Weis Markets would be an attractive acquisition target for Sprouts Farmers Market. This deal would allow Sprouts to significantly expand its presence in the mid-Atlantic states. Weis has recently transitioned some stores to a market-based format that aligns well with Sprouts' portfolio. The combination could create synergies by diversifying consumer reliance and strengthening competitive positioning. Financial analyses indicate the acquisition would be accretive for Sprouts at a 25% premium, even without full realization of synergies in the first year. The deal represents an opportunity for growth through expanded geographic coverage in a challenging grocery industry.

1. Weis Markets, Inc. (WMK)
November 25th
2019
Alec Glynn | Zach Narcross | Andy Newman | Collin O’Sullivan

2. Table of Contents
Industry Overview & Outlook 4-5
Company Overview 6-8
Comparable Companies Analysis 9
Precedent Transactions Analysis 10
Discounted Cash Flow Analysis 11-12
Accretion/Dilution Analysis 13
Executive Summary 3
Leveraged Buyout Analysis 14-16
Summary & Closing Thoughts 17-18

3. Executive Summary
3
Weis Markets is an attractive target acquisition for Sprouts Farmers Market given recent deal
experience and the potential for synergies realized and robust market positioning.
Business Profile
● This deal would allow Sprouts to grow their presence dramatically in the
mid-Atlantic states
● Weis’ recent move into market-based stores makes it a natural fit for the
Sprouts portfolio
● Diversified consumer and distributor reliance would give Sprouts/Weis a
stronger position against competitors
Financial Profile
● Strong gross margins put Weis ahead in the competitive landscape,
proving their stability and growth opportunity
● While Sprouts is currently, underperforming in terms of growth when
compared to industry, and acquisition in combination with their current
growth strategy could lead to big upsides
Offer Price Premium
● At an assumed premium of 25%, Weis retains its status as an accretive
acquisition for Sprouts Farmers Market

4. Industry Overview
Industry at a Glance
FY18 Revenues: $654.6bn | FY18 Profits: $10.5bn
Annual Growth (2014-2019): 0.9%
● Industry operators range from large-scale
conglomerates to small specialty stores
● Over the past five years, limited assortment stores like
Trader Joe’s and Aldi have experienced the most rapid
growth
● Limited-assortment stores sell primarily private-label
products, which are both less expensive for consumers
and more profitable for industry operators
○ Trader Joe’s, the leading supermarket in sales
per square foot, sells more than 80.0%
private-label goods
● Improving discretionary income has enabled
consumers to purchase a wider variety of premium
grocery items, specifically organic products
4
Sources: Yahoo Finance 10-K, IBISWorld, MarketLine

5. Industry Outlook
Grocery Industry Outlook
● Over the five years to 2024, the Supermarkets and Grocery
Stores industry is expected to benefit from the continually
strengthening U.S. economy
● Shoppers will be more inclined to purchase premium-level,
value-added products
● Operators will benefit from slowly growing input costs, as
commodity markets steady compared with the cost spikes
present during the previous five-year period
Industry Trends
● Shifting demographics are anticipated to significantly influence
the industry
● Millennials are typically characterized as being both health
conscious and value driven
5
Sources: Marketline, IBISWorld, Business Insider Intelligence
Online Competition
● E-commerce sales are expected to rise at an annualized rate of 8.0%.
● The steady adoption of online grocery services will hamper brick and
mortar grocery revenue growth in the coming years
Industry Life Cycle
● The Supermarkets and Grocery Stores industry is in the mature stage of its
life cycle. The industry's contribution to the overall economy is expected to
increase at a slow annualized rate of 1.5%

6. Company Overview
WMK at a Glance
Stock Price: $39.45
EPS (TTM): $2.32
Market Cap: $1.06B
6
Sources: Yahoo Finance 10-K, Marketline
Financial Growth
● Net Sales up 11.7% from 2016
● Gross profit rate increased to 26.6% from 2017
● Increase in the quarterly dividend, amounting to a yearly $32.5
million payout
● In 2016, acquired 43 stores throughout mid-atlantic and today
all generate positive cash flows
Strategic Initiatives
● Drive competitive edge through innovation in stores and online
to include grocery delivery, and new market prototype stores
● Continued investment in information technology systems to
improve employee engagement, increase productivity, and
provide consumer insights
● Emphasize promotion and loyalty programs as a key
differentiator

