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3February 2020www.capstoneheadwaters.com
The U.S. consumer continues to provide the economy with favorable growthfundamentals, most recently indicated by a 3.1% year-over-year (YoY) increasein wages (Bureau of Labor Statistics1). Robust consumer macroeconomicdynamics have been coupled with shifting consumer preferences towardexperiential, convenient, and personalized shopping channels, evidenced by thegrowth of e-commerce sales, which increased ~17% year-over-year through Q3(U.S. Census Bureau2). However, traditional brick-and-mortar juvenile productsretailers have begun to revitalize stores to emphasize interactive and experiencedriven purchasing. Notably, Toys R Us and FAO Schwarz, once leading brick-and-mortar toy retailers, have opened experiential stores complete with playareas, arts and crafts spaces, and interactive displays that provide parents (andkids) with access to their product suite within the store as well as products soldthrough their e-commerce channels.
Merger and acquisition (M&A) activity in the Juvenile Products & Toys industryhas held steady, modestly declining YoY but in line with historical averages.Private equity buyers (30% of deal activity) have targeted branded productswith a proven ability to drive e-commerce sales growth as well as revenuethrough major retailers. Notably, Boston-based private equity firm AudaxGroup acquired PlayMonster in 2018 (terms undisclosed) and completed anadd-on acquisition of Kahootz Toys (November 2019, terms undisclosed), anaward winning branded toy provider.
TABLE OF CONTENTS
M&A Overview Key Trends & Drivers Select Transactions Public Company Data Report Contributors Consumer & Retail Group Firm Track Record
JUVENILE PRODUCTS & TOYS2019 YEAR IN REVIEW
MERGER & ACQUISTION OVERVIEW
Source: Capital IQ, PitchBook, FactSet, and Capstone Research
Capstone Headwaters
CONTACTS
Sophea ChauManaging Director, Juvenile [email protected]
Jesse BetznerVice [email protected]
Buyer Breakdown
STRATEGICPublicPrivate
FINANCIALDirectAdd-on
-5%-4%-3%-2%-1%0%1%2%3%4%5%6%
$0.0$0.5$1.0$1.5$2.0$2.5$3.0$3.5$4.0$4.5
YoY
Sale
s Gr
owth
$ in
Tril
lions
Annual Sales YoY Sales Growth
KEY TREND & DRIVERS
2
Source: National Retail Federation
Juvenile Products & Toys | 2019 Year in Review
U.S. Retail Sales
Consumer Sentiment: The state of the U.S. consumercontinues to drive growth and industry spending in theJuvenile Products industry, with consumer confidencelevels increasing 2.7% in January (The Conference Board3).In addition, U.S. Retail Sales were estimated to grow~4.3% to reach ~$3.8 trillion in 2019, according to theNational Retail Federation,4 supported by disposablepersonal income growth which increased 4.4% YoY,according to the U.S. Bureau of Economic Analysis.5Significant industry tailwinds such as wage expansion andlow unemployment are expected to continue to supportconsumer spending and juvenile products demand.
Robust levels of 2019 holiday spending, increasing 3.4%YoY and predominantly driven by e-commerce salesgrowth of 18.8% YoY (Mastercard SpendingPulse6),provided assurance of healthy consumer productsspending. Additionally, e-commerce shoppers wereestimated to spend an average of $879 compared to thebrick-and-mortar average spending of $541 (Deloitte7),reflecting consumer preferences for instant accessibility,convenience, and pricing comparisons. Increasedpenetration of online channels has fostered robustgrowth for juvenile product operators as retailersincreasingly offer an omnichannel shopping experience.
Toy Segment: The Toy segment accounted for themajority of deal activity in 2019 (57%). Developmentaltoys have fostered heightened demand, supportingsubsequent M&A deals as sensory development andscience, technology, engineering, and mathematics(STEM) toys gain popularity as a successful mechanism tostimulate juvenile learning and development. According
56.7%
20.0%
16.7%
6.7%
M&A Segment Breakdown
Source: Capital IQ, PitchBook, FactSet, and Capstone Research
Durable Goods
Baby Nutrition
Apparel
Toys
to The Toy Association’s parent survey, 82% of parentspursue methods to encourage their child’s learningthrough play and 90% believe the development of STEMskills through play is important.8 STEM toys and othersthat provide sensory development are critical learningtools that promote critical thinking, creativity, problemsolving, and social and emotional skills. As theseproducts continue to attract Toy market share, M&A isanticipated to continue. Notably, littleBits Electronics, Inc.was acquired by Sphero, a robotics and education STEMcompany (August, undisclosed). Sphero’s acquisition oflittleBits, an inventor of electronic building blocks, createsa global leader in juvenile STEM and coding solutions forclassrooms, consumers, and after-school programs.
