
be based on EV/Sales, EV/EBITDA and EV/EBITDAR multiples. EBITDAR
— 1. European upper price segment supermarkets accounts for high rent and lease expenses if property is not owned. The
— 2. European Hypermarkets EV/EBITDAR multiple is preferred over the EV/Sales multiple because it takes
profitability into consideration and a valuation based on this multiple is
— 3. European discount supermarkets usually less volatile than a valuation based on an EV/Sales multiple
• Based on a peer suitability evaluation, the following comparable firms • The most suitable valuation multiples for Grand
Seller: Frais:
Seller: Frais:
were used for the respective peer group based on Grand EV/Sales 2018E
— 1: Ahold Delhaize, Casino and Morrison’s EV/EBITDAR 2018E
EV/EBITDAR 2018E
— 2: Carrefour, Jeronimo Martins, Sainsbury’s and Tesco
➢ The valuation ranges from c. €516.8m to c. €750.0m using the
— 3. Dia EV/EBITDAR 2018E multiple in the Base Case, c. €585.5m to c. €775.1m
in the Buyer Growth Case and c. €519.0 to c. €687.2m in the Downside
Case
8
 RELATIVE VALUATION – TRANSACTION MULTIPLES
European supermarket acquisitions since 2010 are the preferred transactions for the valuation

EV/Sales EV/EBITDA EV/EBIT

Date Status Acquiror Target Target Country EV (€bn) Stake CY CY CY

European Transactions
Oct-15 Completed Brait Iceland Foods U.K. 2.1 38.0% 0.7x 12.0x 15.6x
Jun-15 Completed Kominkhijke Ahold Delhoize Group Belgium 10.3 100.0% 0.5x 10.1x 25.3x
Mar-15 Completed Aryzta Picard France 0.4 49.0% 0.8x 5.7x 6.8x
Mar-12 Completed Multiple acquirors Iceland Foods U.K. 1.7 77.0% 0.8x n.a. 11.2x
Jul-10 Completed Multiple acquirors Picard France 1.5 100.0% 1.3x 9.4x 11.1x
Median 0.8x 9.7x 11.2x
Average 0.8x 9.3x 14.0x
U.S. Transactions
Jun-17 Completed Buyer Grocer Market U.S. 12.2 100.0% 0.9x 10.9x 19.3x
Oct-16 Completed Onex Save-A-Lot U.S. 1.2 100.0% 0.3x 7.7x 12.2x
Mar-16 Completed Apollo Fresh Market U.S. 1.2 100.0% 0.7x 7.5x 12.3x
Nov-15 Completed Kroger Roundy's U.S. 0.7 100.0% 0.2x 6.9x 17.1x
Mar-14 Completed Albertson's Safeway U.S. 5.7 100.0% 0.2x 5.0x 12.4x
Jul-13 Completed Kroger Harris Teeter Supermarkets U.S. 1.9 100.0% 0.5x 7.3x 12.9x
Median 0.4x 7.4x 12.6x
Average 0.5x 7.6x 14.4x
RoW Transactions
Jan-17 Completed CCOOP Group China Shun Ke Long China 0.1 55.8% 0.9x 15.2x 19.6x
Mar-15 Completed FamilyMart UNY UNY Group Japan 3.7 100.0% 0.6x 8.1x 23.7x
Jan-15 Completed Organizacion Soriena Controladora Comercial Mexico Mexico 2.0 100.0% 0.7x 7.9x 10.9x
Aug-14 Completed Dairy Farm International Yonghui Superstores China 0.7 20.0% 0.9x 19.3x 32.9x
Jan-14 Completed H20 Retailing Group Izumiya Japan 0.8 100.0% 0.3x 11.0x 32.8x
Jul-13 Completed Seiwa Sanko Taiyo Japan 0.3 72.5% 0.4x 10.2x 21.6x
Nov-11 Completed Cencosud Prezunic Comercial Brazil 0.4 100.0% 0.4x 11.6x 12.9x
Aug-11 Completed Multiple acquirors Lenta Russia 0.8 100.0% 0.5x 5.3x 7.8x
Aug-09 Completed Himawari Ozeki Japan 0.2 87.8% 0.5x 6.2x 6.8x
Median 0.5x 10.2x 19.6x
Average 0.6x 10.5x 18.8x

