EFTA02632469.pdf

From: jeffrey E. <[email protected]> Sent: Wednesday, September 6, 2017 8:21 PM To: Richard Kahn Subject: Re: Next may i please have the list of who is selling what ?=C2* if you subtracted value based on the contingeincies then=you already have an idea. howver i will ask . if that mo=es this along On Wed, Sep 6, 2017 at 10:17 PM, Richard Kahn < mailto >> wrote: Richard Kahn HBRK Associates Inc. 575 Lexington Avenue 4th =Ioor New York, NY 10022 tel fax <=a> cell <tel Begin forwarded message: From: Neale Attenborough <neale@goldengatec=p.com> Subj=ct: RE: Next Date: September 6, 2017 at 4:16:=7 PM EDT To: aspan>Richard Kahn < <mailto >> Cc: Chris Lawler >, Tyler Shean < <mailto:tshean@goldengatecap.=om> > <=pan style="font-size:11ptfont-family:Calibri,sans-seritcolor:rgb(31,73=125)">l do not agree to your premise on the face of it because we are alre=dy starting at a substantially discounted valuation in light of these cont=ngent liabilities already. This is why I want them detailed precisel=. EFTA_R1_01853741 EFTA02632469  I am sure you or your clie=t (who would know them much better than we do) can articulate what they ar= specifically. From: Richard Kahn (mailto <mailto >1 Sent: Wednesday, September 06, 2017 4:=2 PM To: Neale Attenborough Cc: Chris Lawler; Tyler Shean Subject:Re: Next neale, <=div> frankly, I don't have them, however I =ould have thought you did... lets try to see if there is a deal and then w= all can agree on what the contingencies are... <=div> you will certainly agree that if they pert=in to the period of your ownership you will be responsible for your share=E2$4and actions relating to liabilities after closing is another story=C24o thank you <=div> Richard Kahn HBRK Associates Inc.575 Lexington Avenue 4th Floor New York, NY 10022 tel fax cell From: <tel:(917)%20414-7584= value=> Richard Kahn [ <mailto > Sent: Wednesday, September 06, 2017 3:47 PM To:=/b> Neale Attenborough Cc: Chris Lawler; Tyler Shean Subject: R=: Next =u> contigent liabilities are p=ris, milan, and the new york lawsuit that is looking to form a class...=/u> this is obviously separate and=apart from all actions that might be brought that would be relevant to the=time of your ownership. 40=A0 Rich=rd Kahn HBRK Associates Inc. 575 Lexington Avenue 4th Floo= New York, NY 10022 tel fax =br>cell <telain 2 EFTA_R1_01853742 EFTA02632470  On Sep 6, 2017, =t 3:16 PM, Neale Attenboroug <mailto =» wrote: We h=ve a term sheet ready and will forward once we receive the list of conting=nt liabilities you would like us to consider, as we agreed on our last cal=. O= Se 5, 2017, at 10:02 AM, Richard Kahn < <mailto > wrote: =hen can I expect your term sheet with details that we discussed explaining=exactly what entity will be selling what... =div style="margin:0in 0in 0.0001ptfont-size:12pt;font-familyfTimes=New Roman'ffiserif">l would assume your offer of 8 million cash and 1 mi=lion a year for three years would allow for the litigation expense and lia=ility (if any) to come out of the future payments... so probab=y 5 years needed... Please advise Tha=k you Richard Kahn HBRK Associates Inc. 5=5 Lexington Avenue 4th Floor New York, NY 10022 tel fax <tel: cell <tel: On Aug 31, 2017, at 7:02 AM, Neale Attenborough < > wrote: As we agreed yesterday: <=iv style="margin:0in 0in 0.0001pt;font-size:12pt;font-familylimes =ew Roman',serif"> We will =ay our a term sheet which includes the deal I spoke of yesterday. It=will include all the entities that will be involved and the concept of som= cash paid over time. IP=A0 You will detail exactl= which potential liabilities you speak of below you would like us to consi=er. <=> We can then see fit is possible to hamm=r out a deal. =span style="font-size:l8pt;font-family:Helvetica,sans-serif> 3 EFTA_R1_01853743 EFTA02632471  Thanks.</=iv> On Aug 31= 2017, at 5:55 AM, Richard Kahn < <mailto > wrote: To move this along I would suggest the following: a r=ugh detailed draft of a term sheet with seller companies detailed. h=w many entities? an amount of cash left back and an amount of dolla=s also spread over a number of years. default suggestions and =C2* your ideas on how to deal with liablity. 40=A0 ie ny class action waiting to be certified. . =C24> others like paris etc. thank you. Richa=d Kahn </=pan> HBRK Associates Inc. 575 Lexington Avenue, 4th Floor=/span> New York, NY 10022=u> Tel Fax Cell On Aug 30, 2017, at 7:16 AM, Richar= Kahn < <mailto: > wrote: I would add that you are selling an offshore vehicle formed under an agr=ement that puzzles me. The whole co is not for sal= and if so we might argue along some similar but less exagerrated lines*-A0 multiples of large biz from years ago. =C24, I guess if you find the dramatically too low, you might offer to buy=out Faith and Joel , using your formulas. with a premium=for control. Jeffrey is set to join the call and has authorit= to make the decision to accept or reject. </=> Richard Kahn HBRK Associates Inc. 575 Lexington Avenue, 4th Floor New York, NY 10022 Phone r Fax <te Cell On Aug 30, 2017, at 6:25 AM, Richard Kahn < > wrote: i already pointed out =urrency exchange, board fees etc. as a bad number in your calculations.,=A0 sorry....the other transactions that we know very well are far fr=m relevant. . if faith and joel walk there is NO business which is h=rdly the same idea as IMG where multi divisions exist and succession is pl=nned. I do not know what cash was on the balance sheet w=en you bought it. The open gate transaction =o summarize was a stepping into your shoes for only 6 million =r roughly the same as the current offer. taking out cash 14 o= the 15 mil which has not come out. and even on your calculation of = cash would 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.