M&A in the retail and consumer products industry

1 M&A in theretail and consumer products industryValuation multiplesMay 20172| EY mergers and acquisitions in the retail and consumer products industryIntroduction3 Main conclusions4 Scope of our analysis6 industry and macroeconomic highlights8M&A valuation multiples12 Listed company valuation multiples22 Equity market sentiment in Spain30 Appendices31 Contents3EY mergers and acquisitions in the retail and consumer products industry |IntroductionEY is pleased to present the fourth edition of its global analysis of the valuation multiples trend for the 2005 16 period in the retail and consumer products industry (R&CP) industry , with special emphasis on the Spanish report analyzes, by subindustry and geographic location, the deal volumes, EBITDA valuation multiples paid, and stock prices for 2005 16, as well as current equity analyst R&CP industry analysis for 2005 16 covers: In Spain: 1,395 transactions In Europe: 15,201 transactions In North America (US and Canada): 8,569 transactions In Spain, Europe and North America, a total of 219 listed companies4| EY mergers and acquisitions in the retail and consumer products industryExecutive summary The year 2016 was characterized by a volatile climate as a result of several factors, including uncertainty in the general elections in Spain, the result of the referendum on the United Kingdom s withdrawal from the European Union, the impact of the United States presidential election and the persistence of geopolitical tensions.

2 Despite these events, consumption growth remained positive in 2016. We predict this upward trend will continue in 2017, supported by favorable economic sentiment and expectation indicators, and economic and employment recovery. Given the turnaround in industry fundamentals and valuation multiples, we expect a gradual rise in deal volumes in the medium term, supported by current market fragmentation and the ever-present competitive pressure caused by private labels. Spanish M&A transaction prices within the R&CP sector continue to rise. In 2016, the enterprise value paid for R&CP companies averaged EBITDA, up from EBITDA in 2015. These results incorporate the prior leap from the 2011 average of EBITDA and places prices during 2016 above the pre-crisis years (2004 07). The slowdown in deal volume (measured in euros) in 2016 [gehYj]\ oal` *()- ak \m] lg l`] af Ylagf g^ l`] E 9 eYjc]l in the prior year by major transactions such as Anheuser-Busch InBev, Coca-Cola and Koninklijke Ahold.

3 Main conclusions5EY mergers and acquisitions in the retail and consumer products industry |M&A valuation multiples(1) In Europe, the 2016 average valuation multiple was , somewhat lower than the 2005 16 historical average of enterprise value to EBITDA ratio (EV/EBITDA), standing at similar levels to the average multiple of EV/EBITDA observed during the crisis period of 2009 12. In North America, the average valuation multiple during 2016 was EV/EBITDA, higher than the 2005 16 average multiple of , showing a gradual increase from EBITDA in 2011. In Spain, the historical average valuation multiple (2005 16) is EV/EBITDA. In 2016, the average valuation multiple was , slightly higher than the 2015 average valuation multiple of A^ o] Zj]Yc \gof \]Ydk Zq kar]$ Y ka_fa [Yfl \a^^]j]f[] af valuation multiples can be observed, with higher multiples on the larger deals. The number of transactions in the various markets in 2016 compared with the previous year highlights the degree of reduction within the three geographic locations analyzed.

4 The \][daf] ak hYjla[mdYjdq ka_fa [Yfl af KhYaf$ oal` Y ,1 \][j]Yk] af 2016, reverting to normalized levels observed during 2012 14. The decrease is primarily attributable to the lower number of transactions in the food and beverage industry compared to 2015, in which there was an atypically high number of ljYfkY[lagfk& Fgjl` 9e]ja[Y Yf\ =mjgh] k`go Y \][j]Yk] g^ . Yf\ + j]kh][lan]dq&(1) Emdlahd]k [Yd[mdYl]\ gf j]hgjl]\ fgl fgjeYdar]\! =:AL<9 _mj]k& Listed company valuation multiples At the end of 2016, R&CP public companies in Spain traded at EV/EBITDA, similar to their North American ( ) and European ( ) counterparts. Nevertheless, in the three geographic locations, valuation multiples of R&CP companies traded above the historical average. For 2016, Spain s multiple was EV/EBITDA vs. the average for 2005 16; Europe s multiple was vs. the average for 2005 16; and North America s was vs.

5 Among the 16 Spanish companies analyzed, only 11 were followed by equity research analysts, without a clear consensus recommendation on wether to buy, sell or hold the stock. At the ]f\ g^ *().$ [gfka\]jaf_ l`]k] )) [gehYfa]k Yk Y o`gd]$ -. g^ ]imalq YfYdqklk j][gee]f\ lg Zmq$ o`ad] )- j][gee]f\ lg k]dd Yf\ *1 lg `gd\& LYj_]l hja[]k o]j]$ gf Yn]jY_]$ )0&. YZgn] share prices at the end of | EY mergers and acquisitions in the retail and consumer products industryThe purpose of this report is to analyze the R&CP industry in Spain from a valuation perspective, covering multiples paid in transactions that took place between 2005 and 2016, as well as the trend in the listed companies valuation multiples during the same similar valuation analysis has been performed for the European and North American (US and Canada) markets for analysis is broken down into the following subindustries: Food and beverage Household and personal care products retail (food, clothing and apparel) Restaurants M&A valuation multiples Our analysis covers transactions that took place in the Spanish market between 2005 and 2016 in the R&CP industry .