➢ The valuation ranges from c. €601.0m to c. €1,049.8m using the European EV/EBITDA 2017E and from c. €609.9m to c.
€1,134.2m using the European EV/Sales 2017E multiple(based on European supermarket acquisitions since 2010)
➢ The valuation based on transactions multiples is higher than trading multiples due to the control premium
Source: Bloomberg
9
LBO VALUATION
With a target IRR of 20% a private equity firm could be c. €789.0m and with a target IRR of 25% it would be able
to pay c. €457.4m
Valuation based on a minimum IRR of 20% in the Base Case
Entry assumptions Exit assumptions Exit PV of Terminal Value at a
EBITDA (2018E) 97.3 EBITDA (2023E) 125.2 EBITDA Leverage
Entry multiple 8.1x Exit multiple 8.1x Multiple 55.00% 60.00% 65.00%
Price paid 789.0 Ending TEV 1,015.5 7.1x 14.5% 15.9% 17.6%
Debt 473.4 60% Beginning debt 473.4 7.6x 16.5% 18.0% 19.9%
Equity 315.6 40% Cash generated 243.9 8.1x 18.4% 20.0% 22.0%
Ending debt 229.5 8.6x 20.1% 21.9% 24.0%
Debt 473.4 9.1x 21.8% 23.6% 25.8%
EBITDA (2018E) 97.3 Ending equity value 785.9
Debt / EBITDA 4.9x Beg. Equity value 315.6
Approx. EV multiple 2.5x
Interest rate 5% IRR 20.0%

Valuation based on a minimum IRR of 25% in the Base Case

Entry assumptions Exit assumptions Exit PV of Terminal Value at a
EBITDA (2018E) 97.3 EBITDA (2023E) 125.2 EBITDA Leverage
Entry multiple 4.7x Exit multiple 4.7x Multiple 55.00% 60.00% 65.00%
Price paid 457.4 Ending TEV 588.7 3.7x 17.2% 18.8% 20.7%
Debt 274.4 60% Beginning debt 274.4 4.2x 20.3% 22.0% 24.2%
Equity 183.0 40% Cash generated 243.9 4.7x 23.1% 25.0% 27.3%
Ending debt 30.6 5.2x 25.6% 27.7% 30.2%
Debt 274.4 5.7x 28.0% 30.2% 32.8%
EBITDA (2018E) 97.3 Ending equity value 558.1
Debt / EBITDA 2.8x Beg. Equity value 183.0
Approx. EV multiple 3.1x
Interest rate 5% IRR 25.0%

Assumptions and Conclusion

• The forecasts of the FCF is based on the three different cases
• It is assumed that the transaction is financed with 60% debt with an average interest rate of 5%
• The entry and the exit multiples are assumed to be the same
• The FCF generated every year is used to pay down debt in the exit year
➢ With minimum IRR targets of 20%/25% a private equity firm would not be able to pay the same price as a strategic buyer
and therefore the competition from private equity firms for Buyer is limited
10
VALUATION OVERVIEW – BASE CASE
SellerFrais
Precedent transactions and the DCF valuation are the most relevant valuation techniques for Grand
Seller Frais
because they capture the control premium and the growth potential of Grand
Summary of Valuation Methods – Base Case
Methodology Metrics (€m) Implied Enterprise Value (25 & 75 percentile, €m)

EV/Revenues (2018E) 0.3x - 0.4x 1,145 373.1 475.1

Trading Multiples
EV/EBITDAR (2018E) 4.5x - 6.0x 122 549.0 726.8

European
0.6x - 1.1x 1,070 609.9 1,134.2
EV/Revenues (2017E)
Precedent
Transactions
European EV/EBITDA
6.6x - 11.5x 91 601.0 1,049.8
(2017E)