=C240 sorry. . . We can go back and forth on comps and can sho= mom and pop at 1 to 3 times ebitda. . 4>=A0 so lets try to short circuit a tiresome uncessary excercise, Q=A0 as i see it the current bid offer is 5 bid and approx 9.2 offer. =C24> open gates 6 + 3.2 from 2 years ago with more growth pot=ntial and lower cash out. multiples from before digital photos and a=azon. sorry I am suprised that you would inflate current Ebitda,=C2* pull multiples from many years ago to biz that are tangential. =leave out liabilites even of lawsuits that you know about, and then =ick a cash number to subtract for enterprise value. If I have misunderstoo= and you are not really sellers then I will not be insulted if you decide =o cancel our call. 4 EFTA_R1_01853744 EFTA02632472  Richard Kahn HBRK Associates Inc. Tel Fax Cel= <t =n Aug 29, 2017, at 10:40 PM, Neale Attenborough < <mailto Richard,<=span> <=span> Not fun=y at all, just factual. I think if we are to ultimately agree on value it will be=important we agree on a set of facts: 1. =C2* TTM EBITDA is $6.7Million. If you disagree, please=let us know precisely what items you disagree with in the number and we ca= discuss. 2. The curre=t cash balance for the company is $13.1 Million. 3.<=span> =C24) The past three comparable transactions for c=mpanies in this market average an enterprise value at -10x multiple of EBI=DA a. Wilhelmina: 7x (av=rage meaningful trading multiple since 2010) b.<=pan style="font-size:7pt;color:rgb(31,73,125)"> =C240 Creative Artists Agency: 10x (TPG acquisition, 2014) c. IMG: 13x (WME acquisition= 2013) 4. We invested =18 million for a 42% stake in the business, implying an enterprise value o= $42.9 million. S. We =eceived a bona fide offer from OpenGate Capital which would have resulted =n $18 million in proceeds for us (and in fact a $17 million distribution t= Faith and Joel), and while they were, as you point out, contemplati=g leverage in the <3x EBITDA range, it is in fact a relevant data point=and an independent look at value. 6. t>=A0 One other note that is relevant to us, is that when Elite M=dels in Europe contacted us with an interest in buying the company, Faith =old me to relay to them that they would not contemplate selling to Elite f=r less than $100 million (which at the time was a +10x synergy-adjusted EB=TDA value). Ultimately they walked based on that value requirement.aspan> <=span> I would=hope you agree that the following is a commonly agreed upon formula for va=ue: a. Enterprise value =3D 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".=C2* Joel has said he believes all the cash is due to the models. T=e facts show that in the ordinary course of business the collection of rec=ivables offsets the payables and in the past three years, the cash balance=has only fluctuated at most by $3 million, meaning anywhere from $8-10 mil=ion on the balance sheet should be considered to be "excess cash=E2**, not needed for day-to-day operations. I have attached both=a three year cash balance tracker and a current balance sheet for your rev=ew. =C240 =sing the above, a very modest calculation of value would be $6.7 million o= EBITDA x 5 multiple (a 50% 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 moment of $8 million, would result in a total equity value of $41.5=million. Our 42% 5 EFTA_R1_01853745 EFTA02632473 would equate to $17.4 million of proceeds to us.4)=A0 That is at a multiple that has been deeply discounted to the market com=s that were actually paid for companies in the same business. We are, however, wi=ling to take much less than this very discounted value calculation, as I h=ve mentioned to you before. However, your proposal of $5 million of =roceeds to us represents an equity value of $11.9 million ($51.42), an ent=rprise value of $3.9 million ($11.9 million - $8 million of excess cash) o= an EBITDA multiple of 0.58x ($6.7 x 0.58 = $3.9 enterprise value), a le=el that is far too low for us to accept. <=iv> <=iv> I look forward to our discussion tomorro= morning. Neale From: Richard Kahn [=span style="color:purple">mailto. <ra , = <=r>Sent:=C2*Friday, August 25, 2017 11:51 AM To: Neale Attenborough=br>Cc:=C24>Chris Lawler Subject: Re: Next <=div> Pretty funny Neale...