We could not find any results for:
Make sure your spelling is correct or try broadening your search.
Register for Free to get streaming real-time quotes, interactive charts, live options flow, and more.
| Name | Symbol | Market | Type |
|---|---|---|---|
| Franchise Group Inc | NASDAQ:FRGAP | NASDAQ | Preference Share |
| Price Change | % Change | Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 25.15 | 23.00 | 27.30 | 0 | 01:00:00 |
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13E-3
RULE 13E-3 TRANSACTION STATEMENT UNDER SECTION 13(E)
OF THE SECURITIES ACT OF 1934
Amendment No. 1
Franchise Group, Inc.
(Name of the Issuer)
Franchise Group, Inc.
Freedom VCM, Inc.
Freedom VCM Subco, Inc.
Freedom VCM Holdings, LLC
Freedom VCM Interco Holdings, Inc.
Brian R. Kahn
Vintage Opportunity Partners, L.P.
Vintage Capital Management LLC
Brian Kahn and Lauren Kahn Joint Tenants by Entirety
Andrew Laurence
B. Riley Financial, Inc.
Bryant R. Riley
(Names of Persons Filing Statement)
Common Stock, par value $0.01 per share
(Title of Class of Securities)
35180X105
(CUSIP Number of Class of Securities)
| Brian R. Kahn | |||
| Tiffany
McMillan-McWaters Franchise Group, Inc. |
Freedom VCM, Inc. Freedom VCM Subco, Inc. Freedom VCM Interco Holdings, Inc. Freedom VCM Holdings, LLC Brian R. Kahn Vintage Opportunity Partners, L.P. Vintage Capital Management LLC Brian Kahn and Lauren Kahn Joint Tenants by Entirety |
Bryant
R. Riley B. Riley Financial, Inc. |
Andrew Laurence |
| 109 Innovation Court, Suite J | 8529 Southpark Circle, Suite 150 | 11100 Santa Monica Blvd, Suite 800 | 627 Harland St. |
| Delaware, OH 43015 | Orlando, FL 32819 | Los Angeles, CA 90025 | Milton, MA 02186 |
| (740) 363-2222 | (407) 592-8015 | (818) 884-3737 | (740) 363-2222 |
(Name, Address, and Telephone Numbers of Person Authorized to Receive Notices and Communications on Behalf of the Persons Filing Statement)
With copies to
David W. Ghegan Betty Linkenauger Segaar |
David
A. Katz Zachary S. Podolsky |
Patrick S. Brown Sullivan & Cromwell LLP |
Russell
Leaf Willkie Farr & Gallagher LLP |
| Troutman Pepper Hamilton Sanders LLP | Wachtell, Lipton, Rosen & Katz | 1888 Century Park East, Suite 2100 | 787 Seventh Avenue |
| 600 Peachtree Street NE, Suite 3000 | 51 West 52nd Street | Los Angeles, CA 90067 | New York, NY 10019 |
| Atlanta, GA 30308 | New York, NY 10019 | (310) 712-6003 | (212) 728-8000 |
| (404) 885-3000 | (212) 403-1000 | ||
This statement is filed in connection with (check the appropriate box):
| a. | x | The filing of solicitation materials or an information statement subject to Regulation 14A, Regulation 14C or Rule 13e-3(c) under the Securities Exchange Act of 1934. |
| b. | ¨ | The filing of a registration statement under the Securities Act of 1933. |
| c. | ¨ | A tender offer. |
| d. | ¨ | None of the above. |
Check the following box if the soliciting materials or information statement referred to in checking box (a) are preliminary copies: x
Introduction
This Amendment No. 1 to the Transaction Statement on Schedule 13E-3 (which we refer to as this “Amended Transaction Statement”) is being filed with the U.S. Securities and Exchange Commission (which we refer to as the “SEC”) pursuant to Section 13(e) of the Securities Exchange Act of 1934, as amended (which we refer to, together with the rules and regulations promulgated thereunder, as the “Exchange Act”), by (1) Franchise Group, Inc., a Delaware corporation (which we refer to as “FRG” or the “Company”); (2) Freedom VCM, Inc., a Delaware corporation (which we refer to as “Parent”); (3) Freedom VCM Subco, Inc., a Delaware corporation and an indirectly wholly-owned subsidiary of Parent (which we refer to as “Merger Sub”); (4) Freedom VCM Holdings, LLC, a Delaware limited liability company; (5) Freedom VCM Interco Holdings, Inc., a Delaware corporation; (6) Brian R. Kahn (7) Vintage Opportunity Partners, L.P., a Delaware limited partnership; (8) Vintage Capital Management LLC, a Delaware limited liability company (9) Brian Kahn and Lauren Kahn Joint Tenants by Entirety; (10) Andrew Laurence; (11) B. Riley Financial, Inc., a Delaware corporation (which we refer to as the “Guarantor” or “B. Riley”); and (12) Bryant R. Riley. The persons filing this Amended Transaction Statement are collectively referred to as the “Filing Persons”.
This Amended Transaction Statement relates to the Agreement and Plan of Merger, dated as of May 10, 2023 (which we refer to, as it may be amended from time to time, as the “Merger Agreement”), by and among the Company, Parent and Merger Sub. If the Merger Agreement is adopted by the Company’s stockholders and the other conditions under the Merger Agreement are either satisfied or waived, the Merger Sub will be merged with and into the Company (which we refer to as the “Merger”), with the Company surviving the Merger as a wholly-owned subsidiary of Parent. At the effective time of the Merger, each outstanding share of common stock, par value $0.01 per share, of the Company (which we refer to as “FRG Common Stock”) (other than (x) shares of FRG Common Stock and shares of FRG Series A Preferred Stock owned by the Guarantor or any wholly-owned subsidiary of the Guarantor, Parent or any wholly-owned subsidiary of Parent, Merger Sub, the Company or any wholly-owned subsidiary of the Company, and in each case not held on behalf of third parties, (y) shares of FRG Common Stock that are owned by stockholders of the Company who did not vote in favor of the Merger Agreement or the Merger and who have perfected and not withdrawn a demand for appraisal rights pursuant to Section 262 of the Delaware General Corporation Law (which we refer to as the “DGCL”) and (z) shares of FRG Common Stock owned by Brian R. Kahn, Vintage Opportunity Partners, L.P., Brian Kahn and Lauren Kahn Joint Tenants by Entirety and Andrew Laurence (which we refer to, each, as a “Rollover Stockholder” and collectively, as the “Rollover Stockholders”) and subject to the Rollover Contribution Agreement, dated as of May 10, 2023, by and among Freedom VCM Holdings, LLC and the Rollover Stockholders (such shares, the “Rollover Shares”) (the shares of FRG Common Stock subject to clauses (x), (y) and (z) above, we refer to collectively as the “Excluded Shares”)) will be converted into the right to receive $30.00 in cash per share, without interest (which we refer to as the “Per Share Merger Consideration”). Following the completion of the Merger, FRG Common Stock will be delisted from the Nasdaq Global Select Market, will be deregistered under the Exchange Act and will cease to be publicly traded.
The board of directors of the Company (which we refer to as the “Board”) formed a special committee (which we refer to as the “Special Committee”) consisting solely of independent and disinterested directors to, among other things, evaluate the Merger. After reviewing the terms of the Merger Agreement with its independent legal and financial advisors, the Special Committee unanimously (A) approved and declared advisable the Merger Agreement, the Voting Agreement, dated as of May 10, 2023, by and among Parent, Brian R. Kahn, Vintage Opportunity Partners, L.P., Brian Kahn and Lauren Kahn Joint Tenants by Entirety and Andrew Laurence (which we refer to as the “Voting Agreement”), and the transactions contemplated by the Merger Agreement, (B) determined that the Merger Agreement, the Voting Agreement and the transactions contemplated by the Merger Agreement are fair to, and in the best interests of, the Company and the holders of FRG Common Stock (other than the holders of Excluded Shares and shares of FRG Common Stock held by Rollover Stockholders), and (C) resolved to recommend to the Board that the holders of FRG Common Stock (other than the Rollover Stockholders) adopt the Merger Agreement at a special meeting of stockholders.
Based on the Special Committee’s recommendation, the Board, by a unanimous vote of the Company’s directors (other Mr. Kahn who recused himself due to his status as a Rollover Stockholder) has (i) (A) approved and declared advisable the Merger Agreement, the Voting Agreement and the transactions contemplated by the Merger Agreement, (B) determined that the Merger Agreement, the Voting Agreement and the transactions contemplated by the Merger Agreement were fair to, and in the best interests of, the Company and the holders of FRG Common Stock, other than Excluded Shares and shares of FRG Common Stock held by Rollover Stockholders, and (C) resolved to recommend that the holders of FRG Common Stock adopt the Merger Agreement at a special meeting of stockholders and (ii) directed that the Merger Agreement be submitted to the holders of FRG Common Stock for their adoption at such special meeting.
Concurrently with the filing of this Amended Transaction Statement, the Company is filing an amended proxy statement (which we refer to as the “Proxy Statement”) under Regulation 14A of the Exchange Act with the SEC, pursuant to which the Company is soliciting proxies from stockholders of the Company in connection with the Merger. The Proxy Statement is attached hereto as Exhibit (a)(1). A copy of the Merger Agreement is attached to the Proxy Statement as Annex A and is incorporated herein by reference. As of the date hereof, the Proxy Statement is in preliminary form, and is subject to completion or amendment. Terms used but not defined in this Amended Transaction Statement have the meanings assigned to them in the Proxy Statement.
Pursuant to General Instruction F to Schedule 13E-3, the information in the Proxy Statement, including all annexes thereto, is expressly incorporated by reference herein in its entirety, and responses to each item herein are qualified in their entirety by the information contained in the Proxy Statement. The cross-references below are being supplied pursuant to General Instruction G to Schedule 13E-3 and show the location in the Proxy Statement of the information required to be included in response to the items of Schedule 13E-3.
All information contained in, or incorporated by reference into, this Amended Transaction Statement concerning each Filing Person has been supplied by such Filing Person. No Filing Person, including the Company, is responsible for the accuracy of any information supplied by any other Filing Person.
Item 1. Summary Term Sheet (Regulation M-A Item 1001)
The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“Summary Term Sheet”
“Questions and Answers About the Special Meeting and the Merger”
Item 2. Subject Company Information (Regulation M-A Item 1002)
(a) Name and address. The Company’s name, and the address and telephone number of its principal executive offices are:
Franchise Group, Inc.
109 Innovation Court, Suite J
Delaware, Ohio 43015
(740) 363-2222
(b) Securities. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“Questions and Answers About the Special Meeting and the Merger—How many votes do I have?”
“The Special Meeting—Record Date and Quorum”
“Other Important Information Regarding the Company—Security Ownership of Certain Beneficial Owners and Management”
2
(c) Trading market and price. The information set forth in the Proxy Statement under the following caption is incorporated herein by reference:
“Other Important Information Regarding the Company—Market Price of Common Stock and Dividends”
(d) Dividends. The information set forth in the Proxy Statement under the following caption is incorporated herein by reference:
“Other Important Information Regarding the Company—Market Price of Common Stock and Dividends”
(e) Prior public offerings. Not applicable.
(f) Prior stock purchases. The information set forth in the Proxy Statement under the following caption is incorporated herein by reference:
“Other Important Information Regarding the Company—Certain Transactions in the Shares of FRG Common Stock”
Item 3. Identity and Background of Filing Person (Regulation M-A Item 1003)
(a) – (b) Name and Address of Each Filing Person; Business and Background of Entities. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“Summary Term Sheet—Parties to the Merger”
“Parties to the Merger”
“Other Important Information Regarding the Company”
“Other Important Information Regarding the Consortium Members”
“Where You Can Find More Information”
(c) Business and Background of Natural Persons. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“Other Important Information Regarding the Company”
“Other Important Information Regarding the Consortium Members”
“Where You Can Find More Information”
3
Item 4. Terms of the Transaction (Regulation M-A Item 1004)
(a) Material terms.
(1) Tender offer. Not applicable
(2) Merger or Similar Transactions.
(i) The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“Summary Term Sheet”
4
“Questions and Answers About the Special Meeting and the Merger”
“Special Factors—Background of the Merger”
“Special Factors—Certain Effects of the Merger”
“Special Factors—Effective Time of the Merger”
“Special Factors—Payment of Merger Consideration”
“The Merger Agreement—Closing and Effective Time of the Merger”
“The Merger Agreement—Treatment of Capital Stock”
“The Merger Agreement—Treatment of Company Equity Awards”
“The Merger Agreement—Conditions to the Merger”
(ii) The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“Summary Term Sheet”
“Questions and Answers About the Special Meeting and the Merger”
“Special Factors—Certain Effects of the Merger”
“Special Factors—Payment of Merger Consideration”
“The Merger Agreement—Treatment of Capital Stock”
“The Merger Agreement—Treatment of Company Equity Awards”
“The Merger Agreement—Surrender and Payment Procedures”
(iii) The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“Special Factors—Reasons for the Merger; Recommendation of the Special Committee and the Board; Fairness of the Merger”
“Special Factors—Position of the Consortium Members as to the Fairness of the Merger”
“Special Factors—Opinion of Special Committee’s Financial Advisor”
“Special Factors—Purpose and Reasons of the Consortium Members for the Merger”
“Special Factors—Plans for the Company After the Merger”
“Special Factors—New Management Arrangements”
“Special Factors—Unaudited Prospective Financial Information of the Company”
(iv) The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
5
“Questions and Answers About the Special Meeting and the Merger”
“The Merger Agreement—Other Covenants and Agreements—The Special Meeting”
“The Special Meeting—Vote Required”
“The Special Meeting—Management Stockholders’ Obligation to Vote in Favor of the Merger”
“The Voting Agreement”
(v) The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“Summary Term Sheet”
“Special Factors—Certain Effects of the Merger”
“Special Factors—Interests of Executive Officers and Directors of the Company in the Merger”
(vi) The information set forth in the Proxy Statement under the following caption is incorporated herein by reference:
“Special Factors—Accounting Treatment”
(vii) The information set forth in the Proxy Statement under the following caption is incorporated herein by reference:
“Special Factors—Material U.S. Federal Income Tax Consequences of the Merger”
(c) Different terms. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“Summary Term Sheet”
“Questions and Answers About the Special Meeting and the Merger”
“Special Factors—Certain Effects of the Merger”
“Special Factors—Interests of Executive Officers and Directors of the Company in the Merger”
“Special Factors—Guarantee”
“The Merger Agreement—Treatment of Capital Stock”
“The Merger Agreement—Treatment of Company Equity Awards”
“The Merger Agreement—Directors’ and Officers’ Indemnification and Insurance”
“The Voting Agreement”
“The Rollover Agreement”
(d) Appraisal rights. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
6
“Summary Term Sheet”
“Questions and Answers About the Special Meeting and the Merger”
“Special Factors—Appraisal Rights”
“Annex C—Section 262 of the General Corporation Law of the State of Delaware”
(e) Provisions for unaffiliated security holders. The information set forth in the Proxy Statement under the following caption is incorporated herein by reference:
“Special Factors—Provisions for Unaffiliated Stockholders”
(f) Eligibility for listing or trading. Not applicable.
Item 5. Past Contacts, Transactions, Negotiations and Agreements (Regulation M-A Item 1005)
(a)(1) – (2) Transactions. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“Summary Term Sheet”
“Special Factors—Background of the Merger”
“Special Factors—Certain Effects of the Merger”
“Special Factors—Interests of Executive Officers and Directors of the Company in the Merger”
“The Merger Agreement—Treatment of Capital Stock”
“The Merger Agreement—Treatment of Company Equity Awards”
“Other Important Information Regarding the Company—Certain Transactions in the Shares of FRG Common Stock”
“The Voting Agreement”
“The Rollover Agreement”
(b) – (c) Significant corporate events; Negotiations or contacts. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“Summary Term Sheet”
“Special Factors—Background of the Merger”
“Special Factors—Reasons for the Merger; Recommendation of the Special Committee and the Board; Fairness of the Merger”
“Special Factors—Position of the Consortium Members as to the Fairness of the Merger”
“Special Factors—Purpose and Reasons of the Consortium Members for the Merger”
“Special Factors—Interests of Executive Officers and Directors of the Company in the Merger”
7
“Special Factors—Financing of the Merger”
“Special Factors—Guarantee”
“The Merger Agreement”
“The Voting Agreement”
Annex A—Agreement and Plan of Merger
Annex D—Voting Agreement
Annex E—Rollover Agreement
Annex F—Guarantee
(e) Agreements involving the subject company’s securities. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“Summary Term Sheet”
“Questions and Answers About the Special Meeting and the Merger”
“Special Factors—Background of the Merger”
“Special Factors—Plans for the Company After the Merger”
“Special Factors—Financing of the Merger”
“The Merger Agreement”
“The Voting Agreement”
“The Rollover Agreement”
“The Special Meeting—Vote Required”
“The Special Meeting—Management Stockholders’ Obligation to Vote in Favor of the Merger”
“Other Important Information Regarding the Company—Certain Transactions in the Shares of FRG Common Stock”
Annex A—Agreement and Plan of Merger
Annex D—Voting Agreement
Annex E—Rollover Agreement
Annex F—Guarantee
Item 6. Purposes of the Transaction, and Plans or Proposals (Regulation M-A Item 1006)
(b) Use of securities acquired. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
8
“Summary Term Sheet”
“Questions and Answers About the Special Meeting and the Merger”
“Special Factors—Plans for the Company After the Merger”
“Special Factors—New Management Arrangements”
“Special Factors—Certain Effects of the Merger”
“Special Factors—Certain Effects of the Merger for Parent”
“Special Factors—Certain Effects on the Company if the Merger Is Not Completed”
“Special Factors—Payment of Merger Consideration”
“Special Factors—Financing of the Merger”
“The Merger Agreement—Treatment of Capital Stock”
“The Merger Agreement—Treatment of Company Equity Awards”
“Delisting and Deregistration of FRG Common Stock”
(c)(1) – (8) Plans. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“Summary Term Sheet”
“Questions and Answers About the Special Meeting and the Merger”
“Special Factors—Background of the Merger”
“Special Factors—Reasons for the Merger; Recommendation of the Special Committee and the Board; Fairness of the Merger”
“Special Factors—Position of the Consortium Members as to the Fairness of the Merger”
“Special Factors—Purpose and Reasons of the Consortium Members for the Merger”
“Special Factors—Plans for the Company After the Merger”
“Special Factors—New Management Arrangements”
“Special Factors—Certain Effects of the Merger”
“Special Factors—Certain Effects of the Merger for Parent”
“Special Factors—Certain Effects on the Company if the Merger Is Not Completed”
“Special Factors—Interests of Executive Officers and Directors of the Company in the Merger”
“Special Factors—Financing of the Merger”
9
“The Merger Agreement—Effects of the Merger; Directors and Officers; Articles of Incorporation; Bylaws”
“The Merger Agreement—Closing and Effective Time of the Merger”
“The Merger Agreement—Treatment of Capital Stock”
“The Merger Agreement—Treatment of Company Equity Awards”
“The Merger Agreement—Conduct of the Company’s Business During the Pendency of the Merger”
“The Voting Agreement”
“The Rollover Agreement”
“Other Important Information Regarding the Company—Directors and Executive Officers of the Company”
“Other Important Information Regarding the Company—Market Price of Common Stock and Dividends”
“Delisting and Deregistration of Common Stock”
Annex A—Agreement and Plan of Merger
Annex D—Voting Agreement
Annex E—Rollover Agreement
Item 7. Purposes, Alternatives, Reasons and Effects (Regulation M-A Item 1013)
(a) Purposes. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“Summary Term Sheet”
“Questions and Answers About the Special Meeting and the Merger”
“Special Factors—Background of the Merger”
“Special Factors—Reasons for the Merger; Recommendation of the Special Committee and the Board; Fairness of the Merger”
“Special Factors—Position of the Consortium Members as to the Fairness of the Merger”
“Special Factors—Purpose and Reasons of the Consortium Members for the Merger”
“Special Factors—Plans for the Company After the Merger”
“Special Factors—New Management Arrangements”
“Special Factors—Certain Effects of the Merger”
“Special Factors—Certain Effects of the Merger for Parent”
10
(b) Alternatives. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“Special Factors—Background of the Merger”
“Special Factors—Reasons for the Merger; Recommendation of the Special Committee and the Board; Fairness of the Merger”
“Special Factors—Position of the Consortium Members as to the Fairness of the Merger”
“Special Factors—Purpose and Reasons of the Consortium Members for the Merger”
(c) Reasons. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“Special Factors—Background of the Merger”
“Special Factors—Reasons for the Merger; Recommendation of the Special Committee and the Board; Fairness of the Merger”
“Special Factors—Position of the Consortium Members as to the Fairness of the Merger”
“Special Factors—Purpose and Reasons of the Consortium Members for the Merger”
“Special Factors—Opinion of the Special Committee’s Financial Advisor”
“Special Factors—Unaudited Prospective Financial Information of the Company”
“Special Factors—Certain Effects of the Merger”
“Special Factors—Certain Effects of the Merger for Parent”
Annex B—Opinion of Jefferies LLC
(d) Effects. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“Summary Term Sheet”
“Questions and Answers About the Special Meeting and the Merger”
“Special Factors—Background of the Merger”
“Special Factors—Reasons for the Merger; Recommendation of the Special Committee and the Board; Fairness of the Merger”
“Special Factors—Position of the Consortium Members as to the Fairness of the Merger”
“Special Factors—Purpose and Reasons of the Consortium Members for the Merger”
“Special Factors—Plans for the Company After the Merger”
“Special Factors—New Management Arrangements”
“Special Factors—Certain Effects of the Merger”
11
“Special Factors—Certain Effects of the Merger for Parent”
“Special Factors—Certain Effects on the Company if the Merger Is Not Completed”
“Special Factors—Interests of Executive Officers and Directors of the Company in the Merger”
“Special Factors—Material U.S. Federal Income Tax Consequences of the Merger”
“Special Factors—Accounting Treatment”
“Special Factors—Financing of the Merger”
“Special Factors—Fees and Expenses”
“Special Factors—Payment of Merger Consideration”
“The Merger Agreement—Effects of the Merger; Directors and Officers; Articles of Incorporation; Bylaws”
“The Merger Agreement—Treatment of Capital Stock”
“The Merger Agreement—Treatment of Company Equity Awards”
“The Merger Agreement—Conduct of the Company’s Business During the Pendency of the Merger”
“Other Important Information Regarding the Company—Market Price of FRG Common Stock and Dividends”
“Delisting and Deregistration of FRG Common Stock”
Annex A—Agreement and Plan of Merger
Item 8. Fairness of the Transaction (Regulation M-A Item 1014)
(a) – (b) Fairness; Factors considered in determining fairness. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“Summary Term Sheet”
“Questions and Answers About the Special Meeting and the Merger”
“Special Factors—Background of the Merger”
“Special Factors—Reasons for the Merger; Recommendation of the Special Committee and the Board; Fairness of the Merger”
“Special Factors—Position of the Consortium Members as to the Fairness of the Merger”
“Special Factors—Opinion of the Special Committee’s Financial Advisor”
“Special Factors—Purpose and Reasons of the Consortium Members for the Merger”
“Special Factors—Certain Effects of the Merger”
“Special Factors—Interests of Executive Officers and Directors of the Company in the Merger”
12
Annex B—Opinion of Jefferies LLC
Presentation of Jefferies LLC to the Special Committee, dated as of April 14, 2023, is attached hereto as Exhibit (c)(1) and is incorporated herein by reference.