Durable Goods and Apparel Segments: Durable juvenileproducts and juvenile apparel were estimated to accountfor ~62% of the U.S. Online Baby Product market in 2019,reaching sales of $4.1 billion, according to IBISWorld.9Highly successful brands have fostered heightenedrevenue growth by effectively establishing individual e-commerce presences as well as partnering with majorretailers to augment sales channel and marketingdiversification. In 2019, the Apparel segment accountedfor 20% of deal activity while the Durable Goods segmentaccounted for 16.7%. Notably, Thrive Internationalacquired Moby Wrap and Petunia Pickle Bottom(November 2019, undisclosed), two stylish producers ofaward winning baby wraps, diaper bags, layettes, andbaby carriers. In October, Edgewell Personal Care(NYSE:EPC) sold its Infant and Pet divisions, comprisingbrands that offer diaper dispensing systems and mealtimeproducts, to Le Holding Angelcare for $122.5 million.
Enterprise EV / LTMDate Target Acquirer Target Business Description Value (mm) Revenue EBITDA
12/06/19 Orbeez Brand of Maya Toys Spin Master Manufactures a wide range soft and squishy toys made
out of water beads. - - -
11/18/19 Assets of Imperial Toys Ja-Ru Manufactures proprietary branded toys and has a wide
range of licenses including Disney and Little Tikes. $13.0 - -
11/14/19 Kahootz Toys PlayMonster Provides branded arts and crafts toys in partnerships - - -
11/13/19 Moby Wrap Thrive International Manufactures diaper bags, layette, and baby carriers. - - -
10/21/19 Infant and Pet Care of Edgewell
Le Holding Angelcare Comprises Edgewell’s infant and pet care businesses. $122.5 - -
10/15/19 Morgan & Milo Zutano Manufactures shoes for boys and girls as well as t-shirts. - - -
10/01/19 Wicked Cool Toys Jazwares Produces licensed and proprietary toys including plush,
action figures, fashion accessories, and games. $122.5 - -
09/11/19 Freed Foods Grays Peak Capital Offers organic quinoa food products for babies and toddlers via e-commerce and brick-and-mortar stores. - - -
08/23/19 littleBits Electronics Sphero Provides electronic building blocks that use magnets to
enable juveniles to invent and build electronics. - - -
08/16/19 Maty’s Healthy Products Bayer Produces organic and natural cough syrups,
indigestion relief and baby skin care products. - - -
07/09/19 Baby Fanatic MasterPieces Offers sport theme infant and kid products. - - -
06/04/19 Kids Station Toys Carson-DellosaPublishing
Manufactures musical instruments and electronic toys for juvenile customers. - - -
05/28/19 Kindergard Metron Bios Produces child safety products including outlet plug covers and drawer safety latches. - - -
05/23/19 Colle a Moi CCL Industries Offers customized labels and stickers for children. $2.2 - -
03/29/19 Peek Kids Mamiye Brothers Produces and retails apparel for children. - - -
03/05/19 StaCyc Harley Davidson Manufactures electric powered two-wheelers for kids. $14.9 - -
03/05/19 Janie and Jack Brand of Gymboree The Gap Comprises retail stores that offer children apparel. $35.0 - -
03/04/19 Gymboree and Crazy 8
The Children’s Place Retails children’s clothing. $76.0 - -
02/22/19 UpSpring Reckitt Benckiser Provides health, wellness, and safety products for mothers, babies, and kids. - - -
02/15/19 Forrest-PruzanCreative Funko Designs board games including Hullabaloo, Cariboo,
Listography, and Pictopia. - - -
02/01/19 Gentle Giant Diamond Select Toys
Produces three-dimensional representations of characters from leading franchises. - - -
01/29/19 Jada Toys SIMBA Toys Manufactures collectibles, radio controlled vehicles, model kits, and electronic toys. - - -
01/24/19 Sparkle Girl Brand of FUNVILLE Zuru Toys Offers branded dolls, interactive play sets, and other
collectibles that incorporate fun, fantasy, and fashion. - - -
Source: Capital IQ, PitchBook, FactSet, and Capstone Research
SELECT TRANSACTIONS
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Juvenile Products & Toys | 2019 Year in Review
PUBLIC COMPANY TRADING & OPERATING DATA
