Capstone Headwaters Juvenile Products M&A Coverage Report - Q1 2019

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Capstone HeadwatersJUVENILE PRODUCTSQ1 2019TABLE OF CONTENTSYEAR-IN-REVIEW Year-in-ReviewThe Juvenile Products industry experienced strong revenue growth in 2018,driven by the 7.5% year-over-year (YOY) increase in real disposable income (USCensus Bureau),1 which fueled robust consumer confidence and spending lastyear. Additionally, personal consumption expenditures increased 2.8% YOY inNovember,2 propelling strong holiday season sales figures. The US Bureau ofLabor Statistics’ robust December jobs report indicated unabated economicmomentum heading into 2019. During December, the US beat estimates andadded 312,000 jobs to the economy, with average hourly wages rising 3.2%.3Continued strength of macroeconomic indicators are expected to supportconsumer confidence and spending in 2019. Consumer Retail Spending Select Transactions Public Company Data Firm Track RecordCONTRIBUTORSSophea ChauHead of Juvenile A Activity: Juvenile ProductsNumber of TransactionsJacob VoorheesHead of Global [email protected] Juvenile Products industry experienced strong merger & acquisition activity(M&A) in 2018, matching the previous five-year peak of 38 announced orcompleted deals. Strategic buyers continued to account for the majority(55.3%) of deal activity in 2018, while private equity buyers with heightenedlevels of dry powder increased their exposure in the industry compared to 2017.Notable strategic transactions have included the acquisitions of K’NEX Brands(February, 29.0 million) and Playhut (October, 1.2 million) by Basic Fun, a toyproducer and distributor; and the acquisition of GUND (March, 76.0 million) bySpin Master (TSX:TOY), an international children’s entertainment company. Inthe private equity space, following PlayMonster’s acquisition of Kid O (February,terms undisclosed), the Audax Group acquired PlayMonster (terms undisclosed)in 172018Source: Capital IQ, Pitchbook, FactSet, and Capstone Headwaters Researchwww.capstoneheadwaters.com3January 2019

Juvenile Products Q1 2019CONSUMER RETAIL SPENDINGYEAR-OVER-YEAR INCREASERETAIL HOLIDAY SPENDINGQ3 YOY Revenue GrowthRetail sales continued to reflect strong householdpurchasing power. From November 1 to December 24,2018, consumer retail sales increased 5.1% year-overyear, according to Mastercard SpendingPulse.4 Fueled byhealthy levels of consumer confidence, which increased4.1% YOY, retail spending was robust during the holidayseason.5 Customers flocked to online shopping channels,increasing 14.5% YOY in Q36 as major retailers enjoyedbroadened market share given Toys “R” Us’ (TRU) closure.The 2017 liquidation of US Toys “R” Us stores sentshockwaves throughout the Juvenile Products industry.Untapped demand and market share were available formajor retailers such as Walmart (NYSE:WMT), Target(NYSE:TGT), and Amazon (NYSE:AMZN). Major retailerspoured capital into juvenile product inventories,capturing the market share that was left behind by TRU.Walmart increased Q3 revenue YOY by 2.4% on aconstant currency basis and has continued to invest in itsjuvenile products inventory, expanding its fall toyassortment and online toy offerings by 30.0% and 40.0%,respectively, according to Q3 Earnings.7 Similarly, Targetgenerated comparable toy sales growth of over 20.0%due to toy inventory investment, contributing to totalrevenue growth of 5.7%, as noted in their Q3 EarningsCall.8 Expanded emphasis on juvenile products by Targetand Walmart will support growth and consolidationamong strategic Juvenile Product companies looking tocapture major retailer shelf space.WALMART (NYSE:WMT)5.7%AMAZON (NYSE:AMZN)29.0%The closing of US TRU stores has also allowed Amazon tofurther capture market share, indicated by itsapproximate 30.0% YOY rise in toy sales in Q3, accordingto Edge by Ascential.9Amazon’s STEM (science,technology, engineering, math) Club, a subscriptionservice that provides new STEM Toys to children agedthree to 13, provides a competitive advantage in thegrowing Developmental Toy segment. Walmart’s andTarget’s initiatives toward e-commerce expansion,yielding growth of approximately 43.0% and 49.0%,respectively in Q3, are expected to continue as theycompete with Amazon to develop their online customerexperience capabilitiess.Unemployment % 44.0 43.5 43.0 42.5 42.0 41.5 17Oct-16 40.5Jul-16Chained 2012 Dollars (thousands) 140Apr-166.0%Unemployment RatePer Capita Disposable Income160Jan-16Consumer ConfidenceConsumer Confidence IndexConsumer Confidence2.4%TARGET (NYSE:TGT)Apr-165.1%Per Capita Disposable IncomeSource: The Conference Board and US Census Bureau2