Presentation of Jefferies LLC to the Special Committee, dated as of April 19, 2023, is attached hereto as Exhibit (c)(2) and is incorporated herein by reference.
Presentation of Jefferies LLC to the Special Committee, dated as of April 26, 2023, is attached hereto as Exhibit (c)(3) and is incorporated herein by reference.
Presentation of Jefferies LLC to the Special Committee, dated as of April 28, 2023, is attached hereto as Exhibit (c)(4) and is incorporated herein by reference.
Presentation of Jefferies LLC to the Special Committee, dated as of May 8, 2023, is attached hereto as Exhibit (c)(5) and is incorporated herein by reference.
Presentation of Jefferies LLC to the Special Committee, dated as of May 9, 2023, is attached hereto as Exhibit (c)(6) and is incorporated herein by reference.
(c) Approval of security holders. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“Summary Term Sheet”
“Questions and Answers About the Special Meeting and the Merger”
“Special Factors—Reasons for the Merger; Recommendation of the Special Committee and the Board; Fairness of the Merger”
“Special Factors—Position of Consortium Members as to the Fairness of the Merger”
“The Merger Agreement—Conditions to the Merger”
“The Special Meeting—Vote Required”
Annex A—Agreement and Plan of Merger
(d) Unaffiliated representative. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“Special Factors—Background of the Merger”
“Special Factors—Reasons for the Merger; Recommendation of the Special Committee and the Board; Fairness of the Merger”
“Special Factors—Position of the Consortium Members as to the Fairness of the Merger”
“Special Factors—Opinion of the Special Committee’s Financial Advisor”
(e) Approval of directors. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“Summary Term Sheet”
13
“Questions and Answers About the Special Meeting and the Merger”
“Special Factors—Background of the Merger”
“Special Factors—Reasons for the Merger; Recommendation of the Special Committee and the Board; Fairness of the Merger”
“Special Factors—Position of the Consortium Members as to the Fairness of the Merger”
“Special Factors—Opinion of the Special Committee’s Financial Advisor”
“Special Factors—Interests of Executive Officers and Directors of the Company in the Merger”
“The Merger (The Merger Agreement Proposal—Proposal 1)”
(f) Other offers. Not applicable.
Item 9. Reports, Opinions, Appraisals and Negotiations (Regulation M-A Item 1015)
(a) – (c) Report, opinion or appraisal; Preparer and summary of the report, opinion or appraisal; Availability of documents. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“Summary Term Sheet”
“Questions and Answers About the Special Meeting and the Merger”
“Special Factors—Background of the Merger”
“Special Factors—Reasons for the Merger; Recommendation of the Special Committee and the Board; Fairness of the Merger”
“Special Factors—Position of the Consortium Members as to the Fairness of the Merger”
“Special Factors—Opinion of the Special Committee’s Financial Advisor”
“Where You Can Find More Information”
Annex B – Opinion of Jefferies LLC
Presentation of Jefferies LLC to the Special Committee, dated as of April 14, 2023, is attached hereto as Exhibit (c)(1) and is incorporated herein by reference.
Presentation of Jefferies LLC to the Special Committee, dated as of April 19, 2023, is attached hereto as Exhibit (c)(2) and is incorporated herein by reference.
Presentation of Jefferies LLC to the Special Committee, dated as of April 26, 2023, is attached hereto as Exhibit (c)(3) and is incorporated herein by reference.
Presentation of Jefferies LLC to the Special Committee, dated as of April 28, 2023, is attached hereto as Exhibit (c)(4) and is incorporated herein by reference.
Presentation of Jefferies LLC to the Special Committee, dated as of May 8, 2023, is attached hereto as Exhibit (c)(5) and is incorporated herein by reference.
14
Presentation of Jefferies LLC to the Special Committee, dated as of May 9, 2023, is attached hereto as Exhibit (c)(6) and is incorporated herein by reference.
The reports, opinions or appraisals referenced in this Item 9 will be made available for inspection and copying at the principal executive offices of the Company during its regular business hours by any interested equity security holder of the Company or representative who has been so designated in writing.
Item 10. Source and Amounts of Funds or Other Consideration (Regulation M-A Item 1007)
(a) – (b) Source of funds; Conditions. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“Summary Term Sheet”
“Special Factors—Financing of the Merger”
“The Merger Agreement—Financing”
“Special Factors—Guarantee”
The Second Lien Credit Agreement, dated as of March 10, 2021, among the Company, certain affiliates of the Company, the lenders party thereto from time to time and Alter Domus (US) LLC
(c) Expenses. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“Summary Term Sheet”
“Questions and Answers About the Special Meeting and the Merger”
“Special Factors—Fees and Expenses”
“The Merger Agreement—Termination Fees and Expenses”
“The Special Meeting—Solicitation of Proxies; Payment of Solicitation Expenses”
(d) Borrowed funds. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“Special Factors—Financing of the Merger”
“The Merger Agreement—Financing”
The Second Lien Credit Agreement, dated as of March 10, 2021, among the Company, certain affiliates of the Company, the lenders party thereto from time to time and Alter Domus (US) LLC
Item 11. Interest in Securities of the Subject Company (Regulation M-A Item 1008)
(a) Securities ownership. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“Special Factors—Interests of Executive Officers and Directors of the Company in the Merger”
“Other Important Information Regarding the Company—Security Ownership of Certain Beneficial Owners and Management”
15
(b) Securities transactions. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“Other Important Information Regarding the Company—Certain Transactions in the Shares of Common Stock”
Item 12. The Solicitation or Recommendation (Regulation M-A Item 1012)
(d) Intent to tender or vote in a going-private transaction. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“Summary Term Sheet”
“Questions and Answers About the Special Meeting and the Merger”
“Special Factors—Reasons for the Merger; Recommendation of the Special Committee and the Board; Fairness of the Merger”
“Special Factors—Position of the Consortium Members as to the Fairness of the Merger”
“Special Factors—Purpose and Reasons of the Consortium Members for the Merger”
“The Special Meeting—Management Stockholders’ Obligation to Vote in Favor of the Merger”
“The Special Meeting—Vote Required”
“The Voting Agreement”
“The Rollover Agreement”
Annex D—Voting Agreement
Annex E—Rollover Agreement
(e) Recommendation of others. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“Summary Term Sheet”
“Questions and Answers About the Special Meeting and the Merger”
“Special Factors—Background of the Merger”
“Special Factors—Reasons for the Merger; Recommendation of the Special Committee and the Board; Fairness of the Merger”
“Special Factors—Position of the Consortium Members as to the Fairness of the Merger”
“Special Factors—Purpose and Reasons of the Consortium Members for the Merger”
“The Merger (The Merger Agreement Proposal—Proposal 1)”
16
Item 13. Financial Information (Regulation M-A Item 1010)
(a) Financial statements. The audited consolidated financial statements set forth in Item 8 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022 and the financial statements set forth in Item 1 of the Company’s Quarterly Report on Form 10-Q for the quarterly period ended April 1, 2023 are incorporated herein by reference.
The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“Special Factors—Certain Effects of the Merger”
“Special Factors—Unaudited Prospective Financial Information of the Company”
“Other Important Information Regarding the Company—Book Value per Share”
“Where You Can Find More Information”
(b) Pro forma information. Not applicable.
Item 14. Persons/Assets, Retained, Employed, Compensated or Used (Regulation M-A Item 1009)
(a) – (b) Solicitations or recommendations; Employees and corporate assets. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“Summary Term Sheet”
“Questions and Answers About the Special Meeting and the Merger”
“Special Factors—Background of the Merger”
“Special Factors—Fees and Expenses”
“The Special Meeting—Solicitation of Proxies; Payment of Solicitation Expenses”
Item 15. Additional Information (Regulation M-A Item 1011)
(b) Golden Parachute Compensation. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“Summary Term Sheet”
“Special Factors—Interests of Executive Officers and Directors of the Company in the Merger—Golden Parachute Compensation”
“Merger-Related Executive Compensation Arrangements (The Merger-Related Compensation Proposal—Proposal 3)”
(c) Other material information. The information set forth in the Proxy Statement, including all annexes thereto, is incorporated herein by reference.
Item 16. Exhibits (Regulation M-A Item 1016)
17
(a)(2) Form of Proxy Card (incorporated herein by reference to the Proxy Statement).
(c)(1) Presentation of Jefferies LLC to the Special Committee, dated as of April 14, 2023.
(c)(2) Presentation of Jefferies LLC to the Special Committee, dated as of April 19, 2023.
(c)(3) Presentation of Jefferies LLC to the Special Committee, dated as of April 26, 2023.
(c)(4) Presentation of Jefferies LLC to the Special Committee, dated as of April 28, 2023.
(c)(5) Presentation of Jefferies LLC to the Special Committee, dated as of May 8, 2023.
(c)(6) Presentation of Jefferies LLC to the Special Committee, dated as of May 9, 2023.
(g) None.
18
| * | To be filed by amendment. |
| ** | Previously filed with the Schedule 13E-3 filed with the SEC on June 8, 2023. |
19
SIGNATURE
After due inquiry and to the best of each of the undersigned’s knowledge and belief, each of the undersigned certifies that the information set forth in this statement is true, complete and correct.
Dated as of July 6, 2023
| FRANCHISE GROUP, INC. | ||
| By: | /s/ Andrew Kaminsky | |
| Name: Andrew Kaminsky | ||
| Title: Executive Vice President and Chief Administrative Officer | ||
| FREEDOM VCM, INC. | ||
| By: | /s/ Brian R. Kahn | |
| Name: Brian R. Kahn | ||
| Title: President | ||
| FREEDOM VCM SUBCO, INC. | ||
| By: | /s/ Brian R. Kahn | |
| Name: Brian R. Kahn | ||
| Title: President | ||
| FREEDOM VCM HOLDINGS, LLC | ||
| By: | /s/ Brian R. Kahn | |
| Name: Brian R. Kahn | ||
| Title: President | ||
| FREEDOM VCM INTERCO HOLDINGS, INC. | ||
| By: | /s/ Brian R. Kahn | |
| Name: Brian R. Kahn | ||
| Title: President | ||
| BRIAN R. KAHN | ||
| By: | /s/ Brian R. Kahn | |
| Name: Brian R. Kahn | ||
| VINTAGE OPPORTUNITY PARTNERS, L.P. | ||
| By: | /s/ Brian R. Kahn | |
| Name: Brian R. Kahn | ||
| Title: Manager | ||
[Signature Page to SC 13E-3]
| VINTAGE CAPITAL MANAGEMENT LLC | ||
| By: | /s/ Brian R. Kahn | |
| Name: Brian R. Kahn | ||
| Title: Manager | ||
| BRIAN KAHN AND LAUREN KAHN JOINT TENANTS BY ENTIRETY | ||
| By: | /s/ Brian R. Kahn | |
| Name: Brian R. Kahn | ||
| By: | /s/ Lauren Kahn | |
| Name: Lauren Kahn | ||
| ANDREW LAURENCE | ||
| By: | /s/ Andrew Laurence | |
| Name: Andrew Laurence | ||
| B. RILEY FINANCIAL, INC. | ||
| By: | /s/ Bryant R. Riley | |
| Name: Bryant R. Riley | ||
| Title: Co-Chief Executive Officer | ||
| BRYANT R. RILEY | ||
| By: | /s/ Bryant R. Riley | |
| Name: Bryant R. Riley | ||
[Signature Page to SC 13E-3]
| Preliminary Draft – Confidential Jefferies LLC Member SIPC The information provided in this document, including valuation discussions, represents the views of Jefferies Investment Banking. There is no assurance that the views expressed herein will be consistent with the views expressed by Jefferies Research or its Analysts. Nothing in this document should be understood as a promise or offer of favorable research coverage. Project FREEDOM Preliminary Materials for Discussion April 2023 / Confidential |
| Preliminary Draft – Confidential Jefferies LLC / April 2023 Table of Contents Part 1 Situation Overview 3 Public Market Overview 6 Selected Dividend Considerations 12 Management LRP Overview 16 Part 2 Preliminary FREEDOM Valuation Considerations 21 Preliminary VICTORY Considerations 33 Potential Next Steps for Discussion 41 Appendix 45 i |
| Preliminary Draft – Confidential Jefferies LLC / April 2023 Disclaimer The following pages contain material provided to the Special Committee (the “Special Committee”) of the Board of Directors (the “Board”) of FREEDOM (the “Company”) by Jefferies LLC (“Jefferies”) in connection with Project FREEDOM. These materials were prepared on a confidential basis in connection with an oral presentation to the Special Committee and not with a view toward complying with the disclosure standards under state or federal securities laws or otherwise. These materials are solely for use of the Special Committee in its evaluation of the proposed transaction and may not be used for any other purpose or disclosed to any party without Jefferies’ prior written consent. The information contained in this presentation was based solely on publicly available information or information furnished to Jefferies by the Company. Jefferies has relied, without independent investigation or verification, on the accuracy, completeness and fair presentation of all such information and the conclusions contained herein are conditioned upon such information (whether written or oral) being accurate, complete and fairly presented in all respects. None of Jefferies, its affiliates or its or their respective employees, directors, officers, contractors, advisors, members, successors or agents makes any representation or warranty in respect of the accuracy, completeness or fair presentation of any information or any conclusion contained herein. Jefferies, its affiliates and its and their respective employees, directors, officers, contractors, advisors, members, successors and agents shall have no liability with respect to any information or matter contained herein, or any oral information provided herewith or data any of them generates. Jefferies undertakes no obligation to update these materials. Neither Jefferies nor any of its affiliates is an advisor as to legal, tax, accounting or regulatory matters in any jurisdiction. This presentation is a preliminary analysis only and does not constitute a fairness opinion of Jefferies as to the value of the Company, and as such, should not be relied upon by the Company or by any other person as such. The financial data, analyses and assumptions reflected here remain subject to refinement and change based on further discussions and information regarding FREEDOM’s businesses and its financial and operating markets. 1 |
| Preliminary Draft – Confidential Jefferies LLC / April 2023 Part 1 2 |
| Preliminary Draft – Confidential Jefferies LLC / April 2023 Situation Overview 3 |
| Preliminary Draft – Confidential Jefferies LLC / April 2023 ◼ On March 20, 2023, FREEDOM (or the “Company”) announced publicly the receipt of an an unsolicited non-binding proposal from an undisclosed bidder(1) (the “Bidder”) to acquire all of the outstanding shares of the common stock for $30.00 per share in cash (the “Proposed Transaction”) ─ The proposal implied a 31.9% and 12.8% premium to FREEDOM’s unaffected and 30-day VWAP as of April 12, 2023, respectively, and 7.3x FREEDOM’s LTM 2022A reported EBITDA ─ Conditioned on: o Current management agreeing to roll their equity and continue with the Company o Approval of the Special Committee and majority of non-Bidder and non-management shareholders o Other customary conditions (e.g., HSR) o 30 days of diligence o Transaction funded by cash on hand and newly-raised debt financing; no financing condition ◼ A transaction led by Permitted Holders, including B.Riley, Irradiant, Pimco (and Brian Kahn), should not require the refinancing of FREEDOM’s existing debt ◼ In its capacity as financial advisor to the Special Committee of the Board of Directors of FREEDOM (the “Special Committee”), Jefferies has: ─ Reviewed the Company’s publicly available information and internal financial analyses including its long-range plan (“LRP”) dated as of April 13, 2023 ─ Engaged in numerous discussions with the Bidder and its approved partners including current Company lenders Irradiant and Pimco as well as Garnett Station and Morgan Stanley Direct Lending ─ Contacted 9 third parties regarding potential interest in a transaction with FREEDOM, of which 3 parties are in process and 2 parties are interested in an NDA ─ Two additional VICTORY-only parties that are currently assessing interest; one has passed; more are being contacted ◼ Based on our work to date, the following materials reflect the following analysis and discussion topics: ─ Perspectives on FREEDOM’s current situation including as it relates to the performance of its businesses, future dividend payments and valuation ─ Preliminary valuation analysis as it relates to the Company’s stand-alone intrinsic and Sum-of-the-Parts value and relative to other publicly traded companies and precedent M&A transactions relative to the Proposed Transaction ─ Considerations regarding a potential divestiture of VICTORY including potential gross and net valuation levels assuming full debt paydown, interested parties and process timelines ─ Potential next steps Executive Summary (1) Bidder was B. Riley Financial, Inc. 4 |
