Ted Vaughan and Bob Snape, President of BDO Capital Advisors, presented on the topic of strategic growth opportunities and M&A activity in the retail sector at the 2014 Texas A&M Retailing Summit.

1. Texas A&M University Retailing Summit
Opportunities for Strategic Growth
Ted C. Vaughan, National Retail & Consumer Products Partner
BDO USA, LLP
Robert A. Snape, President
BDO Capital Advisors, LLC
BDO Capital Advisors, LLC Member FINRA/SIPC
BDO Capital Advisors, LLC is a separate legal entity and is an affiliated company of BDO USA, LLP, a Delaware limited liability partnership and national professional services firm.

2. OVERVIEW
Current Deal Flow
Trends And
Opportunities In
The Retail
Industry:
 Trends in strategic expansion
 Opportunities and risks identified
by retailers
 Economic and capital markets
trends
 Focus on retail mergers and
acquisitions

3. Consumer Products Companies Ride M&A Wave
“Global consumer
products companies are
in the midst of merger
mania.”
“Global consumer
products M&A deal
volume in the 1st half of
2014 was almost 4X the
amount during the same
period last year, and the
highest since 2008.”
“The second quarter of
2014 was the [retail and
consumer products]
sector’s strongest
quarter of IPO’s in three
years, measured both by
the number of deals and
the proceeds generated
from them.”

4. Focus Areas for M&A
Retailers must prove that they have:
A defined customer base
Consistently demonstrated growth
A strategy for targeting a specific segment
or demographic
Product that sells well online

5. Opportunities and Risks for Retailers
Top 10 Risks Identified by Retailers:
1. General Economic Concerns (100%)
2. Federal, State and/or Local Regulations (99%)
3. Competition & Consolidation in Retail Sector (98%)
4. U.S. and Foreign Supplier/ Vendor Concerns (96%)
5. Labor (health coverage, union concerns, staffing) (94%)
6. Dependency on Consumer Trends (93%)
7. Implementation & Maintenance of IT Systems (92%)
8. Privacy Concerns Related to Security Breach (91%)
9. Consumer Confidence and Spending (91%)
10. Legal Proceedings (91%)

6. Strategic Growth Initiatives

7. ECONOMIC OVERVIEW
Conditions Continue to Improve
7
• World economic recovery is ongoing but
challenged; Q2 2014 Eurozone GDP flat
• Moderate growth continues in U.S.
• Consumer confidence is rising but volatile
– Net worth of U.S. households fully recovered
from recession lows
– Deleveraging has occurred
– Unemployment declining
• Manufacturing and output has recovered
to near pre-recession levels in most
sectors and regions
• Companies are more productive and
competitive
– Profit margins at record highs
• CAPEX expected to increase in 2014/2015
- further fuel for growth
• Balance sheets are strong
‐ S&P 500 leverage ratio at 20 year low
• Borrowing costs are low; capital is
abundant
• Federal Reserve tapering in full swing
– Low inflation – labor, raw materials, energy
costs are contained

8. 8
ECONOMIC OVERVIEW
Growth Taking Hold
GDP growth at 4.2% for Q2 2014, reversing 2.1% decline in Q1
– Weather was major drag on Q1; sharp rebound in Q2
– Inventory investment contributed 1.7%
– Durable goods shipments up 3.9% in last year
– Industrial production up 5.5%, Q2 annualized
– Consensus forecast of 3% GDP growth for 2014; highest since 2005
U.S. GDP Growth Rate
6%
4%
2%
0%
-2%
-4%
-6%
-8%
-10%
Q1'08 Q3'08 Q1'09 Q3'09 Q1'10 Q3'10 Q1'11 Q3'11 Q1'12 Q3'12 Q1'13 Q3'13 Q1'14
Quarterly % Change

9. ECONOMIC OVERVIEW
U.S. Consumers Have Money to Spend
• U.S. Household Net Worth has grown to $80 trillion, recouping
the $16 trillion lost during the financial crisis and growing to
new highs
• Total household financial obligations as a percentage of
disposable income peaked in Q3 2007 at 17%; they are now
down to 15%
– Household debt is $8T mortgages, $1.1T student loans, $900B credit cards
9
$100
$80
$60
$40
$20
$0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Trillion
U.S. Household Net Worth
19%
18%
18%
17%
17%
16%
16%
15%
15%
14%
14%
U.S. Household Obligations as
% of Disposable Income
2006 2007 2008 2009 2010 2011 2012 2013 2014

10. ECONOMIC OVERVIEW
Consumer Sentiment and Confidence Building
• Recent surveys show the U.S. consumer is gaining confidence in the future
• Improving business conditions and job growth fueling rebound
10
100
80
60
40
20
0
University of Michigan
Consumer Sentiment
2007 2008 2009 2010 2011 2012 2013 2014
120
100
80
60
40
20
0
The Conference Board
Consumer Confidence
2007 2008 2009 2010 2011 2012 2013 2014
20 Year
Average = 87

11. ECONOMIC OVERVIEW
Steady Improvement in Retail Sales
2012 2013 2014
11
6%
5%
4%
3%
2%
1%
0%
A M J J A S O N D J F M A M J J A S O N D J F M A M J
Y
O
Y
C
H
A
N
G
E
Core Retail Sales*
*Retail sales ex. autos, gas and building material

12. 12
Index
YTD1
Return
2013
Return
Dow Jones 2.7% 26.5%
NASDAQ 8.3% 35.1%
Russell 2000 -1.2% 37.0%
S&P 500 7.5% 29.6%
CAPITAL MARKETS OVERVIEW
U.S. Public Equities
• All major market indices rose approximately 25-35% in 2013, best performance since 1997
• $36B raised in 154 U.S. IPOs in H1 2014, most since H1 2000
• Equity markets are seeking direction given current valuation levels – corporate earnings,
geopolitical risk, Fed tapering
U.S. Indices Performance Trends
Source: S&P Capital IQ
*1/3/11 through 9/15/14
1YTD as of 9/15/14
Major U.S. Indices*

