Canadian Tire Corporation to Acquire Party City's Canadian Business - August 2019 - AWS
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Canadian Tire Corporation to Acquire Party City’s Canadian Business August 2019
Forward-Looking Statement
This presentation contains forward-looking information within the meaning of applicable securities legislation, which reflects management's current expectations regarding the proposed
acquisition and future events. All statements other than statements of historical facts contained in this presentation may constitute forward-looking information, including but not limited
to: statements concerning the expected benefits of the proposed acquisition, including with respect to the impact of the acquisition of Party City’s business in Canada on CTC’s EBITDA,
ROIC and diluted EPS accretion, CTC’s estimated retail sales for the acquired business, CTC’s estimated EBITDA attributable to the proposed acquisition, the implied future EBITDA multiple
of the proposed acquisition, the expansion of the Party City brand in Canada and the realization of synergies; the expected timing of the proposed acquisition, if completed; CTC's financial
flexibility to fund the transaction; and management's expectations relating to other possible or assumed future prospects and results, CTC's strategic goals and priorities, and the
economic and business outlook for CTC. Often, but not always, forward-looking statements can be identified by the use of forward-looking terminology such as "may", "will", "expect",
"intend", "believe", "estimate", "plan", "can", "could", "should", "would", "outlook", "forecast", "anticipate", "aspire", "foresee", "continue", "ongoing" or the negative of these terms or
variations of them or similar terminology. Forward-looking statements are based on the reasonable assumptions, estimates, analyses, beliefs and opinions of management, made in light
of its experience and perception of trends, current conditions and expected developments, as well as other factors that management believes to be relevant and reasonable at the date
that such statements are made. CTC has provided these forward-looking statements for the purpose of presenting information about management’s current expectations and plans
relating to the proposed acquisition and readers are cautioned that these statements may not be appropriate for other purposes.
By their very nature, forward-looking statements require management to make assumptions and are subject to inherent risks and uncertainties, which give rise to the possibility that CTC's
assumptions, estimates, analyses, beliefs and opinions may not be correct and that CTC's expectations and plans will not be achieved. Although CTC believes that the forward-looking
information in this presentation is based on information and assumptions that are current, reasonable and complete, this information is necessarily subject to a number of factors that
could cause actual results to differ materially from management's expectations and plans as set forth in such forward-looking information for a variety of reasons. Some of these factors –
many of which are beyond management's control and the effects of which can be difficult to predict – include: (a) the risk that Party City’s Canadian business will not be integrated
successfully; (b) the possibility that the anticipated benefits and synergies from the proposed acquisition cannot be realized or may take longer to realize than expected; (c) the ability of
CTC and Party City to maintain relationships with customers, suppliers and other business partners, (d) risks associated with the supply arrangements; (e) the risk that regulatory approvals
required for the proposed acquisition are not obtained, or are obtained on unfavorable terms; (f) the risk that regulatory approvals may delay the proposed acquisition; (g) the risk that a
condition to the closing of the proposed acquisition may not be satisfied or the acquisition agreement may be terminated prior to closing; (h) the diversion of management time and
attention on the proposed acquisition; (i) credit, market, currency, operational, liquidity and funding risks generally, including changes in economic conditions, interest rates or tax rates;
and (j) risks and uncertainties relating to information management, technology, supply chain, product safety, changes in law, competition, seasonality, commodity price and business
disruption. Management’s expectations with respect to the impact of the acquisition of Party City’s business in Canada on CTC’s EBITDA, ROIC and diluted EPS accretion, CTC’s estimated
retail sales for the acquired business, CTC’s estimated EBITDA attributable to the proposed acquisition and the implied future EBITDA multiple of the proposed acquisition are based on a
number of assumptions, including the successful roll out of Party City products across at least two-thirds of CTR stores, the successful introduction of at least nine additional Party City
stores in Canada and additional growth in sales at Party City’s existing Canadian stores based on marketing and other initiatives. Management cautions that the foregoing lists of
important factors and assumptions are not exhaustive and other factors could also adversely affect CTC's results. Investors and other readers are urged to consider the foregoing risks,
uncertainties, factors and assumptions carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements.
For more information on the risks, uncertainties and assumptions that could cause the Company's actual results to differ from current expectations, refer to section 2.8 (Risk Factors) of
our Annual Information Form for fiscal 2018 and to sections 7.2.4 (Retail Segment Business Risks), 7.3.2 (CT REIT segment business risks), 7.4.3 (Financial Services Segment Business Risks)
and 12.0 (Risks and Risk Management) and all subsections thereunder of our Management's Discussion and Analysis for the year ended December 29, 2018, as well as the Company’s
other public filings, available at www.sedar.com and at https://investors.canadiantire.ca.
The forward-looking information contained herein is based on certain factors and assumptions as of the date hereof and does not take into account the effect that transactions or non-
recurring or other special items announced or occurring after the statements are made have on CTC's business. CTC does not undertake to update any forward-looking statements,
whether written or oral, that may be made from time to time by it or on its behalf, to reflect new information, future events or otherwise, except as required by applicable securities laws.