| Preliminary Draft – Confidential Jefferies LLC / April 2023 Summary of Outreach to Date FREEDOM Interested in NDA: Elliott Bain 9 Parties Contacted 2 Parties in Process Contacted Parties Interested in NDA: TBD 12 Parties Contacted 7 Parties In Process VICTORY VICTORY Only 5 Parties Passed 5 Parties Passed 5 |
| Preliminary Draft – Confidential Jefferies LLC / April 2023 Public Market Overview 6 |
| Preliminary Draft – Confidential Jefferies LLC / April 2023 Stock Price Performance – Since NASDAQ Relisting (November 2019) Trading Statistics 0 1,000 2,000 3,000 4,000 5,000 $0.00 $10.00 $20.00 $30.00 $40.00 $50.00 $60.00 Nov-19 Jul-20 Mar-21 Nov-21 Jul-22 Mar-23 Volume (000’s) Price Pro Forma Capitalization Table Valuation Metrics Trading Summary FREEDOM Trading Update – Public Market Perspective $27.33 8.2x 7.0x 15.2x 12.7x Unsolicited Offer Letter Received Mar. ‘23 Rumors Re: MBO Jan. ‘23 (4/12/23) Current (3/17/23) Unaffected ($Millions, except per share data) (2) (2) Pet Supplies Plus Acquired Jan. ‘21 Sylvan Learning Acquired Sept. ‘21 The Vitamin Shoppe Acquired Dec. ‘19 Badcock Acquired Nov. ‘21 American Freight Acquired Feb. ‘20 Source: Company filings, S&P Capital IQ as of April 12, 2023. Note: Shares outstanding based on fully diluted shares outstanding per most recent public filing. Pro forma capitalization table for reference to reflect ABL balance as of January 23, 2023 and pro forma for the paydown by the $300 million incremental term loan transaction closed on February 2, 2023. (1) Rent expense capitalized at 6.0x and estimated based on LTM September 25, 2022 data. (2) Fully diluted shares outstanding comprised of 34,925,773 shares of common stock, 254,564 stock options outstanding and exercisable, 273,302 restricted stock units and 364,857 performance restricted stock units. (3) Calculated based of 4,541,125 shares of Series A Cumulative Preferred Stock with a liquidation preference of $25.00, per Company filings dated December 31, 2022. 2/2/23 Gross Gross Adj. Interest $ % Leverage Leverage(1) Rate Maturity Cash and Cash Equivalents $80.8 ABL Revolver ($400M) $16 1.1% 4.0x 3.0x S+175 3/10/26 1st Lien Term Loan (With Add-On) $1,099 76.7% 3.9x 4.9x S + CSA + 475 3/10/26 2nd Lien Term Loan $300 20.9% 4.9x 5.4x L + 750 9/10/26 Finance Lease Liabilities $11 0.8% 4.9x 5.5x - - Other Long Term Obligations $6 0.4% 5.0x 5.4x - - Total Debt $1,432.2 100.0% 5.0x 5.4x Based on FY2022 EBITDA of: $288.1 Based on FY2022 EBITDAR of: $567.5 Share Price $22.75 $27.33 Shares Outstanding 35.7 35.7 Market Capitalization $812.9 $976.5 Plus: Total Debt (2/2/23) 1,432.2 1,432.2 Plus: Preferred Equity 113.5 124.1 Less: Cash & Cash Eqv. (2/2/23) (80.8) (80.8) Enterprise Value $2,277.8 $2,452.0 CY2023E Consensus Revenue $4,412.8 $4,413.6 CY2023E Consensus EBITDA $350.6 $350.6 EV / CY2023E Consensus Revenue 0.52x 0.56x EV / CY2023E Consensus EBITDA 6.5x 7.0x EV / CY2024P Consensus EBITDA 5.5x 5.9x Share Price $22.75 $27.33 52-Week High $44.66 $44.25 52-Week Low $22.45 $22.45 Current % of 52-Week High 50.9% 61.8% 3-M Avg. Daily Vol. ('000s) 527.92 450.14 (3) (3) 7 |
| Preliminary Draft – Confidential Jefferies LLC / April 2023 FREEDOM Trading Performance Nov-19 Mar-20 Jun-20 Oct-20 Feb-21 Jun-21 Sep-21 Jan-22 May-22 Aug-22 Dec-22 Apr-23 (100%) 0% 100% 200% 300% 400% Stock Price Performance – Since NASDAQ Relisting (November 2019) Sources: Company filings, S&P Capital IQ and Wall Street research as of April 12, 2023. (1) Hybrid Franchisor Index comprised of DRVN, LOCO, RUTH, SHAK and SNA. (2) Pet Retail Index comprised of MUSTI, PETS and WOOF. (3) Home and Furniture Index comprised of BBY, ETD, HVT, SNBR, TCS, TPX, TSX:ZZZ and WSM. (4) Beauty, Health and Wellness Index comprised of BBWI, NGVC, RAD, SBH, SFM, ULTA and WBA. (5) Finance Driven Retail Index comprised of AAN, CONN and UPBD. (6) Specialty Retail Index comprised of ASO, DKS, HIBB, JOAN and ODP. (7) Unit-Based Education Index comprised of BFAM, FC, LRN and LSE:PSON. FREEDOM: 129% Hybrid Franchisors(1): 29% Specialty Retail(6): 230% Beauty and Wellness(4): (2%) Finance Driven Retail(5): (34%) Unit Based Education(7): (14%) Pet Retail(2): 14% Home and Furniture(3): 18% YTD LTM FREEDOM 7% (30%) Hybrid Franchisor(1) 8% 8% Pet Retail(2)) 13% (37%) Home and Furniture(3) (2%) (16%) Beauty, Health and Wellness(4) 1% (8%) Finance Driven Retail(5) (0%) (28%) Specialty Retail(6) 14% 30% Unit-Based Education(7) 0% (18%) 8 |
| Preliminary Draft – Confidential Jefferies LLC / April 2023 Average EV / NTM EBITDA Multiple EV / NTM EBITDA Multiples Over Time 7.1x 11.1x 11.8x 7.0x 7.5x 6.0x 4.8x 12.8x 7.1x 9.5x 9.7x 5.3x 7.4x 5.5x 4.3x 11.6x 6.9x 9.7x 7.8x 5.3x 7.7x 6.6x 5.8x 9.3x FREEDOM Hybrid Franchisor Pet Retail Home and Furniture Beauty, Health and Wellness Finance Driven Retail Specialty Retail Unit-Based Education 3-Year 1-Year Current Sources: Company filings, S&P Capital IQ and Wall Street research as of April 12, 2023. (1) Hybrid Franchisor Index comprised of DRVN, LOCO, RUTH, SHAK and SNA. (2) Pet Retail Index comprised of MUSTI, PETS and WOOF. (3) Home and Furniture Index comprised of BBY, ETD, HVT, SNBR, TCS, TPX, TSX:ZZZ and WSM. (4) Beauty, Health and Wellness Index comprised of BBWI, NGVC, RAD, SBH, SFM, ULTA and WBA. (5) Finance Driven Retail Index comprised of AAN, CONN and UPBD. (6) Specialty Retail Index comprised of ASO, DKS, HIBB, JOAN and ODP. (7) Unit-Based Education Index comprised of BFAM, FC, LRN and LSE:PSON. (1) (2) (3) (4) (5) (6) (7) FREEDOM 9 |
| Preliminary Draft – Confidential Jefferies LLC / April 2023 FY 2023P FY 2024P 12-18 Month Firm Revenue EBITDA Revenue EBITDA Price Target Recommendation Selected Commentary Oppenheimer (3/21/23) $4,372 $354 $4,473 $413 $40.00 Outperform Barrington (3/1/23) $4,375 $355 $4,500 $400 $35.00 Outperform Stephens (3/1/23) $4,426 $353 $4,485 $394 $28.00 Neutral CJS Securities (3/2/23) $4,365 $357 $4,507 $410 $42.00 Outperform D.A. Davidson (3/1/23) $4,483 $348 $4,625 $457 $39.00 Buy Median: $4,414 $351 $4,528 $416 $39.00 Management: $4,227 $269 $4,428 $297 NA Selected Analyst Estimates (as of March 2023) Sources: Wall Street Research, S&P Capital IQ as of April 12, 2023. (1) Based on mid-point cost of equity of 16.5%. (2) Represents Adj. EBITDA per consolidated Long-Range Plan provided by FREEDOM management on April 13, 2023. Wall Street Research Perspectives ($Millions) ~$31.25 to ~$33.50 present value(1) ◼ “Unsolicited non-binding proposal reflects exposure to challenged low-end furniture end-market (42% of sales), leverage ratio (3.7x) and management's target for dividend coverage” ◼ “Sale today would mitigate risk of a further deterioration in the end market, the risk of a dividend cut and other uncertainties” ◼ “The combination of higher earnings (over time), an expanding multiple (which should result from a growing proportion of franchised locations) and a sustainable and growing dividend, which yields 9% currently, should provide shareholders with an above-average total return” ◼ “To drive FREEDOM shares higher, we think the Company needs to execute on three items: ─ Sale of the Badcock Receivables at a reasonable discounted price ─ Inventory liquidation, again at a reasonable discount, to generate cash; Firm C thinks tax refund season will be key ─ Positive home improvement cashflow trends“ ◼ “We maintain our Market Outperform rating with a $42 price target based on 7x 2024E EBITDA” ◼ “Lower than expected and somewhat disappointing FY22 performance from original expectations was driven nearly entirely by American Freight, exacerbated by rising interest rates and negative working capital which reduced free cash flow” ◼ “We maintain our BUY rating, which is based on 7x 2024 EBITDA forecasts” Management projects meaningfully lower EBITDA vs. Consensus (2) (2) 10 |
| Preliminary Draft – Confidential Jefferies LLC / April 2023 79% 304% 338% 373% 396% 418% 427% 446% 474% 493% 536% 552% LTM Cumulative Volume Below Price (%) 52.8% 58.8% 65.1% 69.2% 73.1% 74.6% 77.9% 83.3% 86.3% 93.9% 96.6% 97.8% <$25.00 <$30.00 <$31.00 <$32.00 <$33.00 <$34.00 <$35.00 <$36.00 <$37.00 <$38.00 <$39.00 <$40.00 Market Snapshot Current $27.33 Unaffected Stock Price (2) $22.75 20-Day VWAP $25.88 30-Day VWAP $26.59 60-Day VWAP $28.07 90-Day VWAP $27.33 180-Day VWAP $28.28 LTM VWAP $30.44 52-Week High $44.25 52-Week Low $22.45 Source: S&P Capital IQ as of April 12, 2023. Note: Fully diluted shares outstanding comprised of 34,925,773 shares of common stock, 254,564 stock options outstanding and exercisable, 273,302 restricted stock units and 364,857 performance restricted stock units. (1) Float defined as 34,925,773 shares outstanding less 10,176,543 shares held by Vintage Capital and 2,627,250 shares owned by company employees and individual insiders. (2) Unaffected stock price as of March 17, 2023. Public Market Views: FREEDOM — LTM Trading Activity Bidder Proposed Purchase Price Volume Traded as a % of Float(1): 11 |
| Preliminary Draft – Confidential Jefferies LLC / April 2023 Selected Dividend Considerations 12 |
| Preliminary Draft – Confidential Jefferies LLC / April 2023 ($Millions) LTM Q3 2022 LTM Q4 2022 LTM Q1 2023 LTM Q2 2023 Portability Reported EBITDA $422.9 $288.1 $268.3 $176.1 Adjusted Bank EBITDA 418.5 425.6 382.6 350.6 Cash Balance 72.9 80.8 150.0 150.0 Debt ABL Revolver ($400 million) $175.0 $295.0 $60.0 $112.0 Cross-CoC First Lien TL(1) 815.5 805.3 805.3 805.3 Permitted Holders Non-Fungible Incr. First Lien TL 0.0 0.0 300.0 300.0 Permitted Holders Second Lien TL 300.0 300.0 300.0 300.0 Permitted Holders Financing Lease 7.2 11.1 23.4 24.0 Total Debt $1,297.7 $1,411.3 $1,488.7 $1,541.3 Total Net Debt $1,224.7 $1,330.5 $1,338.7 $1,391.3 Total Net Leverage Ratio(2) 2.93x 3.13x 3.50x 3.97x Financial Covenant 4.25x 3.75x 3.75x 3.75x Cushion / (Shortfall) 1.32x 0.62x 0.25x (0.22x) Restricted Payments Covenant 2.81x 2.81x 2.81x 2.81x Cushion / (Shortfall) (0.12x) (0.32x) (0.69x) (1.16x) $120 Million Fixed Basket $120.0 $35.0 $35.0 $35.0 FREEDOM Leverage Metrics Suggest Risk to Next Dividend Selected Key Covenant Details Source: Consolidated Long-Range Plan provided by FREEDOM management on April 13, 2023, and FREEDOM credit agreements. (1) Total debt Q4 2022 gross of $29.9 million of debt issuance costs for covenant reporting. (2) Total Net Leverage ratio is calculated as Total Net Debt / Adjusted Bank EBITDA. ◼ Available Amount Builder: Unlimited subject to 3.06x of Total Net Leverage ◼ Ratio: Unlimited to 2.81x Total Net Leverage ◼ General: $120 million (shared with Restricted Debt Payments and Investments) ◼ Stock Repurchases: $10 million per year Restricted Payments ◼ 4.25x Total Net Leverage with a step down to 3.75x at 12/31/22 ─ Net of up to $150mm of unrestricted cash and cash equivalents ◼ 1.50x Fixed Charge Coverage Ratio ◼ Permitted Holders exempt from Cross-CoC to 1L and 2L Credit Agreement ◼ Permitted holders include but are not limited to B Riley, Irradiant, Brian Kahn ◼ Excess Cash Flow Sweep: 50% stepping down to 25% and 0% at 2.17x and 1.92x First Lien Net Leverage ◼ Asset sale sweep: 100% stepping down to 50% and 0% at 2.17x and 1.67x First Lien Net Leverage Financial Mandatory Prepayments Change of Control 1 2 3 13 |
| Preliminary Draft – Confidential Jefferies LLC / April 2023 Post-Announcement Price Change (%) Vs. S&P 500 Company Announcement Date Market Cap 1-Day Prior to Announcement 1-Day 30-Day 90-Day Cut Due To Excess Leverage Rationale Hanesbrands Feb-23 $3,039 (25%) (34%) - ✓ "Focus use of all free cash flow on debt reduction" JOANN Dec-22 $185 (13%) (16%) (49%) ✓ Cost-cutting initiative after quarterly losses due to inflation American Eagle Outfitters Sep-22 $1,911 (9%) (0%) 41% Provide additional financial flexibility "while navigating near-term macro challenges" Kontoor Brands May-20 $1,121 (11%) 1% (15%) ✓ Temporary suspension in conjunction with credit facility amendment Tailored Brands Sep-19 $343 (27%) (40%) (34%) ✓ Redeploy capital to accelerated debt paydown and share repurchases Pier 1 Imports Apr-18 $288 (23%) (35%) (43%) Allocate greater resources toward implementing strategic plan Mattel Oct-17 $5,310 (10%) 0% (3%) ✓ High leverage levels and need to reinvest for growth due to poor performance following Toys-R-Us bankruptcy GNC Holdings Feb-17 $569 (8%) (14%) (17%) ✓ Utilize greater portion of free cash flow to reduce debt Median (12%) (15%) (17%) Mean (16%) (17%) (17%) Upbound Group (Rent-A-Center) 30-Oct-17 $507 (1%) 10% (1%) Announced review of strategic alternatives Selected Examples of Full Dividend Suspension Imply Near-Term Stock Price Downside Risk Source: Company filings, S&P Capital IQ, Wall Street equity research. ($Millions) Implies potential downside to FREEDOM’s stock price 14 |
| Preliminary Draft – Confidential Jefferies LLC / April 2023 FREEDOM FREEDOM Illustrative VICTORY Purchase Price ($Millions) Status Quo(1) Pro Forma $900 $1,000 $1,100 $1,200 $1,300 $1,400 Implied Purchase Price Multiple (2) 7.0x 7.8x 8.6x 9.4x 10.2x 10.9x Less: Management Incentive Units Payoff (3) (98) (109) (120) (131) (142) (153) Less: Taxes (4) (152) (173) (194) (215) (236) (257) Net Sale Proceeds $650 $718 $786 $854 $922 $990 Implied Net Purchase Price Multiple (2) 5.1x 5.6x 6.1x 6.7x 7.2x 7.7x Debt Paydown ($650) ($718) ($786) ($854) ($922) ($990) LTM Q2 2023 Pro Forma Net Debt(5) $1,391 $741 $673 $605 $537 $469 $401 Time Period Bank Adj. EBITDA Leverage Ratio(6) Bank Adj. EBITDA Post Transaction Leverage Ratio (6) LTM Q2 2023 $351 3.97x $216 3.44x 3.12x 2.81x 2.49x 2.18x 1.86x FREEDOM FREEDOM FY 2023 FY 2023 ($Millions) Status Quo Pro Forma(7) Required Pro Forma Multiple to Maintain Unaffected Stock Price(8) Revenue $4,227 $2,979 13.4x 12.9x 12.4x 11.9x 11.4x 10.9x Adjusted EBITDA 269 134 % Margin 6.4% 4.5% Free Cash Flow(9) $221 $96 Sale of VICTORY Impact – Pro Forma Leverage Ratio Could Restore Ability to Pay Dividend Source: Consolidated Long-Range Plan (“the “LRP”) provided by FREEDOM management on April 13, 2023. (1) FREEDOM status quo based of LTM Q2 2023 figures per the LRP. (2) Based on VICTORY LTM Q2 2023 Adjusted EBITDA of $127.9 million (includes executive severance and related costs, litigation costs and settlements, right-of-use asset impairment and sale of owned properties). (3) Based on 11% of exit event proceeds minus transaction costs of $35.0 million plus company value of $21.9 million as defined by the Management Incentive Unit plans provided by FREEDOM management. (4) Corporate tax gains rate of 21% applied to pre-tax sales proceeds in excess of asset tax basis of $175.3 million. (5) Net Debt is calculated as net of up to $150 million of unrestricted cash and cash equivalents. (6) Leverage ratio is calculated as Net Debt / Adjusted Bank EBITDA. (7) Reflects pro forma company after divestiture of VICTORY. (8) Calculated as FREEDOM enterprise value as of April 12, 2023, minus net proceeds over pro forma adjusted EBITDA. (9) Free cash flow calculated as Adjusted EBITDA less CapEx. vs. Unaffected multiple of 6.5x consensus and implied current multiple of 9.1x as per the LRP A VICTORY divestiture, net of transaction tax leakage and MIP pay out, has the potential to restore dividend related covenant compliance Restricted Payments Covenant – 2.81x 15 |
| Preliminary Draft – Confidential Jefferies LLC / April 2023 Management LRP Overview 16 |
| Preliminary Draft – Confidential Jefferies LLC / April 2023 Historical Management Estimates CAGR ($Millions) FY2020A FY2021A FY2022A FY2023E FY2024P FY2025P FY2026P '22E - '26P Revenue American Freight $945 $989 $883 $912 $985 $1,145 $1,262 9.3% Badcock 899 907 716 596 591 660 730 0.5% Buddy's 97 64 57 57 60 67 73 6.0% Pet Supplies Plus 846 1,121 1,289 1,372 1,475 1,648 1,859 9.6% Sylvan 26 38 42 42 45 48 51 4.8% Vitamin Shoppe 1,036 1,173 1,207 1,248 1,272 1,309 1,359 3.0% Total Revenue $3,850 $4,292 $4,195 $4,227 $4,428 $4,876 $5,334 6.2% % Growth 5.2% 11.5% (2.3%) 0.8% 4.7% 10.1% 9.4% Operating Expenses as % of Sales 34.1% 32.9% 32.2% 30.8% 29.5% Total EBITDA $234 $490 $288 $244 $281 $366 $440 11.2% % Margin 6.1% 11.4% 6.9% 5.8% 6.3% 7.5% 8.3% Adjusted EBITDA American Freight $109 $97 $4 $19 $47 $91 $116 136.6% Badcock $106 $85 $84 ($19) ($38) ($27) ($16) nm Buddy's $27 $18 $16 $16 $16 $20 $24 11.1% Pet Supplies Plus $76 $93 $115 $120 $134 $157 $185 12.7% Sylvan $6 $12 $14 $14 $15 $16 $17 5.9% Vitamin Shoppe $78 $137 $135 $136 $140 $145 $150 2.8% Total Adjusted EBITDA $395 $438 $354 $269 $297 $382 $456 6.6% % Margin 10.3% 10.2% 8.4% 6.4% 6.7% 7.8% 8.6% Total D&A $111 $86 $77 $74 $76 $72 $72 (1.6%) Total Capital Expenditures $59 $66 $51 $48 $42 $45 $45 (3.2%) % Margin 1.5% 1.5% 1.2% 1.1% 1.0% 0.9% 0.8% Historical and Projected FREEDOM Financial Summary Source: Consolidated Long-Range Plan provided by FREEDOM management on April 13, 2023. Commentary 1 3 2 ◼ American Freight projected to rebound strongly from 2022 lows driven by more normalized environment and the initiatives of the new management team ◼ In connection with its transaction to third-party consumer financing, Badcock is expected to generate EBITDA losses based on current business model ◼ Potential upside exists to the extent the Company can enter into a more favorable financing arrangement or re-engineer its business model for greater profitability ◼ Pets Supplies Plus projects strong top-line and EBITDA growth based on new unit growth driven by franchising 17 |