WACC: 6.25% - 7.25%

DCF 925.5 1,068.7
PGR: 0.50% - 1.50%

LBO EV/EBITDA (2018E) 4.7x - 8.1x 97 457.4 789.0

• It is assumed that the transaction is financed with 60% debt with an average interest rate of 5%
• The entry and the exit multiples are assumed to be the same
• The FCF generated every year is used to pay down debt in the exit year
➢ With minimum IRR targets of 20%/25% a private equity firm would not be able to pay the same price as a strategic buyer
and therefore the competition from private equity firms for Buyer is limited

11
VALUATION OVERVIEW – Buyer GROWTH & DOWNSIDE CASE
The assumed high sales growth in the Buyer Growth Case leads to an even higher DCF valuation, while the
Downside Case emphasizes the absolute minimum valuation in the current environment
Summary of Valuation Methods – Buyer Growth Case
Methodology Metrics (€m) Implied Enterprise Value (25 & 75 percentile, €m)

EV/Revenues (2018E) 0.3x - 0.4x 1,221 397.9 506.7

Trading Multiples
EV/EBITDAR (2018E) 4.5x - 6.0x 130 585.5 775.1

European
0.6x - 1.1x 1,100 627.0 1,166.0
EV/Revenues (2017E)
Precedent
Transactions
European EV/EBITDA
6.6x - 11.5x 94 617.8 1,079.2
(2017E)

WACC: 6.25% - 7.25%

DCF 1,052.8 1,215.2
PGR: 0.50% - 1.50%

LBO EV/EBITDA (2018E) 4.7x - 8.1x 104 487.8 841.4

Summary of Valuation Methods – Downside Case based on Matured Peers

Methodology Metrics (€m) Implied Enterprise Value (25 & 75 percentile, €m)

EV/Revenues (2018E) 0.3x - 0.4x 1,082 352.7 449.2

Trading Multiples
EV/EBITDAR (2018E) 4.5x - 6.0x 115 519.0 687.2

European
0.6x - 1.1x 1,055 601.1 1,117.8
EV/Revenues (2017E)
Precedent
Transactions
European EV/EBITDA
6.6x - 11.5x 90 592.2 1,034.6
(2017E)

WACC: 6.25% - 7.25%

DCF 746.9 859.9
PGR: 0.50% - 1.50%

LBO EV/EBITDA (2018E) 4.7x - 8.1x 92 432.4 746.0

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VALUE CREATION ANALYSIS
Seller
Grands Frais can generate extensive revenue and cost synergies using Amazons consumer, technical and
distributional know-how
Buyer provides Technical and Distributional Know-how Transaction Structure
• Warehouse network and enhanced negotiation power leads to more • Accretive impact on EPS due high sales synergy expectations
efficient cash conversion and input prices for GF
• We propose that Buyer aims to do this transaction with 100% cash:—
• Distribution network of Buyer yields more efficient channeling
No need to raise any further debt or equity; high cash position in EU—
• Buyer‘s reporting and controlling systems can be adapted by GF
Using cash available through European subsidiaries that otherwise
• Buyer‘s access to data provides better consumer tackling would be brought back to the US and taxed
• Buyer‘s online retailing knowhow provides know-how to GF
• We propose that Buyer aims to obtain full ownership (100% stake):—
Seller
Grand Frais provides Brand for European Food Market Entry
Buyer‘s corporate culture of strict control and detailed
• GF brand and knowhow of French consumer enhances prospects of
benchmarking does not leave room for a minority shareholder
successful food market entry in Europe for Buyer
Physical store presence enables to better penetrate customers and — Integration of into online platform and Grocer is
•
assume a larger market share quicker easier without potentially different views on the integration process

Buyer – Side-by-Side

Amazon1 Seller
Grand Frais2 Synergies2 Combined3
in $mn 2017E 2018E 2019E 2017E 2018E 2019E 2017E 2018E 2019E 2017E 2018E 2019E
Total Revenue 177,395 228,145 274,368 939 970 1,004 178,334 229,115 275,372
EBITDA 14,787 21,124 28,512 80 82 85 14,867 21,206 28,597
EBIT 3,526 6,625 11,205 53 55 57 172 332 499 3,751 7,012 11,761
Net Income 2,146 4,123 7,110 35 36 37 2,273 4,349 7,413
NOSH 493.00 499.00 508.60 493.00 499.00 508.60
EPS 4.30 8.25 13.94 4.55 8.68 14.53
Accretion 0.25 0.43 0.59

