EFTA02632677

From: Richard Kahn < Sent: Wednesday, September 6, 2017 6:48 PM To: Jeffrey E. Subject: Fwd: Next no response to this last email shall i =esend? Richard Kahn HBRK Associates Inc. 575 =exington Avenue 4th Floor New York, NY 10022 tel fax cell Begin forwarded message: From: =/b>Richard Kahn < Subject: =/b>Re: Next Date: =/b>September 5, 2017 at 10:02:30 =M EDT To: =/b>Neale Attenborough < Cc: Chris Lawler < >, Tyler Shean < When can I expect your term sheet with =etails that we discussed explaining exactly what entity will be selling =hat... I would assume your offer of 8 million cash =nd 1 million a year for three years would allow for the litigation =xpense and liability (if any) to come out of the future =ayments... so probably 5 years needed... Please advise Thank you Richard Kahn HBRK Associates Inc. 575 =exington Avenue 4th Floor EFTA_R1_01854325 EFTA02632677 New York, NY 10022 tel fax cell On Aug 31, 2017, at 7:02 AM, Neale Attenborough < > wrote: As we agreed =esterday: We =ill lay our a term sheet which includes the deal I spoke of yesterday. =nbsp;lt will include all the entities that will be involved and the =oncept of some cash paid over time. You will detail exactly =hich potential liabilities you speak of below you would like us to =onsider. We =an then see fit is possible to hammer out a deal. Thanks. On Aug 31, 2017, at 5:55 AM, Richard Kahn < > =rote: To move =his along I would suggest the following: a rough detailed draft =f a term sheet with seller companies detailed. how many entities? =nbsp; an amount of cash left back and an amount of dollars also spread =ver a number of years. default suggestions and =nbsp; your ideas on how to deal with =iablity. ie ny class action waiting to be =ertified.. others like paris etc. thank =ou. Richard =ahn HBRK Associates Inc. 575 =exington Avenue, 4th Floor New York, NY =0022 Tel Fax= Cell On Au 30, 2017, at 7:16 AM, Richard Kahn <mailto: > =rote: I would =dd that you are selling an offshore vehicle formed under an agreement =hat puzzles me. The whole co is not for sale =nd if so we might argue along some similar but less exagerrated =ines 2 EFTA_R1_01854326 EFTA02632678 multiples of large biz from years =go. I guess if you find the dramatically too =ow, you might offer to buy out Faith and Joel , using your =ormulas. with a premium for control. Jeffrey =s set to join the call and has authority to make the decision to accept =r reject. Richard Kahn HBRK Associates Inc. 575 Lexington Avenue, 4th =loor New York. NY =0022 On Aug 30, 2017, =t 6:25 AM, Richard Kahn < <mailto: > wrote: i already pointed out currency exchange, board fees etc. as a =ad number in your calculations. sorry....the other =ransactions that we know very well are far from relevant.. if =aith and joel walk there is NO business which is hardly the same idea =s IMG where multi divisions exist and succession is =lanned. I do not know what cash was on the balance =heet when you bought it. The open gate =ransaction to summarize was a stepping into your =hoes for only 6 million or roughly the same as the current offer. =nbsp; taking out cash 14 of the 15 mil which has not come =ut. and even on your calculation of 8 cash would mean 3.2 to you =ack then... and then leveraging the biz. / the liability to =he buyer was no where near that to golden gate. sorry.. = We can go back and forth on comps and can show mom and =op at 1 to 3 <x-apple-data-detectors://1> times ebitda.. so =ets try to short circuit a tiresome uncessary excercise, as = see it the current bid offer is 5 bid and approx 9 .2 =ffer. open gates 6 + 3.2 from 2 years ago with =ore growth potential and lower cash out. multiples from before =igital photos and amazon. sorry I am suprised that you would =nflate current Ebitda, pull multiples from many years ago to biz =hat are tangential. leave out liabilites even of lawsuits that =ou know about, and then pick a cash number to subtract for =nterprise value. If I have misunderstood and you are not really sellers =hen I will not be insulted if you decide to cancel our call. Richard Kahn HBRK =ssociates Inc. 575 Lexington Avenue, 4th =loor New York, NY 10022 Tel =nbsp; Fax Cell On =ug 29, 2017, at 10:40 PM, Neale Attenborough > =rote: Richard, Not funny at all, just =actual. I think if we are to =ltimately agree on value it will be important we agree on a set of =acts: 3 EFTA_R1_01854327 EFTA02632679 1. TTM EBITDA is $6.7Million. If you =isagree, please let us know precisely what items you disagree with in =he number and we can discuss. 