| Preliminary Draft – Confidential Jefferies LLC / April 2023 Badcock and American Freight – Summary Financial Performance $899 $907 $716 $596 $591 $660 $730 11.8% 9.4% 11.7% (3.1%) (6.4%) (4.1%) (2.2%) Source: Consolidated Long-Range Plan provided by FREEDOM management on April 13, 2023. Revenue Badcock American Freight $945 $989 $883 $912 $985 $1,145 $1,262 11.6% 9.8% 0.4% 2.1% 4.8% 8.0% 9.2% Revenue ◼ A significant portion of Badcock’s revenue is dependent on providing consumer credit to its customers ◼ FREEDOM has limited ability to service Badcock’s financing needs based on its balance sheet today ◼ Management has identified two options to maintain critical customer financing ─ Third-party arrangement with a provider such as Fortiva with which testing is underway ─ A significant equity raise to repay debt to allow to create room on balance sheet for Badcock-related financing ◼ The Company’s LRP reflects the Fortiva arrangement ◼ AF’s 2022 performance deteriorated due to a number factors including pull-back by its lower income customer base, potential sales pull-forward during prior COVID periods and ongoing cost inflation ─ Q1 2023 remained EBITDA negative due to the weakest tax season of the past decade according to management ◼ Going forward, management is projecting a return to profitability beginning in Q2 2023 resulting in modest 2023 EBITDA which grows sharply through 2026 ─ 2026 EBITDA falls in line with 2020 and 2021 levels, albeit on lower margins against higher sales Margin Margin Adj. EBITDA Adj. EBITDA $106 $85 $84 ($19) ($38) ($27) ($16) FY2020A FY2021A FY2022A FY2023E FY2024P FY2025P FY2026P $109 $97 $4 $19 $47 $91 $116 FY2020A FY2021A FY2022A FY2023E FY2024P FY2025P FY2026P 18 |
| Preliminary Draft – Confidential Jefferies LLC / April 2023 Projected Financial Data ◼ Per FREEDOM management as of April [12], 2023 ◼ Badcock projected earnings declines reflect economics associated with Fortiva partnership with respect to future customer receivables ◼ American Freight projected to rebound from $4M of EBITDA in 2023 to $116M in 2026 Management Incentive Plans (MIPs)(1) ◼ Each of FREEDOM’s business has a MIP in place representing ~10% of the equity value upon a change of control (net of certain adjustments including debt and contributed capital) ◼ MIPs are triggered upon a change of control of each individual business – not the parent company ◼ For preliminary valuation purposes, MIPs are analyzed as paying out in 2026, and are discounted to present value as part of the DCF analysis, such that all of the value of the Company’s businesses would be 100% owned by existing shareholders Jefferies Due Diligence to Date ◼ Jefferies has reviewed publicly available information involving the Company including SEC filings, Company press releases, Wall Street research reports and other information ◼ Jefferies has also received and reviewed internal confidential information prepared by Company management including the Company’s Long-Range Plan dated as of April 13th, 2023 ◼ Jefferies has not physically inspected any of the operations of the Company nor made or received any independent evaluation or appraisal with respect to the Company’s assets or liabilities Methodology / Consideration General Description Comments Selected Financial and Other Considerations (1) Contractual EBITDAs are Reported Adjusted EBITDAs of individual segments in Consolidated Long-range Plan provided by FREEDOM Management on April 13, 2023. (2) Reflects an illustrative valuation multiple for VICTORY in a sale transaction. (3) Ownership % reflects both Time Vested and Performance Vested Units. (4) Applied effective tax rate of 26% as per management estimates. ($Millions) Sylvan Pet Supplies Plus Vitamin Shoppe American Freight Contractual EBITDA for 2026 Payout (1) $17.5 $184.9 $150.4 $116.3 Contractual Multiplier (2) 7.0x 6.5x 9.0x 5.6x Implied EV $122.2 $1,201.6 $1,353.6 $651.3 Less: Invested Capital (40.5) (350.0) 21.9 (230.0) Less: Contractual Debt / Transaction Costs (6.8) (174.1) (35.0) (295.5) Incremental EV $74.9 $677.5 $1,340.5 $125.8 % Vested (3) 6.70% 10.00% 11.00% 3.40% MIP Payout $5.0 $67.8 $147.5 $4.3 Total Payout $224.5 Payout (Net of Tax)(4) $166.1 Payout / Share $4.61 19 |
| Preliminary Draft – Confidential Jefferies LLC / April 2023 Part 2 20 |
| Preliminary Draft – Confidential Jefferies LLC / April 2023 Preliminary FREEDOM Valuation Considerations 21 |
| Preliminary Draft – Confidential Jefferies LLC / April 2023 Discounted Cash Flow Analysis ◼ Estimates the value of FREEDOM based on the present value of the Company’s risk-adjusted cash flow ◼ Terminal Value calculated using perpetuity growth method, stated net of hypothetical estimated MIP payments if triggered, per FREEDOM management Analysis of Selected Publicly Traded Companies ◼ Estimates current market value of FREEDOM based on trading multiples of selected publicly traded companies generally considered relevant for comparative purposes ◼ Reviewed 35 publicly traded Hybrid Franchisor, Pet Retail, Home & Furniture, Beauty, Health & Wellness, Finance-driven Retail, Specialty Retail and Unit-Based Education companies relative to FREEDOM’s six business units Analysis of Selected Transactions ◼ Estimates value of FREEDOM based on a review of selected merger and acquisition transactions generally considered relevant for comparative purposes ◼ Reviewed 31 completed transactions with publicly available information in the Pet Retail, Home & Furniture, Health & Wellness, Finance-driven Retail, Specialty Retail and Unit-Based Education sectors Sum-of-the-Parts Analysis ◼ An analysis of FREEDOM’s implied Enterprise Value and implied stock price based on the aggregate value of its six businesses based on market-based valuation multiples to current or recent performance ◼ Implied values stated before and after the impact of respective management incentive plans (MIPs) ◼ Based on current performance today vs. future upside (e.g., American Freight) ◼ Potential downside related to Badcock given its projected sustained negative EBITDA Discounted Stock Price Analysis ◼ Estimates the value of FREEDOM’s stock price on a present and future value basis based on management’s projected EBITDA and net debt balances ◼ Based on FREEDOM’s unaffected 2023 (NTM) EBITDA multiple of 6.5x and three-year average NTM multiple of 7.1x, and a discount rate based on the mid-point cost of equity of 16.5.% ◼ Implied stock prices are shown before any MIP impact as well as based on an illustrative 2026 MIP payout Financial Buyer Analysis ◼ Analyzes the projected income statement and cash flows to determine a range of prices a third-party financial buyer might potentially pay to acquire the Company ◼ Stated before any upside from potential divestitures or future acquisitions consistent with the Company’s historical strategy Premiums Paid Analysis ◼ A review, as an additional reference point for informational purposes, of premiums paid in selected M&A transactions involving public companies ◼ Reviewed 354 all-cash transactions across all industries, excluding financial, real estate and energy targets, and with transaction equity values between $1B and $5B closed since January 1, 2010 ◼ Applied relevant premiums to FREEDOM’s unaffected stock price of $22.75 as of March 17, 2023 and certain stock prices prior to that point Methodology / Consideration General Description Comments Selected Valuation Methodologies Note: Jefferies did not attribute any particular weight to any analysis, methodology or factor considered by it, but rather made qualitative judgments as to the significance and relevance of each analysis and factor; accordingly, Jefferies’ analyses must be considered as a whole. Considering any portion of the analyses or the factors considered, without considering all analyses and factors, could create a misleading or incomplete view of the process undertaken by Jefferies. For Reference Only: 22 |
| Preliminary Draft – Confidential Jefferies LLC / April 2023 $26.50 $27.00 $19.25 $30.00 $31.00 $8.50 $15.50 $10.25 $9.25 $25.75 $32.00 $34.75 $31.75 $34.25 $39.25 $19.50 $28.00 $22.50 $20.50 $36.00 $0.00 $10.00 $20.00 $30.00 $40.00 Net of MIP(1) ~ $23.00 Current Price (4/12/23): $27.33 Methodology Metrics Preliminary Financial Analyses Summary – Based on April 13, 2023 LRP Implied Enterprise Value / For Informational Purposes Only All Industries (354) Transactions) Historical Premium Analysis Consumer / Retail (61) Transactions) 2022A Mgmt Adj. EBITDA of $354M Financial Buyer Analysis 2023E Mgmt Adj. EBITDA of $269M Source: Consolidated Long-Range Plan provided by FREEDOM management on April 13, 2023. Note: Fully diluted shares outstanding comprised of 34,925,773 shares of common stock, 239,564 stock options outstanding and exercisable at various strike prices, 505,987 restricted stock units and 426,541 performance restricted stock units as provided by FREEDOM management on April 13, 2023. (1) Reflects impact of MIP Payout net of taxes on a per share basis. Unaffected Share Price (3/17/23): $22.75 Sum of the Parts Pre-MIP Discounted Cash Flow Analysis Perpetuity Growth Method Selected Public Companies Analysis 2023E Adj. EBITDA Multiple Selected Transactions Analysis 2023E Adj. EBITDA Multiple ◼ Discount rate of 12.75% - 13.75% and perpetuity growth rate of 2.5% - 3.5% ◼ 6.5x – 8.0x 2023E Adj. EBITDA ─ 2023E Mgmt Adj. EBITDA of $269M ◼ 6.5x – 8.0x 2023E Adj. EBITDA ─ 2023E Mgmt Adj. EBITDA of $269M ◼ 25th and 75th Percentile 1-day premiums to unaffected share price ($22.75) as of 3/17/23 ◼ 25th and 75th Percentile 1-day premiums to unaffected share price ($22.75) as of 3/17/23 ◼ 20% - 25% IRR, 6.5x – 8.0x exit multiple, 3.3x leverage ◼ Based on various EBITDA multiple ranges for respective businesses Discounted Stock Price ◼ NPV of theoretical future stock price trading based on unaffected (6.5x) and average (7.1x) NTM (2026) EBITDA and 16.5% cost of equity (midpoint) Q1 2023E Adj. EBITDA Multiple ◼ 6.5x – 8.0x LTM Q1 2023E Adj. EBITDA ─ Q1 2023E Mgmt Adj. EBITDA of $309M Offer Price (3/20/23): $30.00 2024P Adj. EBITDA Multiple ◼ 6.0x – 7.5x 2024P Adj. EBITDA ─ 2024P Mgmt Adj. EBITDA of $297M 4.1x 5.1x 6.1x 7.2x 8.4x 5.4x 6.7x 8.1x 9.5x 11.0x Net of MIP (1) ~ $28.25 Net of MIP (1) ~ $27.50 23 |
| Preliminary Draft – Confidential Jefferies LLC / April 2023 Illustrative Analysis at Various Prices Source: S&P Capital IQ as of April 12, 2023, and Consolidated Long-Range Plan provided by FREEDOM management on April 13, 2023. (1) Fully diluted shares outstanding comprised of 34,925,773 shares of common stock, 239,564 stock options outstanding and exercisable at various strike prices, 505,987 restricted stock units and 426,541 performance restricted stock units as provided by FREEDOM management on April 13, 2023. FREEDOM Share Price Various Theoretical Purchase Prices ($Millions, except price per share) (4/12/23) Illustrative Stock Price per Share $27.33 $30.00 $31.00 $32.00 $33.00 $34.00 $35.00 Implied Fully Diluted Shares Outstanding(1) 36.0 36.0 36.0 36.0 36.0 36.0 36.0 Market Capitalization $984 $1,081 $1,117 $1,153 $1,189 $1,226 $1,262 Plus: Total Debt (Q1'23) 1,489 1,489 1,489 1,489 1,489 1,489 1,489 Plus: Preferred Equity 124 136 141 145 150 154 159 Transaction Value 2,597 2,706 2,747 2,787 2,828 2,869 2,909 Less: Cash and Cash Equivalents (153) (153) (153) (153) (153) (153) (153) Total Enterprise Value $2,444 $2,553 $2,594 $2,634 $2,675 $2,716 $2,756 Illustrative Price Bump Analaysis Price per Share - - +3.3% +6.7% +10.0% +13.3% +16.7% Enterprise Value - - +1.6% +3.2% +4.8% +6.4% +8.0% Implied Premiums FREEDOM Statistic Implied Premium to Current Stock Price $27.33 - 9.8% 13.4% 17.1% 20.7% 24.4% 28.1% (Discount) / Premium to Unaffected Stock Price (as of 3/17/23) $22.75 20.1% 31.9% 36.3% 40.7% 45.1% 49.5% 53.8% (Discount) / Premium to 52-Week High $44.25 (38.2%) (32.2%) (29.9%) (27.7%) (25.4%) (23.2%) (20.9%) Managament Adj. EBITDA TEV / Adj. EBITDA FY2022A EBITDA $354 6.9x 7.2x 7.3x 7.4x 7.6x 7.7x 7.8x FY2023E EBITDA $269 9.1x 9.5x 9.6x 9.8x 9.9x 10.1x 10.2x FY2024P EBITDA $297 8.2x 8.6x 8.7x 8.9x 9.0x 9.1x 9.3x Consensus Median EBITDA TEV / Adj. EBITDA FY2023E EBITDA $351 7.0x 7.3x 7.4x 7.5x 7.6x 7.7x 7.9x FY2024P EBITDA $416 5.9x 6.1x 6.2x 6.3x 6.4x 6.5x 6.6x 24 |
| Preliminary Draft – Confidential Jefferies LLC / April 2023 Sensitivities Preliminary FREEDOM Discounted Cash Flow Analysis – Based on April 13, 2023 LRP Note: Share prices in sensitivity tables are rounded to the nearest $0.25. Source: Consolidated Long-Range Plan provided by FREEDOM management on April 13, 2023. (1) Reflects depreciation equal to capital expenditures in Normalized Terminal Year. (2) As per Long-Range Plan EBITDA forecast through 2026P provided by FREEDOM management. EBITDA is burdened by share-based compensation. (3) Effective tax rate for each year as per FREEDOM management estimates. (4) Other assets / liabilities exclude non-current deferred tax assets, income taxes payable, right of use assets, long-term operating lease liabilities and non-current long-term debt. (5) Management Incentive payoff reflects tax-effected optional liquidity exercise of incentive units in 2026 across relevant businesses of FREEDOM based on contractual multipliers. (6) Based on illustrative perpetuity growth rate of 3%. Based on illustrative WACC of 13.25%. (7) Fully diluted shares outstanding comprised of 34,925,773 shares of common stock, 239,564 stock options outstanding and exercisable at various strike prices, 505,987 restricted stock units and 426,541 performance restricted stock units as provided by FREEDOM management on April 13, 2023. Year ending December 31, 2022 CAGR Normalized (US $Ms, except price per share) 2023E 2024P 2025P 2026P 2023E - 2026P Terminal Year(1) Revenue $4,227 $4,428 $4,876 $5,334 8.1% $5,334 EBITDA(2) $266 $297 $382 $456 19.6% $456 % Margin 6.3% 6.7% 7.8% 8.6% 8.6% Less: Stock-based Compensation (22) (16) (16) (16) (16) EBITDA (net of SBC) $244 $281 $366 $440 21.7% $440 % Margin 5.8% 6.3% 7.5% 8.3% 8.3% Less: D&A (79) (82) (78) (78) (45) EBIT $165 $199 $288 $363 30.1% $396 Less: Taxes(3) (43) (52) (75) (94) (103) Net Operating Profit After Tax (NOPAT) $122 $147 $213 $269 30.1% $293 Plus: D&A 79 82 78 78 45 Less: NWC (Increase) / Decrease 125 38 (18) (41) (29) Less: Other Assets / Liabilities (Increase) / Decrease(4) 28 (5) 13 3 - Unlevered CFO $354 $262 $287 $308 (4.5%) $308 Less: Capex (48) (42) (45) (45) (45) Unlevered FCF $306 $220 $242 $263 (4.9%) $263 % Conversion 114.9% 74.2% 63.3% 57.8% 57.8% Present Value of Unlevered FCF $288 $183 $177 $170 Net of MIP Payout Pre-MIP Terminal Value at 3.0% Growth Rate $2,817 $2,817 Less: Illustrative Management Incentive Payoff(5) ($166) - Terminal Value Post Incentive Units Payoff $2,651 $2,817 Present Value of Terminal Value(6) $1,612 $1,713 Sum of PV of Unlevered FCF $818 $818 Total Enterprise Value $2,429 $2,530 Plus: Cash $81 $81 Less: Debt ($1,381) ($1,381) Less: Preferred Equity ($126) ($138) Equity Value $1,002 $1,092 FDSO(7) 36.017 36.023 Implied Price Per Share $27.83 $30.32 15.00% $35.25 $47.75 10.00% 32.25 43.75 5.00% 29.00 39.75 0.0% 25.75 36.00 (5.00%) 22.00 32.00 (10.00%) 18.50 28.25 (15.00%) 14.75 24.25 Change in EBITDA Implied Price Per Share (Low) Implied Price Per Share (High) Implied Price Per Share (Pre MIP) Perpetuity Discount Rate Growth 12.75% 13.25% 13.75% 2.5% $31.00 $28.25 $25.75 3.0% $33.25 $30.25 $27.50 3.5% $36.00 $32.75 $29.75 Implied Terminal EBITDA Multiple(6) Perpetuity Discount Rate Growth 12.75% 13.25% 13.75% 2.5% 6.1x 5.9x 5.6x 3.0% 6.5x 6.2x 5.9x 3.5% 6.9x 6.5x 6.2x 25 |