Juvenile Products Q1 2019SELECT TRANSACTIONSEV / LTMEnterpriseValue (mm)RevenueEBITDADateTargetAcquirerTarget Business Description12/08/18Posh Babyand TeenBambi BabyRetails baby and teen furniture, strollers, car seats, andbaby gear mentDistributes school supplies, playground equipment,toys and games, and classroom decor.---12/04/18CodeMonkeyStudiosTAL EducationGroupOffers online games which teach computerprogramming to children. 20.0--11/28/18TranquiloBaby BoomConsumer ProductsDesigns and manufactures portable, vibrating mats toaid in infant sleep.---11/19/18PlayMonsterAudax GroupDesigns and manufactures toys and games forchildren and families.---11/14/18Surprise RideFat Brain ToysProvides activity boxes through the mail dgeGlobal MediaPublishes picture books, fiction books, andnonfiction books for children.---10/30/18Cloud BEdison NationManufactures products and accessories that helpchildren sleep. 4.1--10/01/18PlayhutBasic FunProduces indoor and outdoor play structures. 1.2--09/21/18Nippon ImportsBANDAI NAMCODistributes toys doing business as Bluefin.---09/19/18Buffalo GamesMason WellsManufactures and markets party games and puzzlesthrough brick-and-mortar and online retailers.---09/12/18MontessoriumHigher GroupEducationDevelops educational online applications for children.---08/23/18Tree ChestSafetyEVITRADEHealth SystemsManufactures lockable air tight storage compartmentsto store products and prevent child access. 3.7--08/07/18KliindeTower Arch Capital;Develops and manufactures feeding products forPear Orchard Partners infants and child care.---06/05/18Store on WheelsA&A GlobalOperates as a wholesale import and distributor of toys,lighting, and novelties.---06/05/18RawlingsSeidler Equity;MLB EnterprisesManufactures and markets sporting goods worldwide. 395.01.2x-05/29/18Russ Berrie &Applause BrandsZag ToysProvides branded gifts and toys.---05/25/18The HaywireGroupUniversity GamesManufactures board games.---Source: Capital IQ, Pitchbook, FactSet, and Capstone Headwaters Research3

Juvenile Products Q1 2019SELECT TRANSACTIONSEV / LTMEnterpriseValue (mm)RevenueEBITDADateTargetAcquirerTarget Business actures branded recreational toys.---05/17/18PacifierIndividual InvestorRetails baby and kids products including apparel, toys,and strollers.---05/15/18Joy for AllAgelessInnovationOperates an e-commerce portal for soft toysand gifts.---05/10/18Smart KidzBooksWhitakerPublishes books for children from infancy though ageeight.---05/04/18World of MirthIndividual InvestorOperates a toy shop in Virginia.---04/19/18Rent BabyEquipmentBabyQuipProvides a baby gear rental directory.---04/02/18Steve SpanglerReally Good StuffManufactures educational science toys.---03/28/18GeoworldBasic FunProvides science-based excavation and discovery toys.---03/14/18Steve SpanglerReally Good StuffManufactures educational science toys.---03/14/18SnapdollsCortex ToysManufactures dolls, clothing, and accessories for kids.---03/05/18GUNDSpin MasterManufactures soft and huggable plush toys and gifts. 76.0--02/21/18NameGamesRecall StudiosDevelops a suite of games for creating positive childinteractions.---02/16/18Zag ToysJazwaresDesigns and manufactures vinyl and mini actionfigures, plush toys, and other collectibles.---02/14/18Kid OPlayMonsterDistributes education toddler and preschool toys.---02/13/18Ju-Ju-BeBregal InvestmentsManufactures and markets backpacks and diaper bags.---02/09/18K’NEXBasic FunManufactures construction toys for children. 29.0--02/09/18BugabooBain CapitalDevelops and manufactures mobility products fortoddlers and newborn babies.---01/17/18SokikomJumpStart GamesDevelops web-based games that engage students ofgrades one to six in learning games.---Source: Capital IQ, Pitchbook, FactSet, and Capstone Headwaters Research4

