EFTA02638116

From: jeffrey E. <[email protected]> Sent: Wednesday, August 30, 2017 10:45 AM To: Richard Kahn Subject: Re: Next I would add that you are selling an offshore vehicle.Q=A0 . formed under an agreement that puzzles me. Q=A0 The whole co is not for sale. and if so we might argue along some=similar but less exagerrated lines multiples of large biz4P=A0 from years ago. I guess if you find the dramati=ally too low , you might offer to buy out Faith and Joel , using you= formulas. with a premium for control. . 4>=A0 Jeffrey is set to join the call and has authority to make t=e decision to accept or reject. . =div class="gmail_extra"> On Wed, Aug 30, 2=17 at 6:25 AM, Richard Kahn >=wrote: i already pointed out currency e=change, board fees etc. as a bad number in your calculations. =orry....the other transactions that we know very well are far from relevan=.. if faith and joel walk there is NO business which is hardly the =ame idea as IMG where multi divisions exist and succession is planned.40=A0 I do not know what cash was on the balance sheet when you b=ught it. The open gate transaction to summar=ze was a stepping into your shoes for only 6 million or roughl= the same as the current offer. taking out cash 14 of the 15 =il which has not come out. and even on your calculation of 8 cash world mean 3.2 to you back then and then leveraging the biz. / =the liability to the buyer was no where near that to golden gate. so=ry.. . We can go back and forth on comps and can show mom and=pop at 1 to 3 times ebitda.. so =ets try to short circuit a tiresome uncessary excercise, as i =ee it the current bid offer is 5 bid and approx 9.2 offer. 4>=A0 open gates 6 + 3.2 from 2 years ago with more growth potential an= lower cash out. multiples from before digital photos and amazon.Q=A0 sorry I am suprised that you would inflate current Ebitda, purl multiples from many years ago to biz that are tangential. leave ou= liabilites even of lawsuits that you know about, and then pick a ca=h number to subtract for enterprise value. If I have misunderstood and you=are not really sellers then I will not be insulted if you decide to cancel=our call. Richard Kahn HBRK Associates Inc. 57= Lexington Avenue, 4th Floor New York, NY 10022 On Aug 29, 2017, at 10:40 PM, Neale Attenborourh <mailtc > wrote: Richard, 1 EFTA_R1_01869395 EFTA02638116 Not funny at all, just fa=tual. I think if we are to ult =ately agree on value it will be important we agree on a set of facts:</=> 2. Q=A0 The current cash balance fo= the company is $13.1 Million. 4. fe=A0 We invested $18 million for=a 42% stake in the business, implying an enterprise value of $42.9 million= 6. Q=A0 One other note that is rele=ant to us, is that when Elite Models in Europe contacted us with an intere=t in buying the company, Faith told me to relay to them that they would not contemplate selling to Elite for less than $10= million (which at the time was a +10x synergy-adjusted EBITDA value).40=A0 Ultimately they walked based on that value requirement.</=pan> I would hope you agree th=t the following is a commonly agreed upon formula for value:=/span> a. Enterprise value = EBITDA=x Market Multiple b. Equity Value = Enterprise=Value + net cash (or — net debt). One matter of judgment is=what of the cash balance is "excess cash". Joel has =aid he believes all the cash is due to the models. The facts show th=t in the ordinary course of business the collection of receivables offsets the paya=les and in the past three years, the cash balance has only fluctuated at m=st by $3 million, meaning anywhere from $8-10 million on the balance sheet=should be considered to be "excess cash", not needed for day-to-day operations. I have attached=both a three year cash balance tracker and a current balance sheet for you= review. Using the above, a very m=dest calculation of value would be $6.7 million of EBITDA x 5 multiple (a =0% discount to the market) or an enterprise value of $33.5 million and if we took a conservative view of what excess cash is at the m=ment of $8 million, would result in a total equity value of $41.5 million.=C2* Our 42% would equate to $17.4 million of proceeds to us. That =s at a multiple that has been deeply discounted to the market comps that were actually paid for companies in the same busi=ess. We are, however, willing =o take much less than this very discounted value calculation, as I have me=tioned to you before. However, your proposal of $5 million of proceeds to us represents an equity value of $11.9 million ($5/.42), an=enterprise value of $3.9 million ($11.9 million - $8 million of excess cas=) or an EBITDA multiple of O.58x ($6.7 x 0.58 = $3.9 enterprise value), = level that is far too low for us to accept. I look forward to our dis=ussion tomorrow morning. 