| Preliminary Draft – Confidential Jefferies LLC / April 2023 Equity Enterprise 2022A Size and Scale 22A - '24P Projected Gowth EV / EBITDA Hybrid Franchisors Value Value Revenue EBITDA EBITDA % Unit Revenue EBITDA 2023E 2024P Snap-on Incorporated $12,844 $13,309 $4,489 $1,232 27.4% NA 3.4% 6.2% 9.8x 9.6x FREEDOM 813 2,278 4,195 288 6.9% 5.9% 2.7% (1.3%) 6.5x 5.5x FREEDOM (ex. VICTORY) - - 2,988 153 5.1% 6.9% 2.8% (3.9%) - - Driven Brands Holdings Inc. 5,266 7,824 2,043 274 13.4% 5.9% 14.2% 56.5% 13.2x 11.7x Shake Shack Inc. 2,380 2,431 900 70 7.8% 14.7% 18.4% 32.9% 23.6x 19.5x Ruth's Hospitality Group, Inc. 538 545 506 84 16.6% 2.9% 7.2% 0.5% 6.7x 6.4x El Pollo Loco Holdings, Inc. 338 383 469 49 10.4% 3.5% 4.1% 13.7% 6.7x 6.1x Mean $3,697 $4,462 $2,227 $307 12.5% 6.6% 7.5% 14.9% 11.1x 9.8x Median $1,597 $2,354 $2,043 $153 10.4% 5.9% 4.1% 6.2% 8.3x 8.0x Pet Retail Petco Health and Wellness Company, Inc. $2,886 $4,378 $6,025 $582 9.7% 0.7% 3.2% (1.4%) 8.3x 7.7x Pets at Home Group Plc 2,356 2,424 1,636 310 18.9% NA 8.0% 5.4% 7.6x 7.0x Pet Supplies Plus NA NA 1,289 105 8.1% 14.1% 7.0% 12.7% - - Musti Group Oyj 604 754 422 73 17.4% NA 10.1% 12.6% 9.1x 8.1x Mean $1,949 $2,519 $2,343 $267 13.5% 7.4% 7.1% 7.3% 8.3x 7.6x Median $2,356 $2,424 $1,462 $207 13.5% 7.4% 7.5% 9.0% 8.3x 7.7x Home and Furniture Best Buy Co., Inc. $16,245 $15,563 $46,346 $3,961 8.5% (2.0%) (1.3%) (13.6%) 5.6x 5.3x Williams-Sonoma, Inc. 8,012 7,645 8,821 1,730 19.6% (5.2%) (1.5%) (9.0%) 5.4x 5.3x Tempur Sealy International, Inc. 6,798 9,569 4,954 892 18.0% NA 4.4% 9.7% 9.8x 8.9x Sleep Number Corporation 613 1,071 2,113 148 7.0% 3.5% 1.8% 10.7% 6.2x 5.9x The Container Store Group, Inc. 171 354 1,086 115 10.5% 11.2% 2.2% (1.5%) 3.4x 3.2x Haverty Furniture Companies, Inc. 538 415 1,034 135 13.0% NA (0.2%) NA NA NA American Freight NA NA 883 (69) (7.8%) 6.5% 5.6% - - - Ethan Allen Interiors Inc. 692 607 848 157 18.5% NA NA NA 4.6x NA Badcock Home Furniture NA NA 716 144 20.1% (2.1%) (9.2%) - - - Sleep Country Canada Holdings Inc. 640 661 683 163 23.8% 2.1% 3.3% 0.5% 4.2x 4.0x Mean $4,214 $4,486 $6,748 $738 13.1% 2.0% 0.6% (0.5%) 5.6x 5.4x Median $666 $866 $1,060 $153 15.5% 2.1% 1.8% (0.5%) 5.4x 5.3x Beauty, Health and Wellness Walgreens Boots Alliance, Inc. $30,793 $50,242 $131,772 $5,710 4.3% NA 5.0% 9.6% 7.6x 7.3x Rite Aid Corporation 143 3,248 23,918 419 1.8% NA (1.4%) (6.7%) 9.0x 8.9x Ulta Beauty, Inc. 26,857 26,119 10,001 1,820 18.2% 3.6% 7.9% 5.0% 13.5x 13.0x Bath & Body Works, Inc. 8,405 12,036 7,474 1,597 21.4% NA 2.7% 2.1% 8.1x 7.2x Sprouts Farmers Market, Inc. 3,613 3,578 6,389 485 7.6% 7.0% 6.1% 2.9% 7.2x 7.0x Sally Beauty Holdings, Inc. 1,502 2,554 3,757 483 12.8% (0.8%) 1.2% 1.0% 5.5x 5.2x VICTORY NA NA 1,207 136 11.2% 2.5% 2.7% 1.6% - - Natural Grocers by Vitamin Cottage, Inc. 246 291 1,090 56 5.2% NA NA 6.0% 4.9x 4.6x Mean $10,222 $14,010 $23,201 $1,338 10.3% 3.0% 3.4% 2.7% 8.0x 7.6x Median $3,613 $3,578 $6,932 $484 9.4% 3.0% 2.7% 2.5% 7.6x 7.2x Preliminary Analysis of Selected Public Companies – Valuation and Benchmarking Source: Company provided financials, S&P Capital IQ as of April 12, 2023, Public filings and Wall Street equity research. (1) Reflects pro forma debt and cash figures as of February 2, 2023. (2) Reflects consensus estimated EV / 2023E and 2024P Adjusted EBITDA multiples at the unaffected share price on March 17, 2023. ($Millions) (1) (2) (2) 26 |
| Preliminary Draft – Confidential Jefferies LLC / April 2023 Equity Enterprise 2022A Size and Scale 22A - '24P Projected Gowth EV / EBITDA Finance Driven Retail Value Value Revenue EBITDA EBITDA % Unit Revenue EBITDA 2023E 2024P Upbound Group, Inc. $1,442 $2,698 $4,245 $454 10.7% 0.4% (2.6%) (2.8%) 7.0x 6.3x The Aaron's Company, Inc. 335 526 2,251 166 7.4% (1.5%) 1.1% 1.7% 3.5x 3.1x Conn's, Inc. 139 551 1,339 37 2.8% 6.9% 5.0% 64.2% 12.8x 5.5x Buddy's Home Furnishings NA NA 57 16 27.1% 9.1% 2.3% 1.7% - - Mean $639 $1,258 $1,973 $168 12.0% 3.7% 1.4% 16.2% 7.8x 4.9x Median $335 $551 $1,795 $102 9.0% 3.7% 1.7% 1.7% 7.0x 5.5x Specialty Retail DICK'S Sporting Goods, Inc. $12,556 $12,189 $12,217 $1,846 15.1% 1.2% 3.3% 3.0% 6.4x 6.2x The ODP Corporation 1,843 1,628 8,520 437 5.1% NA (2.9%) (4.8%) 4.1x 4.1x Academy Sports and Outdoors, Inc. 5,397 5,655 6,438 995 15.5% 5.8% 4.5% 0.7% 6.0x 5.6x JOANN Inc. 63 1,034 2,206 99 4.5% (0.6%) (0.7%) 30.0% 8.5x 6.2x Hibbett, Inc. 818 841 1,727 213 12.3% 3.6% 5.5% 5.1% 3.9x 3.6x Mean $4,135 $4,269 $6,221 $718 10.5% 2.5% 1.9% 6.8% 5.8x 5.1x Median $1,843 $1,628 $6,438 $437 12.3% 2.4% 3.3% 3.0% 6.0x 5.6x Unit-Based Education Pearson plc $7,717 $8,571 $4,613 $834 18.1% NA 3.1% 12.0% 8.7x 8.2x Bright Horizons Family Solutions Inc. 4,420 5,361 2,016 317 15.7% 1.5% 11.9% 16.0% 14.7x 12.6x Stride, Inc. 1,705 1,806 1,745 268 15.4% NA 7.7% 13.6% 6.1x 5.2x Franklin Covey Co. 536 501 270 44 16.3% NA 10.4% 13.1% 10.7x 8.9x Sylvan Learning NA NA 42 13 31.4% 2.6% 3.1% 5.3% - - Mean $3,594 $4,060 $1,737 $295 19.4% 2.0% 7.2% 12.0% 10.0x 8.7x Median $3,062 $3,584 $1,745 $268 16.3% 2.0% 7.7% 13.1% 9.7x 8.6x Weighted Average 8.1x 7.6x Median 7.0x 6.3x Mean 8.0x 7.1x Preliminary Analysis of Selected Public Companies – Valuation and Benchmarking (Cont’d) Source: Company provided financials, S&P Capital IQ as of April 12, 2023, company filings and Wall Street equity research. (1) Weighted by 2023E EBITDA of each individual FREEDOM segment, reflects Pet Retail median weighted by Pet Supplies Plus, Home and Furniture median weighted by American Freight and Badcock Home Furniture, Beauty Health and Wellness and Specialty Retail combined median weighted by VICTORY, Finance Driven Retail median weighted by Buddy’s. and Unit Based Education median weighted by Sylvan Learning. ($Millions) (1) 27 |
| Preliminary Draft – Confidential Jefferies LLC / April 2023 EV / LTM EBITDA Analysis of Selected Transactions – Since 2017 ($Millions) Source: Company filings, Definitive Proxy Statements, press releases, Wall Street equity research. 28 Date Announced Target Acquiror Implied Enterprise Value Implied TEV / LTM EBITDA Pet Retail Jan-21 Pet Supplies Plus Franchise Group $700 8.8x Nov-18 Greencross TPG Capital $970 10.0x Home & Furniture Jan-22 Mattress Warehouse Wynnchurch Capital ND ND Nov-21 W.S. Badcock Franchise Group $580 4.2x Nov-21 Casper Sleep Durational Capital Management $332 ND May-21 At Home Hellman & Friedman $2,830 7.9x May-21 Dreams Tempur + Sealy $475 6.3x Dec-19 American Freight Franchise Group $450 7.3x Jan-17 Art Van Furniture Thomas H. Lee Partners $550 ND Beauty, Health & Wellness Jun-20 GNC Corporation Harbin Pharmaceutical Group $760 6.9x Aug-19 The Vitamin Shoppe Franchise Group $208 3.8x Jun-17 Whole Foods Amazon $13,733 10.3x Jun-17 The Body Shop Natura Cosmeticos $1,120 13.0x Finance Driven Retail Dec-20 Acima Rent-a-Center $1,650 7.3x Specialty Retail Apr-22 BrandsMart U.S.A The Aaron's Company $230 5.0x Oct-23 Diamonds Direct Signet Jewlers $490 7.1x Apr-21 West Marine L Catterton ND ND Mar-21 The Michael's Companies Apollo Global Management $4,524 6.8x Dec-20 Sportsman's Warehouse Holdings, Inc. Great Outdoors Group, LLC $792 6.0x Sep-20 ServiceMaster Brands Roark Capital Group $1,500 ND Sep-20 JCPenney Brookfield / Simon $800 3.9x Aug-19 Party City (Canada) Canadian Tire $131 10.2x Jun-19 Barnes & Noble Elliott Management Advisors $683 5.7x Apr-19 Smart and Final Apollo Global Management $1,100 ND Oct-18 Marshall Retail Group WH Smith plc $400 ND Jun-17 Staples Sycamore Partners $6,593 5.4x Apr-17 Cabela's Bass Pro Group $4,580 10.4x Jan-17 Leslie's Poolmart L Catterton ND ND Unit Based Education Jun-22 The Goddard School Sycamore Partners ~$1,100 22.0x Feb-22 Houghton Mifflin Harcourt Company Veritas Capital $2,666 9.9x Feb-22 Mathnasium Roark Capital ND ND Oct-21 Lakeshore Learning Leonard Green Partners ~$1,600 ND Overall Mean 8.1x Overall Median 7.2x |
| Preliminary Draft – Confidential Jefferies LLC / April 2023 Preliminary Sum-of-the-Parts Analysis – Pre and Post-MIP (For Reference Only) ($Millions, except per share data) Note: Share prices are rounded to the nearest $0.25. Source: Consolidated Long-Range Plan provided by FREEDOM management on April 13, 2023. (1) Considered 2024P EBITDA to value American Freight. (2) Badcock has been valued at 2023E EBITDA which is negative, so assumed to be zero for this analysis. (3) Management Incentive payoff reflects tax-effected optional liquidity exercise of incentive units in 2023 across relevant businesses of FREEDOM based on contractual multipliers. $39.25 $31.00 $36.25 $28.50 $1,153 8.5x 958 8.0x $260 5.5x $86 5.5x $91 6.5x - - $2,548 ($1,301) $1,118 ($93) $1,025 $1,289 9.5x $1,078 9.0x $307 6.5x $102 6.5x $104 7.5x - - $2,880 ($1,301) $1,415 ($104) $1,311 $136 $118 $47 (’24 (1)) $16 $14 NM(2) Low High 23E Adj. EBITDA Enterprise Value High Low Implied Share Price ~ -$2.75 / share (3) 29 |
| Preliminary Draft – Confidential Jefferies LLC / April 2023 $23.82 $16.50 $33.25 $47.50 $14.25 $24.50 $30.00 $0 $10 $20 $30 $40 $50 $60 2022A 2023P 2024P 2025P NTM EBITDA Multiple: 6.5x (Current) NTM EBITDA Multiple: 7.1x (3 Year Average) Present Value as of Dec 31, 2022 Illustrative Theoretical Future Stock Price (Pre-MIP) (For Reference Only) Illustrative Present Value of Theoretical Future Stock Price Summary(1) Source: Consolidated Long-Range Plan provided by FREEDOM management on April 13, 2023. Wall Street Research and Wall Street estimates. (1) Present value of future stock price discounted at mid-point cost of equity of 16.5%. Future Value Net Debt FREEDOM NTM EBITDA American Freight NTM EBITDA Badcock NTM EBITDA $1,301M $269M $19M ($19M) $1,318M $297M $47M ($38M) $1,327M $382M $91M ($27M) $1,337M $456M $116M ($16M) ~ -$2.50 / share potential after-tax MIP payout ~ -$2.50 / share potential after-tax MIP payout $23.82 $21.50 $39.00 $54.25 $18.50 $28.75 $34.25 $0 $10 $20 $30 $40 $50 $60 2022A 2023P 2024P 2025P 30 |
| Preliminary Draft – Confidential Jefferies LLC / April 2023 Note: Share prices in sensitivity tables are rounded to the nearest $0.25. Source: Consolidated Long-Range Plan provided by FREEDOM management on April 13, 2023. (1) Bank Adjusted EBITDA (2) Tax rate based on effective tax rate as per management estimates. (3) Management Incentive Payoff reflects exercise of optional liquidity for each business segment in 2026. Levered Free Cash Flow Sensitivities Transaction Assumptions ◼ Illustrative transaction close on 12/31/2022 ◼ Pro Forma Leverage of 3.3x 2022 leverageable EBITDA(1) of $426 million (total debt of $1,381M) ─ New First Lien Term Loan @ S+500, 96 OID ─ Financing fees @ 2.25% ◼ December 31, 2026, exit at 7.0x 2026P Adj. EBITDA of $456 million ◼ Management promote of 10% Illustrative Financial Buyer Analysis (For Reference Only) ($ in millions, except per share data) Implied Price Per Share @ 7.25x 2026P EBITDA Multiple Total Lvg. Required IRR Multiple 20.0% 22.5% 25.0% 2.8x $25.75 $23.00 $20.25 3.3x $27.75 $25.00 $22.75 3.8x $29.50 $27.25 $25.00 Sources New First Lien TL @ S + 500 $1,405 Sponsor Equity 1,214 Cash from Balance Sheet 153 Total $2,772 Uses Purchase of FREEDOM Equity (~$30.00 / Sh) $1,081 Refinancing of FREEDOM Debt 1,381 Payment to Preferred Equity 136 Minimum Cash to BS 75 Transaction and Financing Fees 99 Total $2,772 Year Ending December 31, ($ Millions) 2023E 2024P 2025P 2026P EBITDA (pre-SBC) $266 $297 $382 $456 % Margin 6.3% 6.7% 7.8% 8.6% Less: Taxes(2) (31) (36) (56) (79) Less: NWC (Increase) / Decrease 125 38 (18) (41) Less: Change in Other Assets / Liabilities 28 (5) 13 3 Less: Capex (48) (42) (45) (45) Less: Illustrative After-Tax MIP Payout (3) - - - (166) Less: Cash Interest (106) (89) (74) (64) Less: Mandatory Amortization (14) (14) (14) (14) Levered Free Cash Flow $221 $148 $187 $51 Plus: Debt $1,170 $1,008 $806 $741 Less: Cash (75) (75) (75) (75) Net Debt $1,095 $933 $731 $666 Net Debt / EBITDA 4.1x 3.1x 1.9x 1.5x FCF (EBITDA - Capex) $218 $254 $337 $411 Implied Price Per Share @ 3.3x Debt / EBITDA Exit Required IRR Multiple 20.0% 22.5% 25.0% 6.5x $23.75 $21.25 $19.25 7.3x $27.75 $25.00 $22.75 8.0x $31.75 $29.00 $26.25 31 |
| Preliminary Draft – Confidential Jefferies LLC / April 2023 1-day Premiums 17% 30% 41% 19% 31% 52% $27.02 $29.91 $34.66 $26.53 $29.52 $32.04 25% 36% 55% Illustrative Selected M&A Premiums Overview – Based on Unaffected Stock Price (3/17/2023) (For Reference Only) Source: Refinitiv as of April 10, 2023. (1) Data represents 354 all-cash transactions with Total Enterprise Values at Announcement Date of $1.0 Billion to $5.0 Billion since 2010. Excludes real estate, energy & power and financial sector transactions. (2) Data represents 61 all-cash transactions with Total Enterprise Values at Announcement Date of $1.0 Billion to $5.0 Billion involving consumer and retail U.S. domiciled and publicly listed traded targets since 2010. (3) Implied price based on premiums applied to unaffected share price as at close of March 17, 2023. U.S. M&A All-Cash Transactions, Closed Since January 1, 2010 Median – All Industries(1) Median – Consumer & Retail(2) 21% 31% 47% Implied Price / FREEDOM Share(3) Implied Price / FREEDOM Share(3) 30-day Premiums $28.38 $31.00 $35.27 $27.52 $29.89 $33.39 25th Percentile Median 75th Percentile 25th Percentile Median 75th Percentile 25th Percentile Median 75th Percentile 25th Percentile Median 75th Percentile 32 |
| Preliminary Draft – Confidential Jefferies LLC / April 2023 Preliminary VICTORY Considerations 33 |
| Preliminary Draft – Confidential Jefferies LLC / April 2023 VICTORY Historical and Projected Financial Summary ($Millions) Source: VICTORY Long-Range Plan provided by VICTORY management on April 7, 2023. Historical Management Estimates (US $Ms) FY2022A FY2023E FY2024P FY2025P FY2026P FY2027P FY2028P '22A - '23E '23E - '28P Revenue Base $1,186 $1,242 $1,252 $1,261 $1,271 $1,281 $1,291 4.7% 0.8% Franchise 1 6 16 31 52 78 106 325.9% 79.2% B2B - - 5 17 36 60 84 - - 53rd Week 20 - - - - 35 - - - Total Revenue $1,207 $1,248 $1,272 $1,309 $1,359 $1,454 $1,481 3.4% 3.5% % Growth 3.0% 3.4% 1.9% 2.9% 3.9% 7.0% 1.9% Gross Profit Margin $540 $542 $548 $557 $567 $595 $591 0.4% 1.8% Gross Margin % 44.7% 43.4% 43.1% 42.5% 41.7% 40.9% 39.9% Total Operating Expenses $434 $432 $434 $433 $437 $448 $449 (0.4%) 0.8% % of Sales 35.9% 34.6% 34.1% 33.1% 32.2% 30.8% 30.3% Adjusted EBITDA Base $132 $137 $141 $143 $144 $145 $145 3.8% 1.2% Franchise (2) (2) (1) 1 3 5 8 (4.3%) - B2B - - (0) 1 4 7 10 - - 53rd Week (Adjustment) 4 - - - - 11 - - - Total Adjusted EBITDA $135 $136 $140 $145 $150 $168 $164 0.5% 3.8% Adjusted EBITDA Margin % 11.2% 10.9% 11.0% 11.1% 11.1% 11.6% 11.0% Total D&A $29 $26 $26 $21 $21 $21 $21 (10.6%) (4.1%) % of Sales 2.4% 2.1% 2.0% 1.6% 1.5% 1.4% 1.4% Total Capital Expenditures $14 $15 $15 $15 $14 $14 $14 6.1% (1.4%) % of Sales 1.2% 1.2% 1.2% 1.1% 1.0% 1.0% 1.0% CAGR 34 |
| Preliminary Draft – Confidential Jefferies LLC / April 2023 VICTORY Positioning and Highlights The Vitamin Shoppe® mission is to help our customers be their best selves, however they define it. We fulfill this promise and differentiate ourselves through Quality Innovation Expertise Source: Opportunity overview materials. 6 Driving Loyalty in a Category Built on Trust 7 Compelling Store Economics 3 Diversified Presence Across Attractive VMS Categories 5 Leading Omnichannel Retailer in Peer Group 2 Well-Positioned in Large and Growing Health & Wellness Industry 11 Growing and Margin-Enhancing Private Brand Program 1 Robust Geographic Footprint 9 Leveraging Omnichannel Capabilities to Maximize Customer Value 8 Highly Efficient Franchise-Driven New Store Strategy 12 Successful Implementation of Key Initiatives Under FRG Ownership 13 Strong Financial Performance With Multiple Growth Levers 4 Valued Retail Partner to Leading Wellness Brands 14 Experienced and Deep Management Team 10 Shifting Merchandising Strategy Towards High-Growth Sports Nutrition 35 |
| Preliminary Draft – Confidential Jefferies LLC / April 2023 Illustrative VICTORY Analysis at Various Prices Source: VICTORY Long-Range Plan provided by VICTORY management on April 7, 2023. (1) Corporate Capital Gains tax rate. (2) Management incentive plan payout calculated as (Purchase Price + $21.9 million – transaction costs)*11%. Transaction costs are held constant across purchase prices at $35 million per Freedom management. Various Theoretical Purchase Prices ($Millions) Illustrative Purchase Price (Gross) $900 $1,000 $1,100 $1,200 $1,300 $1,400 Adj. EBITDA Statistic Based on Purchase Price (Gross) FY2022A EBITDA $135 6.7x 7.4x 8.2x 8.9x 9.6x 10.4x FY2023E EBITDA $136 6.6x 7.4x 8.1x 8.9x 9.6x 10.3x FY2024P EBITDA $140 6.4x 7.1x 7.9x 8.6x 9.3x 10.0x Illustrative Purchase Price (Gross) $900 $1,000 $1,100 $1,200 $1,300 $1,400 Less: Taxes (21%)(1) (152) (173) (194) (215) (236) (257) Less: Management Incentive Plan(2) (81) (90) (98) (107) (116) (124) Illustrative Purchase Price (Net) $667 $737 $808 $878 $948 $1,019 Adj. EBITDA Statistic Based on Purchase Price (Net) FY2022A EBITDA $135 4.9x 5.5x 6.0x 6.5x 7.0x 7.6x FY2023E EBITDA $136 4.9x 5.4x 6.0x 6.5x 7.0x 7.5x FY2024P EBITDA $140 4.8x 5.3x 5.8x 6.3x 6.8x 7.3x Gross Net 36 |