6 We a\]fla ]\ Y lglYd g^ )$+1- \]Ydk oal`af l`Yl h]jag\ af l`] ^gmj subindustries listed. >gj l`] =mjgh]Yf eYjc]l$ o] a\]fla ]\ )-$*() \]Ydk af l`ak industry for 2005 16, and 8,569 transactions in North America during the same period. >gj Ydd a\]fla ]\ ljYfkY[lagfk$ o] gZlYaf]\ km^ [a]fl \YlY lg estimate the valuation multiple for more than 1,000 deals, distributed in the three geographic locations company valuation multiples For the listed companies valuation multiples analysis, we covered 16 Spanish R&CP listed companies, although it is important to note the limited presence of these companies on the Spanish stock market. Important companies, such as El Corte Ingl s or Mercadona, are not listed, whereas others ( , Carrefour) are listed outside of Spain. In addition, there are some subindustries (restaurants and household and personal care products ) that have no presence on the Spanish stock market.

7 Due to the size of the European and North American markets, we covered a greater number of listed companies for these regions (92 in Europe and 111 in North America).Scope of our analysis7EY mergers and acquisitions in the retail and consumer products industry |Source: EY analysis based on Capital listed companies in the Spanish market for valuation purposesSubindustryNumber of selected companies 2016 Number of selected companies 2015 Criteria for the selection of companiesFood and beverages11 10 Selection of companies included in the Bolsas and Mercados Espa oles stock exchange (BME) food and beverage subindustry and EY selectionRetail (food, clothing and apparel)5 5 Selection of companies included in the BME's apparel and retail subindustry and EY selectionHousehold and personal care products - - There are no listed companies in this subindustryRestaurants - - There are no listed companies in this subindustryTotal16 15 Selected listed companies in the European market for valuation purposesSubindustryNumber of selected companies 2016 Number of selected companies 2015 Criteria for the selection of companiesFood and beverages21 22 Companies included in the STOXX Europe 600 Food & Beverage Index retail (food.)

8 Clothing and apparel)29 31 Companies included in the STOXX Europe 600 retail Index Household and personal care products36 33 Companies included in the STOXX Europe 600 Personal & Household Goods Index Restaurants6 9 EY selection from main companies in this subindustryTotal92 95 Selection of listed companies in Spain and market capitalization as of 31 December 2015 and 31 December 2016 (based on the :E= [dYkka [Ylagf!Food and beveragesMarket capitalization +) <][]eZ]j *(). e!Market capitalization +) <][]eZ]j *()- e!Coca-Cola European - Ebro Baron de Ley514 477 Telepizza Group455 - Naturhouse Health285 - Deoleo266 266 Borges Agricultural & Industrial Nuts65 13 Natra32 15 Bodegas Riojanas22 22 Bodegas Bilba nas19 18 retail (food, clothing Yf\ YhhYj]d!

9 Market capitalization 31 <][]eZ]j *(). e!Market capitalization 31 <][]eZ]j *()- e! Dogi International Fabrics280 65 Adolfo Dom nguez30 32 Liwe Espa ola21 19 Selected listed companies in the North American market for valuation purposesSubindustryNumber of selected companies 2016 Number of selected companies 2015 Criteria for the selection of companiesFood and beverages27 26 Companies included in the STOXX North America 600 Food & Beverage Index retail (food, clothing and apparel)43 43 Companies included in the STOXX North America 600 retail Index Household and personal care products32 33 Companies included in the STOXX North America 600 Personal & Household Goods Index Restaurants9 26 EY selection from main companies in this subindustryTotal111 128 Source: EY analysis based on Capital | EY mergers and acquisitions in the retail and consumer products industryAfter exceeding 600 basis points (bp) in July 2012, and largely as a result of the expansionary monetary policy promoted by the European Central Bank (ECB), the sovereign risk premium stood at 116bp at the end of December 2016.

10 However, 2016 has been characterized by a volatile climate due to various factors, including uncertainty in the general elections in Spain, the result of the referendum on the United Kingdom s withdrawal from the European Union, the impact of the United States presidential election and the persistence of geopolitical Spanish gross domestic product (GDP) growth in 2016 was +&* $ af daf] oal` l`] _jgol` g^ +&* ]ph]ja]f[]\ af *()- j]nak]\ data as at December 2016, according to the Spanish Ministry of Economy, industry and Competitiveness). This highlights the continuity of the Spanish economic recovery, which began in 2013. This recovery has been driven mainly by the national demand, which is motivated by private consumption and productive afn]kle]fl& HjanYl] [gfkmehlagf `Yk Z]f] l]\ ^jge k]n]jYd ^Y[lgjk$ km[` Yk l`] j][gn]jq af [gfkme]j [gf \]f[]$ l`] af[j]Yk] in disposable income and the availability of new credit in a lower interest rate environment.