2 EFTA_R1_01869396 EFTA02638117 Neale From: Richard =ahn [mailto. Sent: Friday, August 25, 2017 11:51 AM To: Neale Attenborough Cc: Chris Lawler Subject: Re: Next Pretty funny Neale... Even the silly open gate proposal was in essence ste=ping into your shoes for only 6 million cash. BACK THEN !k/=> Then proposing to dis=ribute what they estimated to be almost the full total (14 of the 15 milli=n) of cash on the balance sheet. Chris i must point out that is more=than it totals today. Then having Joel, Faith, etc leverage themselves up by borrowing at 7 percent against =he entire co in order to make a further distribution of an additional 15 m=llion which on paper creates a highly inflated enterprise value...A0 He only proposed 6 million cash infusion which is around the same amount that you are currently being offered. The= valued faith and joels ongoing equity (that they proposed they "keep=in") silly, at 8mm which is roughly the same as we suggested= Financial engineering done well is like lipstick.. however not done well is also like lipstick. :) Th=s is a personal service business, no more no less and suggesting that they=leverage themselves up so you that they can pay themselves a higher salary-fails the HBS first year class that i am aware you have taken. Regarding the 18 million, we have distributi=ns from Next directly to the former shareholders of the claxon offshore en=ity of approx 3. Regarding the receivables you can ask millie.....A0 sorry PS Faith and joel wil= have to borrow the money to buy you out at 5.. can be done, but not so e=sy. they have never taken out real money from the company in a=y form: salary etc.... hence they have little net worth and cu=rent lenders are not that comfortable with the potential liabilities.... =C24k On Aug 24, 2017, at 4:50 PM, Neale Attenborough <=a href="mailt wrote: I look forward to our con=ersation. 3 EFTA_R1_01869397 EFTA02638118 < / = > For the record, we did ac=ually pay $18MM for 42% of this business in 2008. At the time that r=presented an - 8x multiple of EBITDA. That is not a fictitious number. In addition we did receive a bid for about the same amount f=om Open Gate Capital, a reputable private equity firm. I do not unde=stand why you say that ii is "hardly legitimate". Wh=le I did say we didn't expect to receive what we paid, I did not say it was immaterial. < / = > I don't follow mo=t of what you say below and look forward to hearing your clarification..=A0 However, can you please clarify one statement specifically? What do you mean when you say the current receivables have not be reviewed in y=ars? </=> Thanks,<=u> </=> Neale </=> </=> </=> From: Richard Kahn [mail Sent: 40=AOThursday, August 24, 2017 3:45 PM To: <=span>Neale Attenborough Cc: <=span>Chris Lawler Subject: =C24>Next confirmed thank you We have reviewed your statements that you sent to us=along with the K-1's and some financials. Frankly, so=e of the numbers are inaccurate as a result of millie. Your annual f=nancial statements were reviewed but not audited - shame on all of you... Your calculation of Ebitda includes th=ngs like adding back foreign exchange costs? board fees etc. T=at is not the way we look at what is unfortunately for all merely a=personal service business. Faith and Joel make up the business, nothing more..C2* We calculate the Ebidta, which we think is an odd way of measu=ing value of a personal service biz with lots of competition and small gro=th opportuinties if any. Giving you the benefit of the doubt, and ignoring how much you paid or if some of that mone= was repaid directly to the former owners of Claxon and not truly understa=ding what you described as a fixed tax payment per 4 EFTA_R1_01869398 EFTA02638119 quarter (ie based on wh=t I think looking back over the past three years) ebitda looks like 4.5 million. We have bought ma=y small biz and usually pay mom and pops for 1- 3 times ebita or more usua=ly 4 times net income. We are finding it difficult to ge= to more than a 15 million total value for Next ( not including liabilities). The 18 million dollar bid that you mentioned Faith said was =ardly legitimate. I think further review of the accounting tax etc.=is probably a waste of all our time. As you rightly said, what you i=itially paid is somewhat if not totatly immaterial to todays value. You have not factored in the liabilities,Q=A0 both reputationally and fiscal yet. I think the 5 million cash o=fer or 6m over time is fair. I look forward to our conversation on =uesday. As another note, the current receivables have not been reviewed for years... Rich On Aug 24, 2017, at 3:28 PM, Neale Attenborough <=a href="mailto P> Disclaimer: This message contains infor=ation that may be confidential and/or privileged and is intended only for =he person(s) named. Any use, distribution, copying or disclosure to any other person is strictly prohibited. If you received this transmiss=on in error, please notify the sender by reply e-mail and then destroy the=message. Opinions, conclusions, and other information in this message that=do not relate to the official business of Golden Gate Capital shall be understood to be neither given nor endorse= by the company. Where applicable, any information contained in this e-mai= is subject to the terms and conditions in the relevant governing agreemen=. </=pan> </=pan> <Mail Attachment.ics> <170829 - Next - Jun&#=9;17 Balance Sheets.pdf> <170816 Next - Min Cash Analysis.pdf> 5 EFTA_R1_01869399 EFTA02638120 =C21> please note The information contained in t=is communication is confidential, may be attorney-client privileged, ma= constitute inside information, and is intended only for the use of =he addressee. It is the property of JEE Unauthorized use, disclosure=or copying of this communication or any part thereof is strictly prohib=ted and may be unlawful. If you have received this communication in =rror, please notify us immediately by return e-mail or by e-mail to [email protected]=m, and destroy this communication and all copies thereof, includ=ng all attachments. copyright -all rights reserved --94eb2c189f1810b85c0557f63852-- conversation-id 33896 date-last-viewed 0 date-received 1504089897 flags 8590195713 gmail-label-ids 7 6 remote-id 744642 6 EFTA_R1_01869400 EFTA02638121