| Preliminary Draft – Confidential Jefferies LLC / April 2023 Sensitivities Preliminary VICTORY Discounted Cash Flow Analysis (Pre-MIP) Source: VICTORY Long-Range Plan provided by VICTORY management on April 7, 2023. (1) Assumes depreciation equals capital expenditures in normalized terminal year. (2) EBITDA reflects addback of share-based compensation. (3) Effective tax rate of 25.78% per VICTORY management. (4) D&A in terminal year set equal to Capex. (5) Based on illustrative WACC of 11.85%. (6) Based on illustrative perpetuity growth rate of 3.0%. Based on illustrative WACC mid-point of 11.85%. (8) ($ in millions, except per share data) Year ending December 31, 2022 CAGR Normalized ($ Millions) 2023E 2024P 2025P 2026P 2027P 2028P 2023E - 2028P Terminal Year(1) Revenue $1,247.9 $1,272.1 $1,308.5 $1,359.0 $1,453.8 $1,480.7 3.5% $1,480.7 EBITDA(2) $135.6 $140.0 $144.9 $150.4 $168.0 $163.5 3.8% $163.5 % Margin 10.9% 11.0% 11.1% 11.1% 11.6% 11.0% 11.0% Less: D&A (25.9) (25.9) (21.0) (21.0) (21.0) (21.0) (14.3) EBIT $109.7 $114.1 $123.9 $129.4 $147.0 $142.5 5.4% $149.3 Less: Taxes(3) (28.3) (29.4) (31.9) (33.4) (37.9) (36.7) (38.5) Net Operating Profit After Tax (NOPAT) $81.4 $84.7 $91.9 $96.1 $109.1 $105.8 5.4% $110.8 Plus: D&A 25.9 25.9 21.0 21.0 21.0 21.0 14.3 Less: NWC (Increase) / Decrease 20.5 (1.2) (1.9) (2.7) (3.1) (3.2) (3.2) Unlevered CFO $127.8 $109.3 $111.0 $114.4 $127.0 $123.6 (0.7%) $121.8 Less: Capex(4) (15.3) (14.8) (14.5) (14.3) (14.3) (14.3) (14.3) Unlevered FCF $112.5 $94.6 $96.5 $100.1 $112.8 $109.3 (0.6%) $107.6 % Conversion 83.0% 67.6% 66.6% 66.6% 67.1% 66.9% 65.8% Present Value of Unlevered FCF(5) $106.4 $79.9 $72.9 $67.7 $68.1 $59.1 Terminal Value at 3% Growth Rate $1,324.4 Present Value of Terminal Value(6) $676.4 Sum of PV of Unlevered FCF $454.1 Total Enterprise Value $1,130.5 Implied Enterprise Value(7) Perpetuity Discount Rate Growth 11.25% 11.85% 12.50% 2.0% $1,121 $1,056 $994 3.0% $1,208 $1,131 $1,057 4.0% $1,320 $1,224 $1,136 Implied Terminal EBITDA Multiple(7) Perpetuity Discount Rate Growth 11.25% 11.85% 12.50% 2.0% 7.7x 7.2x 6.8x 3.0% 8.7x 8.1x 7.6x 4.0% 10.0x 9.2x 8.5x 37 |
| Preliminary Draft – Confidential Jefferies LLC / April 2023 Source: VICTORY Long-Range Plan provided by VICTORY management on April 7, 2023. (1) Leverageable EBITDA includes addbacks for litigation costs and settlements, right of use asset impairment, PF / CA Other, and offset by sale of owned properties. (2) Tax rate of 25.78% on financial projections provided by VICTORY management on April 7, 2023. (3) Net Debt / EBITDA based on full-year EBITDA. Levered Free Cash Flow Sensitivities Transaction Assumptions ◼ Illustrative transaction close on 12/31/2022 at 9.0x 2022A EBITDA entry multiple ◼ Pro Forma Leverage of 3.5x 2022A leverageable EBITDA(1) of $142.0M (total debt of $497M) ─ New First Lien Term Loan @ S+500, 96 OID ─ Average financing fees @ 2.25% ◼ December 31, 2027 exit at 9.0x 2027P EBITDA of $168.0M ◼ 10% management promote Illustrative VICTORY Financial Buyer Analysis (Pre-MIP) (For Reference Only) ($ in millions, except per share data) Implied Enterprise Value @ 9.0x 2027P EBITDA Total Lvg. Multiple 20.0% 22.5% 25.0% 3.0x $969 $911 $859 3.5x $1,000 $945 $897 4.0x $1,030 $979 $934 Required 5 Year IRR Implied Enterprise Value @ 3.5x Debt / EBITDA Exit Multiple 20.0% 22.5% 25.0% 8.0x $939 $890 $847 9.0x $1,000 $945 $897 10.0x $1,061 $1,000 $946 Required 5 Year IRR Sources New First Lien TL @ S + 500 $497 Sponsor Equity 773 Total $1,270 Uses Purchase of Victory TEV (Pre-MIP) $1,214 Cash to Balance Sheet 25 Transaction Fees 31 Total $1,270 Year Ending December 31, ($ Millions) 2023E 2024P 2025P 2026P 2027P EBITDA $135.6 $140.0 $144.9 $150.4 $168.0 % Margin 10.9% 11.0% 11.1% 11.1% 11.6% Less: Taxes(2) (19.1) (20.3) (24.9) (28.0) (34.7) Less: NWC (Increase) / Decrease 20.5 (1.2) (1.9) (2.7) (3.1) Less: Capex (15.3) (14.8) (14.5) (14.3) (14.3) Less: Cash Interest (44.8) (32.8) (24.9) (18.4) (9.9) Less: Mandatory Amortization (5.0) (5.0) (5.0) (5.0) (5.0) Levered Free Cash Flow $71.9 $65.9 $73.7 $82.2 $101.1 Plus: Debt $420.1 $349.2 $270.5 $183.4 $77.2 Less: Cash (25.0) (25.0) (25.0) (25.0) (25.0) Net Debt $395.1 $324.2 $245.5 $158.4 $52.2 Net Debt / EBITDA(3) 2.9x 2.3x 1.7x 1.1x 0.3x FCF (EBITDA - Capex) $120.3 $125.2 $130.4 $136.2 $153.8 38 |
| Preliminary Draft – Confidential Jefferies LLC / April 2023 Selected VICTORY Potential Strategic Buyers Potential Strategics Tier A Tier B While the nutrition industry lacks pure-play strategic acquirors of retail assets, we believe there would be potential strategic interest from large-scale retailers seeking to enter the high growth VMS sector with the category’s leading platform Contacted Parties. 39 |
| Preliminary Draft – Confidential Jefferies LLC / April 2023 Key Decision Point Accelerated Process Timeline to Non-binding Indications of Interest by Early to Mid-May Management Presentations Receive Final Bids Diligence Session with Management Special Committee Meeting (April 14th, 2023) Receive Preliminary Proposals Requirements: • Management Presentation near completion Distribute Marketing Information Packet Sign / Close Buyer Due Diligence Purchase Agreement Negotiations April May June July Banker-Led Buyer Education Management-Led Red Carpet Meetings Potential to adjust timeline based on motivation & preliminary feedback of buyers Requirements: • Data room complete • Quality of Earnings • Draft Purchase Agreement • Real-time performance updates • Tax benefits analysis (if any) Model Prep Preparation Active Process Formal Buyer Outreach Key Decision Point Key Decision Point ` Requirements: • Banker due diligence • Buyer outreach strategy finalized • Marketing Information Packet complete • Model & Valuation complete 40 |
| Preliminary Draft – Confidential Jefferies LLC / April 2023 Potential Next Steps for Discussion 41 |
| Preliminary Draft – Confidential Jefferies LLC / April 2023 Potential Next Steps For Discussion ◼ Deliver Special Committee’s official response to Bidder − Prepare for valuation discussion with Bidder as appropriate ◼ Continue ongoing outbound calls with remaining identified parties for FREEDOM and VICTORY ◼ Accelerate information gathering for Bidder and its financing partners diligence to allow for a transaction by early May − Populate electronic data room based on request lists received to date (business and legal) − Identify other key documents ◼ Establish process and timing for determining Brian Kahn’s potential willingness to participate in Bidder’s proposed transaction given rollover condition (or any other proposed transaction if relevant) ◼ Continue to pursue separate VICTORY discussions if confirmed by the Special Committee − Drafting of VICTORY marketing materials − VICTORY-specific data room ◼ Prepare for May 9 Board meeting In light of projected dividend constraints / suspension − Determine FREEDOM’s potential options beyond solely announcing dividend suspension: • Sign and announce a Sale of Company transaction with Bidder or potentially another party, if available • Announce a suspension of dividend together with review of strategic alternatives (e.g., public sale process or potential VICTORY divestiture) • Other ◼ Provide future updates to the Special Committee through May 9 Board meeting 42 |
| Preliminary Draft – Confidential Jefferies LLC / April 2023 Retail & Restaurants US Sponsor-Led Take-Private Transactions Over $200M(1) Source: Thomson SDC, S&P Capital IQ and Company Filings. Note: * Represents transaction was leaked before announcement. (1) Includes US sponsor-led leveraged buyouts with transaction values greater than $200 million since 8/1/2015. (2) Based on price bump of final offer price to initial offer price. (3) Casper had negative EBITDA at time of transaction. (4) Initial offer price used represents midpoint of initial offer range provided of $14.00 - $15.00. (5) Initial offer price used represents midpoint of initial offer range provided of $9.50 - $10.00. (6) Initial offer price used represents midpoint of initial offer range provided of $7.00 - $8.00. (7) Initial offer price used represents midpoint of initial offer range provided of $37.00 - $40.00. (8) Initial offer price used represents midpoint of initial offer range provided of $12.00 - $13.00. (9) Initial offer price used represents midpoint of initial offer range provided of $17.25 - $19.00. * * * * (3) FREEDOM BIDDER (4) (5) (6) (7) (8) (9) Announcement Date Implied Enterprise Value ($mil) Price Bump(2) Premium 1-Day Premium 1-Mo. EV / LTM EBITDA 03/17/23 $2,534 TBD 32% (0%) 8.2x 11/15/21 $330 (15%) 94% 64% NM 06/19/21 $13,700 25% 61% 59% 12.7x 05/06/21 $4,214 19% 18% 37% 6.6x 03/03/21 $3,222 15% 22% 44% 4.8x 06/24/19 $622 (18%) 19% 15% 42.4x 06/07/19 $670 (13%) 9% 28% 4.8x 04/17/19 $1,119 (13%) 21% 27% 13.2x 11/06/18 $736 (8%) 1% (2%) 11.2x 09/25/18 $2,249 13% 19% 26% 16.0x 02/20/18 $560 26% 25% 15% 10.5x 07/09/17 $2,180 (6%) 31% 25% 10.7x 06/29/17 $337 27% 34% 31% 7.7x 06/28/17 $6,452 (7%) 12% 14% 5.0x 08/21/15 $909 15% 15% 18% 12.1x Mean: $2,664 4.2% 27.2% 28.7% 12.1x Median: $1,014 3.7% 19.7% 26.6% 10.7x 43 |
| Preliminary Draft – Confidential Jefferies LLC / April 2023 Selected 13e-3 Transaction Precedents(1) (1) Represents 13 13e-3 take-private transactions with Total Enterprise Values at Announcement Date of $5.0 billion to $15.0 billion since 2010. Excludes real estate and financial sector transactions. Also represents 1 transaction that has been proposed but not announced. Filing/ Announcement Date Acquiror Target % Initially held Implied EV Change from Initial to Final Offer (%) Premium Over Unaffected Price (%) 1-Day Premium (%) 30-Day Premium (%) Premium Over 52- Week High (%) 3/20/2023 BIDDER FREEDOM 0% 2,534 TBD 32% 32% (0%) (32%) 10/24/2022 BDT Capital Partners Weber 48% 3,700 29% 60% 25% (4%) (64%) 6/21/2022 TPG Capital Convey Health Science 75% 1,100 N/A 143% 143% 23% (10%) 5/25/2022 Clayton, Dubilier & Rice; TPG Capital Covetrus 24% 4,000 N/A 17% 7% 34% (26%) 3/7/2022 Clayton, Dubilier & Rice Cornerstone Building Brands 49% 6,159 7% 75% 82% 125% 6% 8/19/2021 Nordic Capital; Insight Partners Inovalon N/A 7,315 (3%) 10% 10% 26% 108% 4/26/2021 Standard Industries W. R. Grace 15% 6,436 17% 59% 9% 15% 7% 1/27/2021 Peraton Perspecta 15% 7,273 1% 50% 12% 22% (0%) 1/30/2020 Dusk Navistar 17% 8,551 27% 85% 85% 54% 13% 11/6/2019 Marubeni; Mizuho Leasing Aircastle 29% 7,381 16% 34% 16% 47% 15% 8/27/2019 GIC Special Investments; Blackstone; Enagás; National Pension Service Tallgrass Energy 44% 10,185 15% 56% 52% 7% (14%) 4/2/2019 UGI AmeriGas 75% 6,149 10% 14% 13% 27% (19%) 1/22/2018 Celgene Juno Therapeutics 10% 9,556 N/A 78% 28% 89% 17% 7/28/2016 Oracle NetSuite 41% 8,697 9% 52% 19% 58% 9% 25th Percentile 6% 25% 11% 18% (17%) Median 13% 56% 19% 27% 6% 75th Percentile 19% 77% 67% 56% 14% 44 |
| Preliminary Draft – Confidential Jefferies LLC / April 2023 Appendix 45 |
| Preliminary Draft – Confidential Jefferies LLC / April 2023 Historical and Projected FREEDOM Financial Summary Source: Consolidated Long-Range Plan provided by FREEDOM management on April 13, 2023. Management Estimates CAGR ($Millions) FY2020A FY2021A FY2022A FY2023E FY2024P FY2025P FY2026P '20A - '23E '23E - '26P Revenue American Freight $945 $989 $883 $912 $985 $1,145 $1,262 (1.2%) 11.4% Badcock 899 907 716 596 591 660 730 (12.8%) 7.0% Buddy's 97 64 57 57 60 67 73 (16.5%) 8.6% Pet Supplies Plus 846 1,121 1,289 1,372 1,475 1,648 1,859 17.5% 10.7% Sylvan 26 38 42 42 45 48 51 17.4% 6.4% Vitamin Shoppe 1,036 1,173 1,207 1,248 1,272 1,309 1,359 6.4% 2.9% Total Revenue $3,850 $4,292 $4,195 $4,227 $4,428 $4,876 $5,334 3.2% 8.1% % Growth 5.2% 11.5% (2.3%) 0.8% 4.7% 10.1% 9.4% Total COGS $2,096 $2,410 $2,519 $2,584 $2,743 $3,001 $3,283 7.2% 8.3% Contribution Margin $1,754 $1,882 $1,676 $1,643 $1,685 $1,875 $2,050 (2.2%) 7.7% % Margin 45.6% 43.9% 39.9% 38.9% 38.1% 38.5% 38.4% Total Operating Expenses $1,496 $1,467 $1,430 $1,392 $1,424 $1,501 $1,574 (2.4%) 4.2% Total EBITDA $234 $490 $288 $244 $281 $366 $440 1.5% 21.7% % Margin 6.1% 11.4% 6.9% 5.8% 6.3% 7.5% 8.3% Adjusted EBITDA American Freight $109 $97 $4 $19 $47 $91 $116 (44.0%) 82.3% Badcock $106 $85 $84 ($19) ($38) ($27) ($16) nm (4.5%) Buddy's $27 $18 $16 $16 $16 $20 $24 (16.3%) 15.3% Pet Supplies Plus $76 $93 $115 $120 $134 $157 $185 16.3% 15.6% Sylvan $6 $12 $14 $14 $15 $16 $17 36.2% 7.8% Vitamin Shoppe $78 $137 $135 $136 $140 $145 $150 20.4% 3.5% Total Adjusted EBITDA $395 $438 $354 $269 $297 $382 $456 (12.0%) 19.2% % Margin 10.3% 10.2% 8.4% 6.4% 6.7% 7.8% 8.6% Total D&A $111 $86 $77 $74 $76 $72 $72 (12.5%) (1.1%) Total Capital Expenditures $59 $66 $51 $48 $42 $45 $45 (6.6%) (2.4%) % Margin 1.5% 1.5% 1.2% 1.1% 1.0% 0.9% 0.8% 46 |
| Preliminary Draft – Confidential Jefferies LLC / April 2023 Ownership Summary by Fund Type No. of No. of % of Institutions Shares Institutional Institutions Value 10 2,222,040 15.3% Value 7 1,499,403 10.3% Income 2 687,682 4.7% GARP 1 34,955 0.2% Growth 4 23,818 0.2% Other 137 12,312,579 84.6% Generalist 96 5,094,055 35.0% Index Fund 13 4,474,395 30.7% Hedge Fund 27 2,742,163 18.8% Specialty 1 1,966 <0.1% Total 151 14,558,437 100.0% % Equity Investor Name Shares ($mm) Outstanding Assets ($MM) Style Fidelity Management & Research Co. LLC 1,827,999 $48.4 5.2% $1,072,307 Generalist BlackRock Fund Advisors 1,648,134 43.6 4.7% 2,713,676 Index Royce & Associates LP 1,406,570 37.2 4.0% 10,941 Value The Vanguard Group, Inc. 1,279,675 33.9 3.6% 4,289,574 Index Cannell Capital LLC 754,560 20.0 2.1% 500 Hedge Fund American Money Management Corp. 686,115 18.2 2.0% 616 Income SSgA Funds Management, Inc. 680,231 18.0 1.9% 1,795,732 Index Dimensional Fund Advisors LP 609,516 16.1 1.7% 432,517 Generalist Allspring Global Investments LLC 554,316 14.7 1.6% 84,260 Generalist Geode Capital Management LLC 512,035 13.6 1.5% 864,260 Index Marshall Wace LLP 435,762 11.5 1.2% 38,870 Hedge Fund Solas Capital Management LLC 259,700 6.9 0.7% 167 Hedge Fund Victory Capital Management, Inc. (Investment Management) 243,526 6.4 0.7% 103,455 Generalist Northern Trust Investments, Inc.(Investment Management) 232,392 6.2 0.7% 460,318 Index Charles Schwab Investment Management, Inc. 196,582 5.2 0.6% 432,004 Generalist Kent Lake Capital LLC 142,239 3.8 0.4% 169 Hedge Fund Squarepoint OPS LLC 136,111 3.6 0.4% 14,099 Hedge Fund Citadel Advisors LLC 132,180 3.5 0.4% 62,536 Hedge Fund Samjo Capital LLC 132,000 3.5 0.4% 111 Hedge Fund AWM Investment Co., Inc. 131,912 3.5 0.4% 715 Hedge Fund FIAM LLC 115,372 3.1 0.3% 89,783 Generalist Graham Capital Management LP 105,907 2.8 0.3% 2,573 Hedge Fund Prelude Capital Management LLC 90,401 2.4 0.3% 1,627 Hedge Fund Teachers Advisors LLC 90,144 2.4 0.3% 134,912 Generalist Renaissance Technologies LLC 75,869 2.0 0.2% 74,730 Hedge Fund Total of Top 25 Institutions: 12,479,248 $330.3 35.5% Other Institutions 2,079,189 $55.0 5.9% Total Institutions 14,558,437 $385.4 41.4% Vintage Capital Management LLC 10,176,543 $269.4 29.0% Brian Randall Kahn 2,053,753 54.4 5.8% Andrew M Laurence 418,881 11.1 1.2% Total of Top 3 Insiders: 12,649,177 $334.8 36.0% Other Insiders 281,188 $7.4 0.8% Total Insiders 12,930,365 $342.3 36.8% Total Retail 7,659,762 $202.8 21.8% Total 35,148,564 $930.4 100.0% Position Shareholder Base Analysis Investor Breakdown Regional Breakdown Source: FactSet; Bloomberg. Account holdings are based on 13F filings (as of 12/31/22 or most recent available). Insider holdings based on Proxy and Form 4 filings. Current Stockholder Overview NASDAQ: FRG Top 25 Institutions 36% Other Institutions 6% Top 3 Insiders 36% Other Insiders 1% Retail 22% NY 28% CA 6% MA 7% TX 2% Mid-Atlantic 12% Mid-West 14% Int'l 15% Other 16% 47 |
| Preliminary Draft – Confidential Jefferies LLC Member SIPC The information provided in this document, including valuation discussions, represents the views of Jefferies Investment Banking. There is no assurance that the views expressed herein will be consistent with the views expressed by Jefferies Research or its Analysts. Nothing in this document should be understood as a promise or offer of favorable research coverage. Project FREEDOM Preliminary Materials for Discussion April 2023 / Confidential |
| Preliminary Draft – Confidential Jefferies LLC / April 2023 Summary of Outreach to Date FREEDOM & VICTORY Interested / Sent NDA: 5 11 Parties Contacted 0 Parties in Process Contacted Parties (11) Interested / Sent NDA: 2 7 Parties Contacted 0 Parties In Process VICTORY Only VICTORY Only (7) 5 Parties Passed 6 Parties Passed Parties interested in / have received NDA Brandon Short 1 |