2. The current cash balance for the company =s $13.1 Million. 3. The past three comparable transactions for =ompanies in this market average an enterprise value at - 10x multiple of =BITDA a. Wilhelmina: 7x (average meaningful trading =ultiple since 2010) b. Creative Artists Agency: 10x (TPG =cquisition, 2014) c. IMG: 13x (WME acquisition, 2013) 4. We invested $18 million for a 42% stake in =he business, implying an enterprise value of $42.9 million. 5. We received a bona fide offer from =penGate Capital which would have resulted in $18 million in proceeds =or us (and in fact a $17 million distribution to Faith and Joel), and =hile they were, as you point out, contemplating leverage in the =It;3x EBITDA range, it is in fact a relevant data point and an =ndependent look at value. 6. One other note that is relevant to us, is =hat when Elite Models in Europe contacted us with an interest in buying =he company, Faith told me to relay to them that they would not =ontemplate selling to Elite for less than $100 million (which at the =ime was a +10x synergy-adjusted EBITDA value). Ultimately they =alked based on that value requirement. I would hope you agree =hat the following is a commonly agreed upon formula for value: a. Enterprise value = EBITDA x Market =ultiple b. Equity Value = Enterprise Value + net =ash (or — net debt). One matter of judgment =s what of the cash balance is "excess cash". Joel =as said he believes all the cash is due to the models. The facts =how that in the ordinary course of business the collection of receivables offsets the payables and in the past three years, the cash =alance has only fluctuated at most by $3 million, meaning anywhere from =8-10 million on the balance sheet should be considered to be "exc=ss cash", not needed for day-to-day operations. I have =ttached both a three year cash balance tracker and a current balance =heet for your review. Using the above, a very =odest calculation of value would be $6.7 million of EBITDA x 5 multiple =a 50% discount to the market) or an enterprise value of $33.5 million =nd if we took a conservative view of what excess cash is at the moment =f $8 million, would result in a total equity value of $41.5 =illion. Our 42% would equate to $17.4 million of proceeds to =s. That is at a multiple that has been deeply discounted to the =arket comps that were actually paid for companies in the same =usiness. We are, however, =illing to take much less than this very discounted value calculation, =s I have mentioned to you before. However, your proposal of $5 =illion 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 =illion of excess cash) or an EBITDA multiple of 0.58x ($6.7 x 0.58 = =3.9 enterprise value), a level that is far too low for us to =ccept. I look forward to our =iscussion tomorrow morning. Neale From: Richard Kahn (mailto Sent: Friday, August 25, 2017 =1:51 AM To: Neale Attenborough Cc: Chris Lawler 4 EFTA_R1_01854328 EFTA02632680 Subject: Re: Next Pretty funny =eale... Even the silly open gate proposal was in essence =tepping into your shoes for only 6 million cash. BACK THEN !! Then proposing to distribute what they estimated to be =lmost the full total (14 of the 15 million) of cash on the balance =heet. Chris i must point out that is more than it totals today. =nbsp;Then having Joel, Faith, etc leverage themselves up by =orrowing at 7 percent against the entire co in order to make a further =istribution of an additional 15 million which on paper creates a =ighly inflated enterprise value. He only proposed 6 million cash =nfusion which is around the same amount that you are currently being =ffered. They valued faith and joels ongoing equity (that they =roposed they "keep in") silly, at 8mm which is roughly =he same as we suggested. Financial engineering done well is =ike lipstick.. however not done well is also like lipstick. =nbsp;:) This is a personal service business, no more =o less and suggesting that they