1 Based on median broker forecast (source: Capital IQ), 2 Based on a EUR/USD of 1.14for 30.06.2017 and forecasted consensus EUR/USD of 1.18 and 1.22 for midyear 2018 and 2019,
SedlleFrais
respectively. Net Income of Gran r calculated as EBIT minus taxes assuming an interest expense of zero (Thomson One). 3 Combined Net Income calculated with Grocer's expected tax rate
of 35.9%, 31.0% and 33.6%, respectively for 2017 to 2019 (Thomson One). 13
COMPARISON OF TRADING MULTIPLES
Buyer as technology company trades with a significant premium compared to GF‘s peer set
active in the physical supermarket universe

+906% Online Retailer vs. Physical Store Supermarkets

• High growth prospects for online retailer jeopardize physical store
concept of common supermarkets
146.9x • Buyer‘s willingness to enter many more markets (e.g. pharmacy industry)
recognized by stock investors
• Penetrative power and data mining advantages of physical store
supermarkets recognized by investors
• Buyer with a projected consensus sales CAGR of 25 percent until 2019
+248%
Buyer as Diversified Technology Company
• Buyer is active in markets outside B2C retailing
22.6x • Buyer more and more provides B2B solutions such as its cloud platform
• Integratation of the distribution channel adds an USP to Buyer

14.6x

+525%

6.5x

2.5x GrSand
e ller
Fr’s
ais‘ peer set is only partially comparable
0.4x to Buyer because Buyer is a high growth tech firm

EV/Revenues 2018E EV/EBITDA 2018E P/E 2018E

Buyer Grand Frais peer set
Seller

Source: Thomson Reuter

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Facilitates a successful entry of Buyer into European food retailing market Combining the top
two brands in France is a powerful and disruptive combination for the grocery market in France and the EU
Grocer's know-how combined with brand and market leading position creates potential for strong value creation
Seller
Grand Frais is an attractive target with
further expansion potential
Growth supported by favorable
macroeconomic trends
Combining the top two brands in France
allows for extensive potential cost and
revenue synergies
Favorable valuation due to expansion
potential
Limited competition from private equity
players in a potential bid strengthens
Grocer's negotiating position
• Seller’s
Grand Frais‘ success story is mainly due to its specialised focus on fresh and local quality food products at attractive prices
and is the second most favorable brand in France
• It has gone through extensive growth during recent years, on average opening 15-25 stores a year. The frequency of new
site openings are expected to increase with expansion both domstically and internationally
• Expected annual sales growth the next years is 7% (base case excluding potential synergies)
• Despite an overall decline in sales volume in physical stores for traditional retailers, many specialized retailers are growing
and GF is stealing market share from traditional supermarkets
• Most European consumers prefer local and fresh food, leaning them towards brands like Grand Seller Frais
• Potential for numerous attractive synergies by combining Grocer's technical and distributional know-how with Se
market
leading position and reputable brand, accessing valuable customer base and supplier network
• Revenue growth assumed to be between 7% and 11% based on revenue synergies and Grocer's expertise
• Applying the same synergy rate Buyer had with WFM of 92% of sales result in a synergy run rate of €981m expecting to be
100% phased in in 2021
• Precedent transactions and the DCF valuation are the most relevant valuation techniques for Grand Frais because they
Seller
capture the control premium and the growth potential of Grand
Seller Frais
• The former method results in a valuation of c. €991m in the base case and the latter results in a range from c. €601.0m to c.
€1,049.8m using EV/EBITDA 2017E multiple (European supermarket acquisitions since 2010)
• With minimum IRR targets of 20%/25% a private equity firm would not be able to pay the same price as a strategic buyer like
Buyer
• Hence, the competition from private equity firms is limited which strengthens Grocer's negotiating position in a potential bid
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