| Preliminary Draft – Confidential Jefferies LLC / April 2023 FREEDOM FREEDOM Illustrative VICTORY Purchase Price ($Millions) Status Quo(1) Pro Forma $900 $1,000 $1,100 $1,200 $1,300 $1,400 Implied Purchase Price Multiple (2) 7.0x 7.8x 8.6x 9.4x 10.2x 10.9x Less: Management Incentive Units Payoff (3) (98) (109) (120) (131) (142) (153) Less: Taxes (4) (152) (173) (194) (215) (236) (257) Net Sale Proceeds $650 $718 $786 $854 $922 $990 Implied Net Purchase Price Multiple (2) 5.1x 5.6x 6.1x 6.7x 7.2x 7.7x Debt Paydown ($650) ($718) ($786) ($854) ($922) ($990) LTM Q2 2023 Pro Forma Net Debt(5) $1,391 $741 $673 $605 $537 $469 $401 Time Period Bank Adj. EBITDA Leverage Ratio(6) Bank Adj. EBITDA Post Transaction Leverage Ratio (6) LTM Q2 2023 $351 3.97x $216 3.44x 3.12x 2.81x 2.49x 2.18x 1.86x FREEDOM FREEDOM FY 2023 FY 2023 ($Millions) Status Quo Pro Forma(7) Required Pro Forma Multiple to Maintain Unaffected Stock Price(8) Revenue $4,227 $2,979 13.4x 12.9x 12.4x 11.9x 11.4x 10.9x Adjusted EBITDA 269 134 % Margin 6.4% 4.5% Free Cash Flow(9) $221 $96 Sale of VICTORY Impact – Pro Forma Leverage Ratio Could Restore Ability to Pay Dividend Source: Consolidated Long-Range Plan (“the “LRP”) provided by FREEDOM management on April 13, 2023. (1) FREEDOM status quo based of LTM Q2 2023 figures per the LRP. (2) Based on VICTORY LTM Q2 2023 Adjusted EBITDA of $127.9 million (includes executive severance and related costs, litigation costs and settlements, right-of-use asset impairment and sale of owned properties). (3) Based on 11% of exit event proceeds minus transaction costs of $35.0 million plus company value of $21.9 million as defined by the Management Incentive Unit plans provided by FREEDOM management. (4) Corporate tax gains rate of 21% applied to pre-tax sales proceeds in excess of asset tax basis of $175.3 million. (5) Net Debt is calculated as net of up to $150 million of unrestricted cash and cash equivalents. (6) Leverage ratio is calculated as Net Debt / Adjusted Bank EBITDA. (7) Reflects pro forma company after divestiture of VICTORY. (8) Calculated as FREEDOM enterprise value as of April 12, 2023, minus net proceeds over pro forma adjusted EBITDA. (9) Free cash flow calculated as Adjusted EBITDA less CapEx. vs. Unaffected multiple of 6.5x consensus and implied current multiple of 9.1x as per the LRP A VICTORY divestiture, net of transaction tax leakage and MIP pay out, has the potential to restore dividend related covenant compliance Restricted Payments Covenant – 2.81x 2 |
| Preliminary Draft – Confidential Jefferies LLC / April 2023 FREEDOM FREEDOM Illustrative VICTORY Purchase Price ($Millions) Status Quo Pro Forma $900 $1,000 $1,100 $1,200 $1,300 $1,400 Implied Purchase Price Multiple (1) 7.0x 7.8x 8.6x 9.4x 10.2x 10.9x Less: Management Incentive Units Payoff (2) (98) (109) (120) (131) (142) (153) Less: Taxes (3) (152) (173) (194) (215) (236) (257) Net Sale Proceeds $650 $718 $786 $854 $922 $990 Implied Net Purchase Price Multiple (1) 5.1x 5.6x 6.1x 6.7x 7.2x 7.7x Debt Paydown ($650) ($718) ($786) ($854) ($922) ($990) Pro Forma Net Debt (4) LTM Q2 2023 $1,391 $741 $673 $605 $537 $469 $401 LTM Q3 2023 1,391 740 672 604 536 468 400 FY 2023 1,390 740 672 604 536 468 400 LTM Q1 2024 1,383 732 664 596 528 460 392 Status Quo Pro Forma Time Period Bank Adj. EBITDA Leverage Ratio(5) Bank Adj. EBITDA Post Transaction Leverage Ratio (5) LTM Q2 2023 $351 3.97x $216 3.44x 3.12x 2.81x 2.49x 2.18x 1.86x LTM Q3 2023 $329 4.23x $197 3.76x 3.42x 3.07x 2.73x 2.38x 2.04x FY 2023 $292 4.76x $157 4.73x 4.29x 3.86x 3.42x 2.99x 2.55x LTM Q1 2024 $316 4.37x $176 4.17x 3.78x 3.39x 3.01x 2.62x 2.23x Sale of VICTORY Impact – Pro Forma Leverage Ratio Could Restore Ability to Pay Dividend Source: Consolidated Long-Range Plan (“the “LRP”) provided by FREEDOM management on April 13, 2023. (1) Based on VICTORY LTM Q2 2023 Adjusted EBITDA of $127.9 million (includes executive severance and related costs, litigation costs and settlements, right-of-use asset impairment and sale of owned properties). (2) Based on 11% of exit event proceeds minus transaction costs of $35.0 million plus company value of $21.9 million as defined by the Management Incentive Unit plans provided by FREEDOM management. (3) Corporate tax gains rate of 21% applied to pre-tax sales proceeds in excess of asset tax basis of $175.3 million. (4) Net Debt is calculated as net of up to $150 million of unrestricted cash and cash equivalents. (5) Leverage ratio is calculated as Net Debt / Adjusted Bank EBITDA. A VICTORY divestiture, net of transaction tax leakage and MIP pay out, has the potential to restore dividend related covenant compliance at certain valuations Restricted Payments Covenant – 2.81x 3 |
| Preliminary Draft – Confidential Jefferies LLC Member SIPC The information provided in this document, including valuation discussions, represents the views of Jefferies Investment Banking. There is no assurance that the views expressed herein will be consistent with the views expressed by Jefferies Research or its Analysts. Nothing in this document should be understood as a promise or offer of favorable research coverage. Project FREEDOM Preliminary Materials for Discussion April 26, 2023 / Confidential |
| Preliminary Draft – Confidential Jefferies LLC / April 2023 Disclaimer The following pages contain material provided to the Special Committee (the “Special Committee”) of the Board of Directors (the “Board”) of FREEDOM (the “Company”) by Jefferies LLC (“Jefferies”) in connection with Project FREEDOM. These materials were prepared on a confidential basis in connection with an oral presentation to the Special Committee and not with a view toward complying with the disclosure standards under state or federal securities laws or otherwise. These materials are solely for use of the Special Committee in its evaluation of the proposed transaction and may not be used for any other purpose or disclosed to any party without Jefferies’ prior written consent. The information contained in this presentation was based solely on publicly available information or information furnished to Jefferies by the Company. Jefferies has relied, without independent investigation or verification, on the accuracy, completeness and fair presentation of all such information and the conclusions contained herein are conditioned upon such information (whether written or oral) being accurate, complete and fairly presented in all respects. None of Jefferies, its affiliates or its or their respective employees, directors, officers, contractors, advisors, members, successors or agents makes any representation or warranty in respect of the accuracy, completeness or fair presentation of any information or any conclusion contained herein. Jefferies, its affiliates and its and their respective employees, directors, officers, contractors, advisors, members, successors and agents shall have no liability with respect to any information or matter contained herein, or any oral information provided herewith or data any of them generates. Jefferies undertakes no obligation to update these materials. Neither Jefferies nor any of its affiliates is an advisor as to legal, tax, accounting or regulatory matters in any jurisdiction. This presentation is a preliminary analysis only and does not constitute a fairness opinion of Jefferies as to the value of the Company, and as such, should not be relied upon by the Company or by any other person as such. The financial data, analyses and assumptions reflected here remain subject to refinement and change based on further discussions and information regarding FREEDOM’s businesses and its financial and operating markets. i |
| Preliminary Draft – Confidential Jefferies LLC / April 2023 Summary of Outreach to Date FREEDOM & VICTORY Interested 0 11 Parties Contacted 1 Parties in Process Contacted Parties (11) Interested 2 7 Parties Contacted 0 Parties In Process VICTORY Only VICTORY Only (7) 5 Parties Passed 10 Parties Passed Parties interested / in process Brandon Short 1 |
| Preliminary Draft – Confidential Jefferies LLC / April 2023 Detailed Summary of Outreach to Date 2 Company Initial Contact Banker Discussion NDA Executed Management Meeting Commentary Company FREEDOM + VICTORY Active Parties Sponsors Elliott a a Continue to review internally Total Sponsors (1) 1 1 - - VICTORY ONLY Active Parties Strategics Brandon Short a a Requested updated proposal / source of funds pre-NDA Najafi Companies a a a Awaiting next steps Total Strategics (2) 2 2 1 - Declined Parties Sponsors Apollo a a Less attractive collection of businesses Ares a a Not a good fit / negative view on supplements Bain Capital a a a a Will not be able to meet timing given other assets in the market Cerberus a a Getting to more than $30 looks "challenging" CD&R a a "This one isn't going to be for us" L Catterton a a Platinum a a a "At $30/share, the business feels fully valued to us" Roark Capital a a Not an opportunity they could pursue at this time given other commitments and lack of sufficient franchising Sycamore Partners a a a a Will not pursue on our timeline; May be more interested in certain pieces over time TA Associates a a a a Interested in PSP / Sylvan; Much less interest in home / furniture which are soft Total Sponsors (10) 10 10 4 3 Strategics CVS / Aetna a a As expected, "this one isn't for us" Kroger a a Unlikely now given existing priorities (i.e., Albertsons' merger) Letterone / Holland & Barrett a a Do not have the capital availability to pursue Sprouts a a Not an opportunity they could pursue at this time Walgreens a a Potentially interested given relevance in category however, this is not something they have tracked and are prioritizing other strategic initiatives and capital allocations Total Strategics (5) 5 5 - - |
| Preliminary Draft – Confidential Jefferies LLC / April 2023 Illustrative Analysis at Various Prices Source: S&P Capital IQ as of April 25, 2023, and Consolidated Long-Range Plan provided by FREEDOM management on April 13, 2023. (1) Fully diluted shares outstanding comprised of 34,925,773 shares of common stock, 239,564 stock options outstanding and exercisable at various strike prices, 505,987 restricted stock units and 426,541 performance restricted stock units as provided by FREEDOM management on April 13, 2023. FREEDOM Share Price Various Theoretical Purchase Prices ($Millions, except price per share) (4/25/23) Illustrative Stock Price per Share $28.00 $30.00 $31.00 $32.00 $33.00 $34.00 $35.00 Implied Fully Diluted Shares Outstanding(1) 36.0 36.0 36.0 36.0 36.0 36.0 36.0 Market Capitalization $1,008 $1,081 $1,117 $1,153 $1,189 $1,226 $1,262 Plus: Total Debt (Q1'23) 1,489 1,489 1,489 1,489 1,489 1,489 1,489 Plus: Preferred Equity 127 136 141 145 150 154 159 Transaction Value 2,624 2,706 2,747 2,787 2,828 2,869 2,909 Less: Cash and Cash Equivalents (153) (153) (153) (153) (153) (153) (153) Total Enterprise Value $2,471 $2,553 $2,594 $2,634 $2,675 $2,716 $2,756 Illustrative Price Bump Analaysis Incremental Equity - - +$36 +$72 +$108 +$144 +$181 Price per Share % - - +3.3% +6.7% +10.0% +13.3% +16.7% Enterprise Value % - - +1.6% +3.2% +4.8% +6.4% +8.0% Implied Premiums FREEDOM Statistic Implied Premium to Current Stock Price $28.00 - 7.1% 10.7% 14.3% 17.9% 21.4% 25.0% (Discount) / Premium to Unaffected Stock Price (as of 3/17/23) $22.75 23.1% 31.9% 36.3% 40.7% 45.1% 49.5% 53.8% (Discount) / Premium to 30 day VWAP (as of 3/17/23) $28.76 (2.6%) 4.3% 7.8% 11.3% 14.7% 18.2% 21.7% (Discount) / Premium to 90 day VWAP (as of 3/17/23) $27.02 3.6% 11.0% 14.7% 18.4% 22.1% 25.8% 29.5% (Discount) / Premium to 52-Week High $44.25 (36.7%) (32.2%) (29.9%) (27.7%) (25.4%) (23.2%) (20.9%) Managament Adj. EBITDA TEV / Adj. EBITDA FY2022A EBITDA $354 7.0x 7.2x 7.3x 7.4x 7.6x 7.7x 7.8x FY2023E EBITDA $269 9.2x 9.5x 9.6x 9.8x 9.9x 10.1x 10.2x FY2024P EBITDA $297 8.3x 8.6x 8.7x 8.9x 9.0x 9.1x 9.3x 3 |
| Preliminary Draft – Confidential Jefferies LLC / April 2023 $26.50 $27.00 $19.25 $30.00 $31.00 $8.50 $15.50 $10.25 $9.25 $25.75 $32.00 $34.75 $31.75 $34.25 $39.25 $19.50 $28.00 $22.50 $20.50 $36.00 $0.00 $10.00 $20.00 $30.00 $40.00 Net of MIP(1) ~ $23.00 Current Price (4/25/23): $28.00 Methodology Metrics Preliminary Financial Analyses Summary – As of April 14, 2023 Implied Enterprise Value / For Informational Purposes Only All Industries (354) Transactions) Historical Premium Analysis Consumer / Retail (61) Transactions) 2022A Mgmt Adj. EBITDA of $354M Financial Buyer Analysis 2023E Mgmt Adj. EBITDA of $269M Source: Consolidated Long-Range Plan provided by FREEDOM management on April 13, 2023. Note: Fully diluted shares outstanding comprised of 34,925,773 shares of common stock, 239,564 stock options outstanding and exercisable at various strike prices, 505,987 restricted stock units and 426,541 performance restricted stock units as provided by FREEDOM management on April 13, 2023. (1) Reflects impact of MIP Payout net of taxes on a per share basis. Unaffected Share Price (3/17/23): $22.75 Sum of the Parts Pre-MIP Discounted Cash Flow Analysis Perpetuity Growth Method Selected Public Companies Analysis 2023E Adj. EBITDA Multiple Selected Transactions Analysis 2023E Adj. EBITDA Multiple ◼ Discount rate of 12.75% - 13.75% and perpetuity growth rate of 2.5% - 3.5% ◼ 6.5x – 8.0x 2023E Adj. EBITDA ─ 2023E Mgmt Adj. EBITDA of $269M ◼ 6.5x – 8.0x 2023E Adj. EBITDA ─ 2023E Mgmt Adj. EBITDA of $269M ◼ 25th and 75th Percentile 1-day premiums to unaffected share price ($22.75) as of 3/17/23 ◼ 25th and 75th Percentile 1-day premiums to unaffected share price ($22.75) as of 3/17/23 ◼ 20% - 25% IRR, 6.5x – 8.0x exit multiple, 3.3x leverage ◼ Based on various EBITDA multiple ranges for respective businesses Discounted Stock Price ◼ NPV of theoretical future stock price trading based on unaffected (6.5x) and average (7.1x) NTM (2026) EBITDA and 16.5% cost of equity (midpoint) Q1 2023E Adj. EBITDA Multiple ◼ 6.5x – 8.0x LTM Q1 2023E Adj. EBITDA ─ Q1 2023E Mgmt Adj. EBITDA of $309M Offer Price (3/20/23): $30.00 2024P Adj. EBITDA Multiple ◼ 6.0x – 7.5x 2024P Adj. EBITDA ─ 2024P Mgmt Adj. EBITDA of $297M 4.1x 5.1x 6.1x 7.2x 8.4x 5.4x 6.7x 8.1x 9.5x 11.0x Net of MIP (1) ~ $28.25 Net of MIP (1) ~ $27.50 4 |
| Preliminary Draft – Confidential Jefferies LLC Member SIPC The information provided in this document, including valuation discussions, represents the views of Jefferies Investment Banking. There is no assurance that the views expressed herein will be consistent with the views expressed by Jefferies Research or its Analysts. Nothing in this document should be understood as a promise or offer of favorable research coverage. Project FREEDOM Preliminary Materials for Discussion April 27, 2023 / Confidential |
| Preliminary Draft – Confidential Jefferies LLC / April 2023 Disclaimer The following pages contain material provided to the Special Committee (the “Special Committee”) of the Board of Directors (the “Board”) of FREEDOM (the “Company”) by Jefferies LLC (“Jefferies”) in connection with Project FREEDOM. These materials were prepared on a confidential basis in connection with an oral presentation to the Special Committee and not with a view toward complying with the disclosure standards under state or federal securities laws or otherwise. These materials are solely for use of the Special Committee in its evaluation of the proposed transaction and may not be used for any other purpose or disclosed to any party without Jefferies’ prior written consent. The information contained in this presentation was based solely on publicly available information or information furnished to Jefferies by the Company. Jefferies has relied, without independent investigation or verification, on the accuracy, completeness and fair presentation of all such information and the conclusions contained herein are conditioned upon such information (whether written or oral) being accurate, complete and fairly presented in all respects. None of Jefferies, its affiliates or its or their respective employees, directors, officers, contractors, advisors, members, successors or agents makes any representation or warranty in respect of the accuracy, completeness or fair presentation of any information or any conclusion contained herein. Jefferies, its affiliates and its and their respective employees, directors, officers, contractors, advisors, members, successors and agents shall have no liability with respect to any information or matter contained herein, or any oral information provided herewith or data any of them generates. Jefferies undertakes no obligation to update these materials. Neither Jefferies nor any of its affiliates is an advisor as to legal, tax, accounting or regulatory matters in any jurisdiction. This presentation is a preliminary analysis only and does not constitute a fairness opinion of Jefferies as to the value of the Company, and as such, should not be relied upon by the Company or by any other person as such. The financial data, analyses and assumptions reflected here remain subject to refinement and change based on further discussions and information regarding FREEDOM’s businesses and its financial and operating markets. i |