Juvenile Products Q1 2019PUBLIC COMPANY TRADING & OPERATING DATAPrice% 52 WkMarketEnterprise01/02/18HighCapValueRevenue 5.4071.6% 54.5 58.8 76.2 9.412.3%0.8x6.3xDorel Industries Inc. 12.9353.3% 413.5 844.8 2,613.0 130.25.0%0.3x6.5xHasbro, Inc. 81.2574.1% 10,278.7 11,062.5 4,786.6 798.716.7%0.3x13.9xJAKKS Pacific, Inc. 1.4744.2% 34.0 147.2 572.1NMNM1.4xNMMattel, Inc. 9.9952.9% 3,448.1 6,363.8 4,597.4NMNM1.2xNMNewell Brands Inc. 18.5957.1% 8,677.8 16,880.2 13,969.7 2,029.514.5%1.2x8.3xSpin Master Corp. 28.1362.1% 2,863.7 2,773.4 1,658.1 254.115.3%1.7x10.9xSummer Infant, Inc. 1.0553.0% 19.7 66.4 180.4 5.32.9%0.4x12.5xTOMY Company, Ltd. 9.9757.8% 948.6 959.2 1,573.0 8.3x7.4%0.6x8.9xCompanyCrown Crafts, Inc.EV enterprise value; LTM last twelve months in millions, except per share dataNM Not MeaningfulLTMEV / LTMEBITDA MarginHarmonic MeanRevenue EBITDALast Twelve Month Margin .6%2.9%0%-10%-2.3%-6.6%-20%Crown CraftsDorel IndustriesHasbroJAKKS PacificMattelGross Margin %Newell BrandsSpin MasterSummer Infant TOMY CompanyEBITDA Margin %Last Twelve Month 1-Year Revenue 5%-4.3%-10%-8.7%-15%Crown CraftsDorel IndustriesHasbro-11.1%-10.0%JAKKS PacificMattelNewell BrandsSpin MasterSummer Infant TOMY CompanySource: Capital IQ and Capstone Headwaters Research as of January 2, 20195

Juvenile Products Q1 2019FIRM TRACK RECORDhas been acquired byhas been acquired byhas been acquired bya portfolio company ofhas been acquired byhas been acquired byhas been acquired byhas been acquired bya portfolio company ofstrategic joint venturehas been acquired byhas been acquired byhas been acquired bya portfolio company ofhas divestedhas been acquired byhas been acquired byfinancial advisory6

Juvenile Products Q1 2019JUVENILE PRODUCTS REPORT CONTRIBUTORSSophea ChauHead of Juvenile [email protected] 617-619-3307Sophea has more than 12 years of experience in mergers & acquisitions, private placements and financialadvisory services. Her responsibilities include asset positioning and strategy articulation, providingfinancial and valuation analysis, and performing due diligence. Prior to joining Capstone Headwaters,Sophea was an analyst at FTN Midwest Securities, a full-service investment banking firm based inCleveland. While working in their New York office, she focused on M&A advisory for middle-marketcompanies in a variety of industries, including consumer products, healthcare, and marketing &advertising.The M&A Advisor named Sophea to its prestigious “Emerging Leaders” (previously, “40-UNDER-40”) dealmakers list in 2018. Sophea is on the Board of the Columbia Alumni Association of Boston and holds aBA in Economics from Columbia University.Jacob VoorheesHead of Global [email protected] 617-619-3323Jacob brings over 15 years of experience to the Capstone Headwaters investment banking team. As oneof the founding members of Capstone Partners, he helped build Capstone’s brand over the past decadeuntil the merger with Headwaters MB in late 2017. Today, Jacob serves as the Co-Head of InvestmentBanking for Capstone Headwaters and is responsible for overseeing the Northeast Region. Jacob hasproved himself to be a talented deal maker with an unyielding commitment to his clients and hasestablished himself and our firm as a leader in various industries including education and training,consumer products and business services sectors. He is a highly accomplished leader and serves as astrong mentor and role model to our developing professionals.Formerly, Jacob was with Andersen Corporate Finance LLC, where he focused his efforts on thesoftware and direct marketing industries. He started his career in New York City with RabobankInternational, a multi‐national Dutch investment bank in Utrecht, the Netherlands. While at RabobankInternational, Jacob worked in the mergers and acquisitions group focusing on cross‐border transactionsin South and Latin America in the consumer products, food & beverage industries. Additionally, Jacobfounded Sophie’s Fund which provides college scholarships and financial support to homeless youth.Jacob received an MBA from the Sloan School of Management at Massachusetts Institute of Technology(MIT) and a BS from Cornell University. He is qualified as a General Securities Representative.2019201820182017TURNAROUND AWARDSINVESTMENT BANKING FIRMOF THE YEARUS MIDDLE MARKETSINVESTMENT BANK OF THE YEARUS - DEBT FINANCINGADVISORY OF THE YEARMIDDLE MARKET INVESTMENTBANK OF THE YEAR7