7. S.W.O.T. Analysis
Sources: Marketline, IBISWorld
Strengths
● Robust growth in revenue allows the company to allocate
adequate funds for future growth initiatives and enhances its
ability to provide higher returns to the shareholders
● Weis operates several successful promotional programs
including Everyday Lower Prices (EDLP), Loyalty, and Lowest
Price Guarantee programs
● Wide network of manufacturing and distribution capabilities,
including robust in-house capabilities
Opportunities
● Growing demand for private label grocery products across the
United States
● Retail industry growing at a CAGR of 3.1% with food and
grocery leading that industry with 47.9% of all sales
Weaknesses
● Geographic concentration of operations - Weis stores are
concentrated exclusively in suburban DC, central and
northeast Pennsylvania, central Maryland, Baltimore, and the
southern portion of New York
● Recent recall of some private label products, including milk,
negatively affected brand image
Threats
● Increasing manpower costs in the United States stand to
erode the margins of Weis
● Demanding and constantly changing regulatory environment
given exposure to federal, state, and local rules
● Stringent competition in this industry from convenience
stores, and other big-box and national retailers that often
have far superior resources available

8. Competitive Landscape
8
Sources: Yahoo Finance, Bloomberg

9. Comparable Companies Analysis
9
Sources:Yahoo Finance, Bloomberg, Pitchbook

10. Precedent Transactions Analysis
10
Sources: Bloomberg, Yahoo Finance

11. Weighted Average Cost of Capital
11
Sources: Bloomberg, Yahoo Finance

12. Discounted Cash Flow Analysis (DCF)
12
DCF Commentary
● Assumptions
○ Revenue expected to grow at a constant rate of 5% per year
○ Operating margin remains constant at 4.5%
● Perpetuity growth method leads to higher valuation due to Weis’ low
WACC

13. Accretion/Dilution Analysis
13
Sources:,
Accretion/Dilution Commentary
● Accretive in Year 2 of merger
● Synergies:
○ 15% of Year 2 combined EBITDA
○ 20% of Year 3 combined EBITDA
● Purchase:
○ 100% Stock Consideration
○ 78M new shares issues

14. Leveraged Buyout Analysis
14
LBO Commentary
● Senior Debt: 46.8% of initial sources (3.5x EBITDA)
○ 6% interest, paid down over time with available FCF
● Subordinated Debt: 26.7% of initial sources (2.0x EBITDA)
○ 8% interest, not paid down over time
● Sponsor Equity: 26.5% of initial sources (2.0x EBITDA)
Sources:,

15. PE Buyers
15
Sources: PitchBook
FinancialFinancial
Cerberus Capital Management, L.P. is an American private equity firm,
specializing in distressed investing. The firm is based in New York City, and
run by Steve Feinberg. Cerberus has previous deal experience in the retail
grocery market with investments in Albertsons in 2006, Supervalu in 2013
and Safeway in 2014. They focus on ongoing cost-cutting initiatives and the
closing or selling of underproductive assets. Weis Markets is a prime
candidate to continue to meet Cerberus's high growth and profitability
expectations, while Cerberus is poised well to be the partner Weis Markets
needs for the next level.
Apollo Global Management, LLC is an American private equity firm, founded
in 1990 by former Drexel Burnham Lambert banker Leon Black. The firm
specializes in leveraged buyout transactions and purchases of distressed
securities involving corporate restructuring, special situations, and industry
consolidations. Apollo Global Management has previous deal experience in
the retail grocery market including an investment in Smart & Final and Fresh
Market. They focus on segmenting the various groups within the retailer
and then building them out individually. This opportunity would offer great
growth opportunities for Weis Markets’ innovation plan.

16. Valuation Summary
16

17. Closing Thoughts
17
Comparable Companies Analysis
● The analysis is based on available,
similarly-sized, public grocery comparables
with additional insights from food distributors
and retail competitors
Why is Weis a good strategic target for Sprouts?
● An acquisition of Weis Markets by Sprouts could provide dramatic upside through distribution, customer,
and location diversification. Furthermore, the deal will help Sprouts grow in an otherwise stagnant grocery
industry, and the deal is projected to be accretive in year two through robust synergies.
Precedent Transactions Analysis
● A healthy amount of activity in the M&A
market, while the industry seeks inorganic
growth, backs a solid exit multiple
Accretion/Dilution Analysis
● First year analysis shows dilution between the
two companies; however, even with a strong
premium and limited synergies the deal
become accretive after year 1
Discounted Cash Flow Analysis
● Weis’ revenues are expected to continue to
grow at a constant rate as they add locations
while margins remain stagnant. Perpetual
growth is relatively low due to highly
competitive, low-growth, grocery industry
Leveraged Buyout Analysis
● Weis is a strong LBO target. With a 25%
purchase premium, Weis still delivers a 20%
IRR and 1.63x cash return if they exit in year 5
at a industry average 6.5x EBITDA multiple