leverage themselves up so you that they =an pay themselves a higher salary fails the HBS first year class that i =m aware you have taken. Regarding the 18 million, we =ave distributions from Next directly to the former shareholders of the =laxon offshore entity of approx 3. Regarding the receivables you =an ask millie... sorry PS Faith =nd joel will have to borrow the money to buy you out at 5.. can be =one, but not so easy. they have never taken out real money =rom the company in any form: salary etc.... hence they have =ittle net worth and current lenders are not that comfortable with the =otential liabilities.... =nbsp; On Aug 24, 2017, at =:50 PM, Neale Attenborough < <mailto > wrote: I =ook forward to our conversation. For the record, we did =ctually pay 518MM for 42% of this business in 2008. At the time =hat represented an -.8x multiple of EBITDA. That is not a =ictitious number. In addition we did receive a bid for about the =ame amount from Open Gate Capital, a reputable private equity =irm. I do not understand why you say that ii is "hardly =egitimate". While I did say we didn't expect to =eceive what we paid, I did not say it was immaterial. I don't follow =ost of what you say below and look forward to hearing your =larification. However, can you please clarify one statement =pecifically? What do you mean when you say the current =eceivables have not be reviewed in years? Thanks, Neale From: Richard Kahn (mailto <mailto > I Sent: Thursday, August 24, 2017 =:45 PM To: Neale Attenborough Cc: Chris Lawler Subject: Next 5 EFTA_R1_01854329 EFTA02632681 confirmed thank you We have reviewed your statements that you sent to us along =ith the K-1's and some financials. Frankly, some =f the numbers are inaccurate as a result of millie. Your annual =inancial statements were reviewed but not audited - shame on all of =ou... Your calculation of Ebitda includes things =ike adding back foreign exchange costs? board fees etc. =nbsp;That is not the way we look at what is unfortunately for =11 merely a personal service business. Faith and Joel make up the business, =othing more. We calculate the Ebidta, which we think is an =dd way of measuring value of a personal service biz with lots of =ompetition and small growth opportuinties if any. riving you the benefit of the doubt, and ignoring how much you =aid or if some of that money was repaid directly to the former owners =f Claxon and not truly understanding what you described as a fixed tax =ayment per quarter (ie based on what I think looking back over the past =hree years) ebitda looks like 4-5 million. We have bought =any small biz and usually pay mom and pops for 1- 3 times ebita or more =sually 4 times net income. We are finding it =ifficult to get to more than a 15 million total value for Next ( not =ncluding liabilities). The 18 million dollar bid that you mentioned =aith said was hardly legitimate. I think further review of the =ccounting tax etc. is probably a waste of all our time. As you =ightly said, what you initially paid is somewhat if not totatly =mmaterial to todays value. You have not factored in the =iabilities, both reputationally and fiscal yet. I think =he 5 million cash offer or 6m over time is fair. I look forward =o our conversation on tuesday. As another note, the current receivables have not been reviewed for years... Rich On rug 24, 2017, at 3:28 PM, Neale Attenborough < wrote: Disclaimer: This message =ontains information that may be confidential and/or privileged and is =ntended only for the person(s) named. Any use, distribution, copying or =isclosure to any other person is strictly prohibited. If you received =his transmission in error, please notify the sender by reply e-mail and =hen destroy the message. Opinions, conclusions, and other information =n this message that do not relate to the official business of Golden =ate Capital shall be understood to be neither given nor endorsed by the =ompany. Where applicable, any information contained in this e-mail is =ubject to the terms and conditions in the relevant governing =greement. <Mail =ttachment.ics> <170829 - Next - Jun'17 =alance Sheets.pdf> 6 EFTA_R1_01854330 EFTA02632682 <170816 Next - Min Cash =nalysis.pdf> <=div> 7 EFTA_R1_01854331 EFTA02632683