Juvenile Products Q1 2019CITATIONS1.Federal Reserve Bank of St. Louis, “Real Disposable Personal Income,” https://fred.stlouisfed.org/series/DSPIC96, accessedJanuary 2, 2019.2.Bureau of Economic Analysis, “Monthly Personal Income, DPI, PCE and Personal Saving: Levels and Percent 2/pi1118 hist.pdf, accessed January 2, 2019.3.Bureau of Labor Statistics, “Employment Situation Summary,” https://www.bls.gov/news.release/empsit.nr0.htm, accessedJanuary 4, 2019.4.Mastercard, “Mastercard SpendingPulse: U.S. Retail Sales Grew 5.1 Percent This Holiday Season,” rcent-this-holiday-season/,accessed January 2, 2019.5.The Conference Board, “Consumer Confidence Survey,” idence.cfm, accessed January 3, 2019.6.US Census Bureau, “Quarterly Retail E-Commerce Sales 3rd Quarter 2018,” https://www.census.gov/retail/mrts/www/data/pdf/ec ata/pdf/ec current.pdf, accessed January 2,2019.7.Walmart, “Walmart Q3 FY19 Earnings Release,” https://s2.q4cdn.com/056532643/files/doc f, accessed January 3, 2019.8.Target, “Target Reports Third Quarter Results,” 1/target-reports-thirdquarter-results, accessed January 3, 2019.9.Edge by Ascential, “Toys: Amazon.com Q3 Update” q3update?utm source press&utm medium whitepaper&utm campaign toysamazon&lsd pr-toysamazon, accessedJanuary 4, 2019.Disclosure: This report is a periodic compilation of certain economic and corporate information, as well as completed and announced merger and acquisition 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 varymate- rially. We are under no obligation to update the information contained in this report. Opinions expressed are our present opinions only and aresubject to change without notice. Additional information is available upon request. The companies mentioned in this report may be clients of CapstoneHeadwaters. The decisions to include any company in this report is unrelated in all respects to any service that Capstone Headwaters may provide to suchcompany. This report may not be copied or reproduced in any form, or redistributed without the prior written consent of Capstone Headwaters. Theinformation contained herein should not be construed as legal advice.8

BUILT FOR THE MIDDLE MARKETUNITED STATESINTERNATIONAL160 professionals17 officesBoston Boise Burlington ChicagoDallas Denver Greenwich HoustonLos Angeles New York OrangeCounty Philadelphia San DiegoSan Francisco St Louis TampaWashington DC300 professionals37 offices in 33 countriesArgentina BelgiumBrazil Canada Chile ChinaColombia Croatia Czech Republic DenmarkEgypt Finland France Germany Hungary IndiaIreland Italy Japan Mexico Morocco NetherlandsNorway Peru Poland Russia Spain Sweden SwitzerlandTurkey United Arab Emirates United Kingdom VietnamCapstone 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 300 professionals in 33 countries.www.capstoneheadwaters.com12

Crown Crafts Dorel Industries Hasbro JAKKS Pacific Mattel Newell Brands Spin Master Summer Infant TOMY Company. 2019. 2019. .