Price % 52 Wk Market Enterprise LTM EV / LTMCompany 12/31/19 High Cap Value Revenue EBITDA Margin Revenue EBITDACrown Crafts, Inc. $6.15 77.5% $62.5 $63.7 $74.9 $9.3 12.4% 0.9x 6.8x
Dorel Industries Inc. $4.61 32.4% $149.3 $815.4 $2,664.8 $122.7 4.6% 0.3x 6.6x
Hasbro, Inc. $105.61 83.2% $14,452.2 $15,215.4 $4,681.4 $805.2 17.2% 3.3x 18.9x
JAKKS Pacific, Inc. $1.03 48.1% $30.5 $175.6 $578.5 $14.7 2.5% 0.3x 12.0x
Mattel, Inc. $13.55 78.5% $4,698.0 $7,913.7 $4,555.1 $371.8 8.2% 1.7x 21.3x
Newell Brands Inc. $19.22 87.1% $8,137.7 $14,716.1 $8,308.3 $942.1 11.3% 1.8x 15.6x
Spin Master Corp. $30.48 84.8% $3,111.8 $3,039.6 $1,522.4 $150.2 9.9% 2.0x 20.2x
Summer Infant, Inc. $0.25 21.0% $4.8 $57.9 $170.5 $3.3 2.0% 0.3x 17.3x
TOMY Company, Ltd. $13.02 88.9% $1,252.0 $1,197.7 $1,552.4 $197.3 12.7% 0.8x 6.1x
Mean 9.7% 1.3x 12.7x
Median 10.5% 0.8x 13.2x
Harmonic Mean 5.8% 0.6x 10.1xEV = enterprise value; LTM = last twelve months$ in millions, except per share data
Last Twelve Month Margin Performance
Public Company Index EBITDA Multiples
Source: Capital IQ as of December 31, 2019
4
29.7%
20.6%
51.6%
26.5%
43.7%
33.8%
49.8%
31.3%
41.9%
12.4%4.6%
17.2%
2.5%8.2% 11.3% 9.9%
2.0%
12.7%
0%
10%
20%
30%
40%
50%
60%
Crown Crafts Dorel Industries Hasbro JAKKS Pacific Mattel Newell Brands Spin Master Summer Infant TOMY Company
Gross Margin % EBITDA Margin %
0x
5x
10x
15x
20x
EV/E
BITD
A
CSHW Public Company Index S&P 500
Juvenile Products & Toys | 2019 Year in Review
REPORT CONTRIBUTORS
Benjamin Kelly Research [email protected] | 617-619-3390
Ben joined Capstone Headwaters in 2018 and serves as an Analyst on the Boston Research Team. Heworks directly with senior investment bankers, utilizing data and market analysis to deliver key industryinsights to C-suite executives. Ben has a primary focus in the Industrial & Manufacturing and BusinessServices sectors.
Prior to joining Capstone Headwaters, Ben worked at The Baupost Group within its Portfolio Valuationdepartment. Ben earned a BA in Economics from Providence College and is a Series 79 RegisteredBanking Representative.
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Sophea ChauManaging Director, Juvenile [email protected] | 617-619-3307
Sophea has 15 years of experience in mergers & acquisitions, private placements and financial advisoryservices. Her responsibilities include asset positioning and strategy articulation, providing financial andvaluation analysis, and performing due diligence. Prior to joining Capstone Headwaters, Sophea was ananalyst at FTN Midwest Securities, a full-service investment banking firm based in Cleveland. Whileworking in their New York office, she focused on M&A advisory for middle-market companies in avariety of industries, including consumer products, healthcare, and marketing & advertising.
The M&A Advisor named Sophea to its prestigious “Emerging Leaders” (previously, “40-UNDER-40”)deal makers list in 2018. Sophea is on the Board of the Columbia Alumni Association of Boston andholds a BA in Economics from Columbia University.
Jesse BetznerVice [email protected] | 617-619-3355
Jesse is a Vice President with Capstone’s Boston investment banking team. He works as part of thebanking team performing financial analysis, assisting with identification of strategic and financialbuyers as well as many other deal related tasks. Prior to joining Capstone, Jesse gained seven years ofM&A, Corporate Finance and Entrepreneurship experience including several years at J.P. Morgan inNew York City. While with J.P. Morgan, Jesse worked with clients across various sectors, includingTechnology and Diversified Industries, in North America, South America and Europe. More recently, hegained investor relations and corporate development experience at B2W Digital, a leading e-commercecompany backed by 3G Capital, in Rio de Janeiro, Brazil. In addition to his native English, Jesse alsospeaks Spanish and Portuguese.
He earned his MBA from the London Business School and his BS in Finance and International Businessfrom Georgetown University. Jesse is a FINRA 79 Registered Investment Banking Representative.