13. CAPITAL MARKETS OVERVIEW
Capital Reserve Balances Remain High
• Balances held by financial and strategic buyers remain at high levels
Strategic and Financial Capital Availability
13
– PE capital raised increased 68% to $220 billion in 2013
– Highest yearly total since 2008
• PE firms have $466 billion of dry powder, the greatest amount since 2009
– Q1 2014 PE fundraising points to another strong year, with 95% of funds reaching their goals
• Strategic buyers are flush with cash, and have access to attractive debt
financing in a record low interest rate environment
Source: PitchBook and The Federal Reserve

14. CAPITAL MARKETS OVERVIEW
Banks Offer Favorable Deal Environment for Quality Companies
• Leverage tolerances for middle market PE transactions have
rebounded from 2009 lows and debt capital is readily available
• With valuation multiples high, equity contributions have fallen as
Leverage Equity Contribution
14
buyers access greater leverage
Source: S&P LCD; represents deals valued between $25 million and $500 million

15. M&A MARKET OVERVIEW
Historical M&A Cycles Provide Insight For Future Trends
• Historical data supports that M&A markets are cyclical
• Cycles are becoming more predictable and contracted
15
– 2-4 years separate peaks and troughs
– 6-7 years to cover a full cycle
Change in Announced M&A $ Volume
Source: Thomson Reuters and private company data

16. GLOBAL M&A ACTIVITY
Overall Deal Volume Rises Dramatically in 2014
Deals with price tags >$500m account for 75% of overall market
16
– “Super” mega deals ($10b+) are back
– Most markets up 40% to 45% over 2013
– Average deal size up nearly $50m YoY
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
YTD
2013
YTD
Global M&A Activity
Number of Deals
3.00
2.50
2.00
1.50
1.00
0.50
0.00
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
YTD
2013
YTD
$
T
r
i
l
l
i
o
n
s
Global M&A Activity
Dollar Volume

17. M&A MARKET OVERVIEW
Overall Market Trends Apply to Retail M&A Outlook
17
• Global M&A reached $1T in Q2 2014, up
72% from Q2 2013
– U.S. led with volume more than doubling to
$473B
• Growth driven, in part, by large cross-border
tax inversion deals by U.S.
companies
– Retail sector active including Burger King’s
$11.4B acquisition of Tim Horton’s
• 20 deals valued at more than $10B in H1
2014, most since H1 2007
• Major drivers - record low interest rates
and access to debt markets, high stock
prices, encouragement by public company
shareholders, external cost cutting
opportunities, an increasing focus on core
competencies, and return of corporate
confidence
• U.S. PE firms deployed $244B of capital in
H1 2014, up 27% from 2013
– Deal volume up 30%; number of transactions
increased 7%
• PE firms pulled back from buying public
companies due to rising stock prices
– Go-private transactions 3.5% of leveraged buyout
volume in H1 2014, lowest on record, compared
to 68% in H1 2008
• PE firms increased secondary buyout deals
which reached 60% of leveraged buyout
volume in H1 2014, highest on record
Sources: S&P Capital IQ, Dealogic, PitchBook, The Wall Street Journal

18. – North America 40%; Europe 32%; Asia 26% of retail activity in Q2 2014
– PE related activity 32% of retail M&A market
18
RETAIL M&A OVERVIEW
Deal Volumes Grow
Retail deals account for just 3% of overall market
70
60
50
40
30
20
10
0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 YTD 2013 YTD
$
B
i
l
l
i
o
n
s
Global Retail M&A Activity
Dollar Volume

19. 19
RETAIL M&A OVERVIEW
Growth Drivers
 Companies looking for economies of scale
 Brand expansion / enhancement
 Distribution and logistics efficiencies and synergies
 Tax strategies / inversion
 Organic growth limitations
 Changing demographics
 Market share expansion
– Offense / Defense

20. 20
RETAIL M&A OVERVIEW
Retail Deal Trends
Large
Restaurant
Deals
Red Lobster
CEC
Crossover Deals
Between Retail
and Technology
Etsy / Grand St.
@Walmartlabs / Stylr
Etsy / Incubart
Amazon / Iconology
Staples / PNI Digital
Media
Grocers and
Convenience
Stores
Safeway
Hess / Speedway
Deals
for Rivals
Signet / Zale
Jos. A Bank / Men’s
Warehouse

21. RETAIL M&A OVERVIEW
2014 M&A Landscape Much Better Than 2013
21
Barring A Major
Financial or Systemic
Shock to the
Financial Markets,
2014 Retail M&A
Activity Should
Continue to
Accelerate:
 An improving macro-economic environment and positive M&A
fundamentals are supportive of healthy transaction levels
 Strategic buyers have record amounts of cash on their balance
sheets, many are challenged to grow organically, and market
confidence is on the rise
 As stock prices climb, companies have access to a favorable
transaction currency, a need to show earnings growth and the
ability to pay more for acquisitions without suffering dilution
 Private equity has over $466B in capital overhang available to be
invested within a limited time
 The debt markets are liquid, with leverage reaching its highest
levels since 2007 and interest rates at historic lows
 Strong valuations, public equity markets at record highs,
abundant private equity, aggressive leverage multiples and the
beginning of Fed tapering will compel sellers to act before the
window shuts
 Global push, drive for market share, brand diversification
 Retail/technology “crossover” deals