.
1
Canada’s Destination for Celebrations
CTC has entered into an agreement to purchase Party City’s business in Canada
Plans to significantly expand access for Canadians to a world-class party supply assortment through 500+
Canadian Tire Retail stores, our canadiantire.ca website, and 65 stand-alone Party City stores
The acquisition is immediately accretive and creates Canada’s #1 party and celebration retailer, as
the newest member of the Triangle family, and the Triangle Rewards Loyalty Program
2
Party City Canada Overview
Business Overview
• Recognized leader in party supplies: from balloons and costumes to paper plates and party favours
• #1 Net Promoter Score (NPS) in party category; brand focus is “Make Any Moment Extraordinary”
• 65 corporate retail stores across 7 Canadian provinces
• Party City US operates 900+ retail locations, a leading party supply wholesale business and an
eCommerce platform
Retail Sales: Canada EBITDA: Canada
~10% ~$140M
CAGR ~40% ~$18M
CAGR
2015A 2016A 2017A 2018A 2015A 2016A 2017A 2018A
3
Strengthens our offerings for the Jobs & Joys of Life in Canada
Canada’s Celebration Store
Relevance for the Joys of every celebration season – from Easter, to Canada Day,
Summer Fun, Christmas and more
Party City’s many ‘micro-seasons’ bring celebrations to a whole new level
As the ultimate party supply destination, and with deep expertise in micro-seasonal celebrations, Party
City complements CTR’s existing family fun categories and focus on the Joys of Life in Canada
4
Strengthens our Triangle Marketplace
Greater Customer Engagement
CTC’s data analytics – from our loyalty program,
credit card and retail businesses – indicate Party
City’s Canadian customer base strengthens our All Triangle Members who
portfolio Rewards Members Shop Party City Canada
Increased relevance of our Triangle %
Marketplace with Party City’s key segments: Millennial
Millennials and Canadian families Customers
CTC can acquire new Triangle Rewards +70%
Annual
loyalty program members from Party City’s
Trips to
existing customer base CTR
Providing our Triangle members with
+60%
greater access to Party City’s assortment Annual
will drive more trips and greater share of Spend at
wallet at CTR CTR
5
Categories are High Margin and Differentiating
Assortment Depth & Breadth
CTR will be positioned as the one-stop-shop for celebrations, with unique assortments and
unparalleled depth for every occasion
• High margin category, well above CTR margin rate
• All categories with strong positive growth in recent years
• 45K SKUs, with channel exclusivity on custom products and certain licensed products
• Minimal overlap with current CTR assortments
• Party favours, balloons and juvenile birthday categories - entirely new trips for CTR
Assortments new to CTR
Not sold at CTR Minimal overlap with CTR
Juvenile
Party Favours Balloons Seasonal Candy Solids
Birthday
Greeting Cards Latex Kid’s Birthday Halloween Non Seasonal Bakeware
Décor Mylar Decor New Years Candy Foil
Accessories Seasonal General Kid’s Thanksgiving Serveware
General Birthday Supplies St Patrick’s Day Tableware
Entertaining Valentine’s Day Table Cloths 6
General Gifts Easter Disposables
Powerful Combined Growth Platform
Full Omni-Channel Execution
CTC’s proven retailing capabilities and scaled store network uniquely position us to accelerate the growth
of the Party City business across Canada – utilizing our many platform assets
• 12M Triangle Rewards loyalty members, with 5M personalized email offers each week
• 500+ CTR stores, with customized Party City executions from store-in-store, to pop-ups and full aisles
• Prominent positioning on high traffic canadiantire.ca website and other CTR digital properties
2
0
15
55
59 1
9 16 100
15
10 203
3 0 22
0
38 19 2
2
500+ ‘Store-in-Store’, Party Aisles & canadiantire.ca 65 Stores, Seasonal Pop-Ups & partycity.ca
7
Accelerated Growth Forecast to 2021
• Party City Canada to become a part of the Triangle Rewards program
• Party City assortment to be made available nationally across 500 Canadian Tire stores and online at
canadiantire.ca, along with continued growth of stand-alone Party City stores
• Retail sales expected to double to ~$280M by 2021
• Estimated EBITDA attributable to Canadian Tire’s acquisition of the Party City business in Canada is
expected to more than double by 2021
Retail Sales Forecast (POS) EBITDA Forecast
~25%
~$280M
CAGR
~35% ~$50M
CAGR
2018A 2021E 2018A 2021E
8
Acquisition Immediately Accretive
Transaction Terms & Financing
Purchase Price
$174.4M, inclusive of ~$40M in inventory, for Party City’s brand, store network, employee base,
leaseholds and fixed assets in Canada
Accretion
Immediately accretive to EPS, EBITDA and ROIC (before synergies)
Retail sales expected to double to $280 million by 2021
Expected continued strong EBITDA growth to 2021 yielding an implied EBITDA multiple in the mid to low
single digits
Financial Flexibility
CTC has ample financial flexibility to fund the acquisition
Expected Close & Approvals
Expected close in Q3 2019
Subject to competition bureau approval and customary closing conditions
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