Juvenile Products & Toys | 2019 Year in Review
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John FerraraFounder & CEO617-619-3325
Jeff AckermanManaging Director
Tom ElliottManaging Director
Paul LouieManaging Director
Lisa TolliverSenior Director312-674-4532
Tracy PatchDirector
To learn more about the Consumer & Retail Group and our most recent M&A Transactions visitCapstone Headwaters' Consumer & Retail Group
Yogesh PunjabiDirector
Sophea ChauManaging Director
CONSUMER & RETAIL GROUP
Jesse BetznerVice President617-619-3355
Juvenile Products & Toys | 2019 Year in Review
FIRM TRACK RECORD
7
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E-COMMERCECHILDREN’S APPAREL
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LEADING TOYMANUFACTURER
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CONFIDENTIAL
CHILDREN’S LITERACYAPPLICATION
Juvenile Products & Toys | 2019 Year in Review
CITATIONS
1. U.S. Census Bureau, “Quarterly Retail E-Commerce Sales 3rd Quarter 2019,” https://www.census.gov/retail/mrts/www/data/pdf/ec_current.pdf, accessed February 7, 2020.
2. U.S. Bureau of Labor Statistics, “Employment Situation Summary – January 2020k,” https://www.bls.gov/news.release/empsit.nr0.htm, accessed February 7, 2020.
3. The Conference Board, “Consumers Will Continue to Drive Growth and Prevent Economy from Slowing in Early 2020,” https://www.conference-board.org/data/consumerconfidence.cfm, accessed February 7, 2020.
4. National Retail Federation, “NRF says ‘state of economy is sound’ and forecasts retail sales will grow between 3.8 and 4.4 percent,” https://nrf.com/media-center/press-releases/nrf-says-state-economy-sound-and-forecasts-retail-sales-will-grow, accessed February 7, 2020.
5. U.S. Bureau of Economic Analysis, “Monthly Personal Income, DPI, PCE, and Personal Saving: Levels and Percent Changes,” https://www.bea.gov/system/files/2019-11/pi1019_hist.pdf, accessed December 18, 2019.
6. Mastercard, “Mastercard SpendingPulse: U.S. Retail Sales Grew 3.4 Percent This Holiday Season,” https://newsroom.mastercard.com/press-releases/mastercard-spendingpulse-u-s-retail-sales-grew-3-4-percent-this-holiday-season/, accessed February 7, 2020.
7. Deloitte, “Deloitte 2019 Holiday Retail Survey,” https://www2.deloitte.com/content/dam/insights/us/articles/6382_2019-holiday-survey/DI_2019-holiday-survey.pdf?, accessed February 7, 2020.
8. The Toy Association, “STEM/STEAM Formula For Success,” https://www.toyassociation.org/App_Themes/toyassociation_resp/downloads/research/whitepapers/stemsteam-formulaforsuccess-2019.pdf, accessed February 7, 2020.
9. IBISWorld, “U.S. Online Baby Product Industry,” https://my.ibisworld.com/us/en/industry-specialized/od5695/industry-at-a-glance, accessed February 7, 2020.
Disclosure: This report is a periodic compilation of certain economic and corporate information, as well as completed and announced merger and acquisi-tion activity. Information contained in this report should not be construed as a recommendation to sell or buy any security. Any reference to or omission ofany reference to any company in this report should not be construed as a recommendation to buy, sell or take any other action with respect to any security ofany such company. We are not soliciting any action with respect to any security or company based on this report. The report is published solely for thegeneral information of clients and friends of Capstone Headwaters. It does not take into account the particular investment objectives, financial situation orneeds of individual recipients. Certain transactions, including those involving early-stage companies, give rise to substantial risk and are not suitable for allinvestors. This report is based upon information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be reliedupon as such. Prediction of future events is inherently subject to both known and unknown risks and other factors that may cause actual results to varymaterially. We are under no obligation to update the information contained in this report. Opinions expressed are our present opinions only and are subjectto change without notice. Additional information is available upon request. The companies mentioned in this report may be clients of Capstone Headwaters.The decisions to include any company in this report is unrelated in all respects to any service that Capstone Headwaters may provide to such company. Thisreport may not be copied or reproduced in any form, or redistributed without the prior written consent of Capstone Headwaters. The information containedherein should not be construed as legal advice.
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Juvenile Products & Toys | 2019 Year in Review
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Capstone Headwaters is an elite investment banking firm dedicated to serving the corporate finance needs of middle marketbusiness owners, investors and creditors. Capstone Headwaters provides merger & acquisition, private placement, corporaterestructuring and financial advisory services across 16 industry verticals to meet the life cycle needs of emerging enterprises.Headquartered in Boston, MA and Denver, CO, Capstone Headwaters has 19 offices in the US, UK and Brazil with a globalreach that includes over 450 professionals in 40 countries.
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