</=> Even the silly open=gate proposal was in essence stepping into your shoes for only 6 million c=sh. BACK THEN !! Then proposing to distribute what they estimated to be almo=t the full total (14 of the 15 million) of cash on the balance sheet.Q=A0 Chris i must point out that is more than it totals today. Then ha=ing Joel, Faith, etc leverage themselves up by borrowing at 7 percen= against the entire co in order to make a further distribution of an addit=onal 15 million which on paper creates a highly inflated enterprise =alue. He only proposed 6 million cash infusion which is around the s=me amount that you are currently being offered. They valued faith a=d joels ongoing equity (that they proposed they "keep in") =C2,silly, at 8mm which is roughly the same as we suggested. =inancial engineering done well is like lipstick.. however not done well is=also like lipstick. :) This is a personal service =usiness, no more no less and suggesting that they leverage themselves up s= 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 distributions from Next directly to the former shareholders=of the claxon offshore entity of approx 3. Regarding the receivables=you can ask millie... sorry PS Faith and joel will have=to borrow the money to buy you out at 5. . can be done, but not so easy.=C2* they have never taken out real money from the company in any f=rm: salary etc.... hence they have little net worth and curren= lenders are not that comfortable with the potential liabilities.... =C240 4>=A0 4,=A0 On Aug 24, 2017, at 4:50 PM,=Neale Attenborough < <mailto > wrote: =div> I look forward to our convers=tion. 6 EFTA_R1_01853746 EFTA02632474  For the record, we did actually pay $18MM for 42% of =his business in 2008. At the time that represented an —8x multiple o= EBITDA. That is not a fictitious number. In addition we did r=ceive a bid for about the same amount from Open Gate Capital, a reputable =rivate equity firm. I do not understand why you say that ii is 40=804ehardly legitimate". While I did say we didn't e=pect to receive what we paid, I did not say it was immaterial.</=> <=span> I don't follow most of what you say below and look forward to h=aring your clarification. However, can you please clarify one statem=nt specifically? What do you mean when you say the current receivabl=s have not be reviewed in years? Thanks,</=> <=> Nea=e <=pan style="font-size:11ptfont-family:Calibri,sans-serif;color:rgb(31,73.125)"> <=iv> From:=/span> Richard Kahn=[mailto <mailto >I Sent: Thursday, August 24, 2017=3:45 PM To: Neale Attenborough Cc: Chris Lawler Subjec=: Next confirmed thank you <=iv> We have reviewed your statements tha= you sent to us along with the K-1's and some financials. =C2*Frankly, some of the numbers are inaccurate as a result of millie.Q=A0 Your annual financial statements were reviewed but not audited - shame =n all of you... Your calculation of Ebitda includes thi=gs like adding back foreign exchange costs? board fees etc. Th=t is not the way we look at what is unfortunately for all merely a =ersonal service business. <=iv> Faith and Joel make up the business, noth=ng more. We calculate the Ebidta, which we think is an odd way=of measuring value of a personal service biz with lots of competition and =mall growth 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 quarter (ie based on wh=t I think looking back over the past three years) ebitda looks like =-5 million. We have bought many small biz and usually pay mom and p=ps for 1. 3 times ebita or more usually 4 times net income. 4>=A0 We are finding it difficult to get to more than a 15 million total valu= for Next ( not including liabilities). The 18 million dollar bid that you=mentioned Faith said was hardly legitimate. I think further review =f the accounting tax etc. is probably a waste of all our time. As yo= rightly said, what you initially paid is somewhat if not totatly immateri=l to todays value. You have not factored in the liabilities,=C240 both reputationally and fiscal yet. I think the 5 million cas= offer or 6m over time is fair. I look forward to our conversation =n tuesday. As another note, the current receivables have not b=en reviewed for years... =div> Rich </=> <1=> 7 EFTA_R1_01853747 EFTA02632475  On Aug 24, 2017, at 3:28 =M, Neale Attenborough < <mailto > wrote:</=> =/u> =/u> =br> Disclaimer= This message contains information that may be confidential and/or privile=ed and is intended only for the person(s) named. Any use, distribution, co=ying or disclosure to any other person is strictly prohibited. If you rece=ved this transmission in error, please notify the sender by reply e-mail a=d then destroy the message. Opinions, conclusions, and other information i= this message that do not relate to the official business of Golden Gate C=pital shall be understood to be neither given nor endorsed by the company.=Where applicable, any information contained in this e-mail is subject to t=e terms and conditions in the relevant governing agreement. =/u> <Mail Attachment.ics> Q=A0 <170829 - Next - Jun'17=Balance Sheets.pdf> conversation-id 33896 date-last-viewed 0 date-received 1504729267 flags 8590195713 gmail-label-ids 7 6 remote-id 747159 8 EFTA_R1_01853748 EFTA02632476