| Preliminary Draft – Confidential Jefferies LLC / April 2023 Illustrative Payouts in 2026 Vitamin Shoppe Pet Supplies Plus Sylvan American Freight Monetization Scenario Change of Control(1) Optional Liquidity Optional Liquidity Optional Liquidity Contractual EBITDA for 2026 Payout (5) $150.4 $184.9 $17.5 $116.3 Contractual Multiplier (6) 9.0x 6.5x 7.0x 5.6x Implied EV $1,353.6 $1,201.6 $122.2 $651.3 Less: Invested Capital 21.9 (350.0) (40.5) (230.0) Less: Contractual Debt / Transaction Costs (35.0) (174.1) (6.8) (295.5) Incremental EV $1,340.5 $677.5 $74.9 $125.8 % of Equity Value (7) 11.0% 10.0% 6.7% 0.0% MIP Payout(8) $147.5 $67.8 $5.0 $0.0 MIP Payout / Share (Net of Tax)(9) $3.36 $1.39 $0.10 $0.00 Present Value of MIP Payout / Share (Net of Tax)(10)(11) $2.04 $0.85 $0.06 $0.00 Total Payout $220.2 Payout (Net of Tax)(9) 174.9 Payout / Share $4.86 Payout / Share (Present Value)(10) $2.95 Several of FREEDOM’s businesses have a Management Incentive Plan (MIP) in place representing ~10% of the equity value upon a change of control (net of certain adjustments including debt and contributed capital)(1) MIPs are triggered upon a change of control of Vitamin Shoppe, Pet Supplies Plus, Sylvan and American Freight businesses – but not upon a change in control(2) of the parent company Current obligations under MIPs cannot be changed by Company unilaterally(3)(4) Pet Supplies Plus, Sylvan and American Freight plans have an optional liquidity provision, but Vitamin Shoppe does not For preliminary valuation purposes, MIPs are analyzed as an aggregate payout in 2026, and are discounted to present value as part of the DCF analysis, such that all of the value of the Company’s businesses would be 100% owned by existing shareholders Description Commentary & Assumptions Additional Detail Regarding FREEDOM Management Incentive Plans (1) Additionally, Buddy’s CEO owns a 1.5% stake that can only be monetized in a sale. This is a verbal agreement. (2) Change of Control in HoldCo does not trigger a liquidity event for the individual Operating Company plans. Vesting accelerates upon a Change of Control. (3) For Pet Supplies Plus and Sylvan, Company may terminate and liquidate the Plan in accordance with Code Section 409A in connection with a Change in Control. (4) Option to amend is applicable except with respect to outstanding awards. (5) Contractual EBITDAs are Reported Adjusted EBITDAs of individual segments in Consolidated LRP provided by FREEDOM Management on April 13, 2023. (6) Reflects an illustrative valuation multiple for VICTORY in a sale transaction. (7) % Vested reflects both Time Vested and Performance Vested Units. (8) Payout for American Freight is zero due to projected underperformance of the business. (9) Applied effective tax rate of 26% as per management estimates. (10) Based on illustrative WACC of 13.25%. (11) Payments above $1mm made to the former Vitamin Shoppe CEO as part of this plan are not tax deductible. ($Millions, except price per share) Vitamin Shoppe Incentive Unit Plan Details Pet Supplies Plus Incentive Unit Plan Details Represents 11% of Vitamin Shoppe Equity Value in a change in control scenario Currently fully vested given Vitamin Shoppe performance and timing Does not have Optional Liquidity provision Represents 10% of Pet Supplies Plus Equity Value in a scenario where there is a change in control / optional liquidity exercise 1/3rd are time vested – Vest if one is employed for three years by March 2024 2/3rd are performance vested – Vest subject to a performance goal and if employed till March 2025 Optional liquidity available for both time and performance vested units in 2025 and 2026 Today @ 9.0x Sale: $3.00 1 |
| Preliminary Draft – Confidential Jefferies LLC / April 2023 $26.50 $27.00 $19.25 $30.00 $31.00 $8.50 $15.50 $10.25 $9.25 $25.75 $32.00 $34.75 $32.00 $34.25 $39.25 $19.50 $28.00 $22.50 $20.50 $36.00 $5.00 $15.00 $25.00 $35.00 $45.00 Net of MIP(1) ~ $23.00 Current Price (4/25/23): $28.00 Methodology Metrics Preliminary Financial Analyses Summary – As of April 14, 2023 Implied Enterprise Value / For Informational Purposes Only All Industries (354) Transactions) Historical Premium Analysis Consumer / Retail (61) Transactions) 2022A Mgmt Adj. EBITDA of $354M Financial Buyer Analysis 2023E Mgmt Adj. EBITDA of $269M Source: Consolidated Long-Range Plan provided by FREEDOM management on April 13, 2023. Note: Fully diluted shares outstanding comprised of 34,925,773 shares of common stock, 239,564 stock options outstanding and exercisable at various strike prices, 505,987 restricted stock units and 426,541 performance restricted stock units as provided by FREEDOM management on April 13, 2023. (1) Reflects impact of MIP Payout net of taxes on a per share basis. Unaffected Share Price (3/17/23): $22.75 Sum of the Parts Pre-MIP Discounted Cash Flow Analysis Perpetuity Growth Method Selected Public Companies Analysis 2023E Adj. EBITDA Multiple Selected Transactions Analysis 2023E Adj. EBITDA Multiple Discount rate of 12.75% - 13.75% and perpetuity growth rate of 2.5% - 3.5% 6.5x – 8.0x 2023E Adj. EBITDA ─ 2023E Mgmt Adj. EBITDA of $269M 6.5x – 8.0x 2023E Adj. EBITDA ─ 2023E Mgmt Adj. EBITDA of $269M 25th and 75th Percentile 1-day premiums to unaffected share price ($22.75) as of 3/17/23 25th and 75th Percentile 1-day premiums to unaffected share price ($22.75) as of 3/17/23 20% - 25% IRR, 6.5x – 8.0x exit multiple, 3.3x leverage Based on various EBITDA multiple ranges for respective businesses Discounted Stock Price NPV of theoretical future stock price trading based on unaffected (6.5x) and average (7.1x) NTM (2026) EBITDA and 16.5% cost of equity (midpoint) Q1 2023E Adj. EBITDA Multiple 6.5x – 8.0x LTM Q1 2023E Adj. EBITDA ─ Q1 2023E Mgmt Adj. EBITDA of $309M Offer Price (3/20/23): $30.00 2024P Adj. EBITDA Multiple 6.0x – 7.5x 2024P Adj. EBITDA ─ 2024P Mgmt Adj. EBITDA of $297M 4.6x 5.6x 6.6x 7.8x 8.9x 6.0x 7.4x 8.7x 10.2x 11.7x Net of MIP (1) ~ $28.25 Net of MIP (1) ~ $27.50 2 |
| Preliminary Draft – Confidential Jefferies LLC / April 2023 Illustrative Analysis at Various Prices Source: S&P Capital IQ as of April 25, 2023, and Consolidated Long-Range Plan provided by FREEDOM management on April 13, 2023. (1) Fully diluted shares outstanding comprised of 34,925,773 shares of common stock, 239,564 stock options outstanding and exercisable at various strike prices, 505,987 restricted stock units and 426,541 performance restricted stock units as provided by FREEDOM management on April 13, 2023. (2) Reflects incremental funding required for both common and preferred equity. Reflects rollover of 11,644,842 beneficially owned shares by Vintage Capital Management, LLC. FREEDOM Share Price Various Theoretical Purchase Prices ($Millions, except price per share) (4/25/23) Illustrative Stock Price per Share $28.00 $30.00 $31.00 $32.00 $33.00 $34.00 $35.00 Implied Fully Diluted Shares Outstanding(1) 36.0 36.0 36.0 36.0 36.0 36.0 36.0 Market Capitalization $1,008 $1,081 $1,117 $1,153 $1,189 $1,226 $1,262 Plus: Total Debt (Q1'23) 1,489 1,489 1,489 1,489 1,489 1,489 1,489 Plus: Preferred Equity 127 136 141 145 150 154 159 Transaction Value 2,624 2,706 2,747 2,787 2,828 2,869 2,909 Less: Cash and Cash Equivalents (153) (153) (153) (153) (153) (153) (153) Total Enterprise Value $2,471 $2,553 $2,594 $2,634 $2,675 $2,716 $2,756 Illustrative Price Bump Analaysis Incremental Funding(2) - - $29 $58 $87 $116 $145 Price per Share % - - +3.3% +6.7% +10.0% +13.3% +16.7% Enterprise Value % - - +1.6% +3.2% +4.8% +6.4% +8.0% Implied Premiums FREEDOM Statistic Implied Premium to Current Stock Price $28.00 - 7.1% 10.7% 14.3% 17.9% 21.4% 25.0% (Discount) / Premium to Unaffected Stock Price (as of 3/17/23) $22.75 23.1% 31.9% 36.3% 40.7% 45.1% 49.5% 53.8% (Discount) / Premium to 30 day VWAP (as of 3/17/23) $28.76 (2.6%) 4.3% 7.8% 11.3% 14.7% 18.2% 21.7% (Discount) / Premium to 90 day VWAP (as of 3/17/23) $27.02 3.6% 11.0% 14.7% 18.4% 22.1% 25.8% 29.5% (Discount) / Premium to 52-Week High $44.25 (36.7%) (32.2%) (29.9%) (27.7%) (25.4%) (23.2%) (20.9%) Managament Adj. EBITDA TEV / Adj. EBITDA FY2022A EBITDA $354 7.0x 7.2x 7.3x 7.4x 7.6x 7.7x 7.8x FY2023E EBITDA $269 9.2x 9.5x 9.6x 9.8x 9.9x 10.1x 10.2x FY2024P EBITDA $297 8.3x 8.6x 8.7x 8.9x 9.0x 9.1x 9.3x 3 |
| Confidential Jefferies LLC Member SIPC The information provided in this document, including valuation discussions, represents the views of Jefferies Investment Banking. There is no assurance that the views expressed herein will be consistent with the views expressed by Jefferies Research or its Analysts. Nothing in this document should be understood as a promise or offer of favorable research coverage. Project FREEDOM Presentation to the Special Committee May 8, 2023 / Confidential |
| Confidential Jefferies LLC / May 2023 Background 2 Transaction Overview 4 FREEDOM Overview 7 FREEDOM Valuation Considerations 12 Appendix 22 Table of Contents i |
| Confidential Jefferies LLC / May 2023 Disclaimer The following pages contain material provided to the Special Committee (the “Special Committee”) of the Board of Directors (the “Board”) of FREEDOM (the “Company”) by Jefferies LLC (“Jefferies”) in connection with Project FREEDOM. These materials were prepared on a confidential basis in connection with an oral presentation to the Special Committee and not with a view toward complying with the disclosure standards under state or federal securities laws or otherwise. These materials are solely for use of the Special Committee in its evaluation of the proposed transaction and may not be used for any other purpose or disclosed to any party without Jefferies’ prior written consent. The information contained in this presentation was based solely on publicly available information or information furnished to Jefferies by the Company. Jefferies has relied, without independent investigation or verification, on the accuracy, completeness and fair presentation of all such information and the conclusions contained herein are conditioned upon such information (whether written or oral) being accurate, complete and fairly presented in all respects. None of Jefferies, its affiliates or its or their respective employees, directors, officers, contractors, advisors, members, successors or agents makes any representation or warranty in respect of the accuracy, completeness or fair presentation of any information or any conclusion contained herein. Jefferies, its affiliates and its and their respective employees, directors, officers, contractors, advisors, members, successors and agents shall have no liability with respect to any information or matter contained herein, or any oral information provided herewith or data any of them generates. Jefferies undertakes no obligation to update these materials. Neither Jefferies nor any of its affiliates is an advisor as to legal, tax, accounting or regulatory matters in any jurisdiction. 1 |
| Confidential Jefferies LLC / May 2023 Background 2 |
| Confidential Jefferies LLC / May 2023 On March 20, 2023, FREEDOM (or the “Company”) announced publicly the receipt of an unsolicited non-binding proposal from an undisclosed bidder(1) (the “Bidder”) to acquire all of the outstanding shares of the Company’s common stock for $30.00 per share in cash (the “Proposed Transaction”) ─ The proposal implied a 31.9% and 10.3% premium to FREEDOM’s unaffected stock price and 30-day VWAP as of March 17, 2023, respectively, and 7.2x FREEDOM’s 2022A Adjusted EBITDA and 9.5x FREEDOM’s 2023E Adjusted EBITDA, respectively ─ Conditioned on: o Current management agreeing to roll their equity and continue with the Company o Approval of the Special Committee and majority of non-Bidder and non-management shareholders o Other customary conditions (e.g., HSR) o 30 days of diligence o Transaction funded by cash on hand and newly raised debt financing; no financing condition A transaction led by Permitted Holders, including B.Riley, Irradiant, Pimco (and Brian Kahn), should not require the refinancing of FREEDOM’s existing debt In its capacity as financial advisor to the Special Committee of the Board of Directors of FREEDOM (the “Special Committee”), Jefferies has: ─ Reviewed the Company’s publicly available information and internal financial information and analyses, including its long-range plan (“LRP”) dated as of May 4, 2023, as well as participated in business diligence sessions along with the Bidder and its lenders ─ Engaged in numerous discussions with the Bidder and its approved partners, including current Company lenders Irradiant and Pimco ─ Contacted 11 third party financial buyers with retail investment experience regarding potential interest in a transaction with FREEDOM out of which 7 parties passed; another 4 parties executed NDA and passed subsequently o No additional inbound inquiries after public release of Bidder proposal on March 20, 2023 Background Source: Offer letter dated March 20, 2023. (1) Bidder was B. Riley Financial, Inc. Parties Contacted Parties Passed Current Interested Parties (ex. Bidder) Before NDA Post NDA 11 7 4 0 3 |
| Confidential Jefferies LLC / May 2023 Transaction Overview 4 |
| Confidential Jefferies LLC / May 2023 Transaction Overview On May 9, 2023, FREEDOM’s Board of Directors is expected to consider the sale of the Company (the “Proposed Transaction”) to the Bidder for a purchase price of $30.00 per share in cash (the “Proposed Purchase Price”) ─ Represents a premium of 31.9% based on FREEDOM’s unaffected stock price of $22.75 as of March 17, 2023 The Proposed Transaction will be financed with a combination of Bidder equity and new committed debt from existing lenders Source: S&P Capital IQ as of May 5, 2023, and Consolidated Long-Range Plan provided by FREEDOM management on May 4, 2023. (1) Fully diluted shares outstanding comprised of 35,172,623 shares of common stock, 216,376 stock options outstanding and exercisable at various strike prices, 506,189 restricted stock units and 454,093 performance restricted stock units as provided by FREEDOM management on May 3, 2023. (2) VWAP calculated based on calendar days, ending on March 17, 2023. Proposed Purchase Price $30.00 Diluted Shares Outstanding(1) 36.3 Implied Equity Value $1,089 Plus: Total Debt (Q1'23) 1,448 Plus: Preferred Equity 114 Less: Cash and Cash Equivalents (Q1'23) (98) Total Enterprise Value (TEV) $2,552 Implied Premiums FREEDOM Statistic Implied Premium to Current Stock Price $29.41 2.0% (Discount) / Premium to Unaffected Stock Price (as of 3/17/23) $22.75 31.9% (Discount) / Premium to 30 day VWAP (as of 3/17/23) (2) $27.21 10.3% (Discount) / Premium to 90 day VWAP (as of 3/17/23) (2) $27.95 7.3% (Discount) / Premium to 52-Week High $44.25 (32.2%) (Discount) / Premium to 52-Week Low $22.45 33.6% FREEDOM Statistic TEV / EBITDA Managament Adj. EBITDA LTM Q1 2023 EBITDA $308 8.3x FY2023E EBITDA $268 9.5x FY2024P EBITDA $297 8.6x 5 |
| Confidential Jefferies LLC / May 2023 Key Terms of the Merger Agreement Proposed Transaction Summary Proposed Purchase Price $30.00 per share in cash Parties: Franchise Group, Inc. (the “Company”) A newly formed affiliate of B. Riley Financial, Inc. and management rollover investors (“Parent”) Merger Sub, a wholly owned subsidiary of Parent B. Riley Financial Inc. is providing an equity commitment and limited guaranty; management rollover investors are providing additional equity Structure: Reverse triangular merger in which Merger Sub will merge into the Company with the Company surviving as a wholly owned subsidiary of Parent Single step “voted” merger (no tender offer) Management equity rollover will occur immediately prior to Merger Financing Combination of fully committed debt financing, cash equity and management rollover equity No financing condition; however, acquiror only required to close if debt financing is funded Certain Closing Conditions: Stockholder approval, including approval by holders of a majority of the outstanding shares held by unaffiliated stockholders Customary bringdown of representations, compliance with covenants and absence of MAE HSR approval Alternative Transactions: Following Go Shop period, no solicitation, subject to fiduciary out Go Shop provisions under negotiation Outside Date: [9] months after signing, subject to extension to [12] months after signing Termination Fees: Reverse termination fee of [●]% of the unaffiliated stockholder consideration using the $30.00 per share price Company termination fee of [●]% of the unaffiliated stockholder consideration for Acquisition Proposal first received within 45 days after signing and thereafter to be [●]% Source: Draft Agreement and Plan of Merger dated May 8, 2023, which we understand remains subject to further negotiation and revision in all respects. 6 |
| Confidential Jefferies LLC / May 2023 FREEDOM Overview 7 |
| Confidential Jefferies LLC / May 2023 2/2/23 Gross Gross Adj. Interest $ % Leverage Leverage(1) Rate Maturity Cash and Cash Equivalents $80.8 ABL Revolver ($400M) $16 1.1% 4.0x 2.4x S+175 3/10/26 1st Lien Term Loan (With Add-On) $1,099 76.7% 2.6x 4.0x S + CSA + 475 3/10/26 2nd Lien Term Loan $300 20.9% 3.3x 4.4x L + 750 9/10/26 Finance Lease Liabilities $11 0.8% 3.4x 4.4x - - Other Long Term Obligations $6 0.4% 3.4x 4.4x - - Total Debt $1,432.2 100.0% 3.4x 4.4x Based on FY2022 Bank Adj. EBITDA of: $425.6 Based on FY2022 Bank Adj. EBITDAR of: $705.0 Pro Forma Capitalization Table(3) Valuation Metrics Stock Price Performance – Since NASDAQ Relisting (November 2019) Trading Statistics $0.00 $10.00 $20.00 $30.00 $40.00 $50.00 $60.00 Nov-19 May-20 Nov-20 May-21 Nov-21 May-22 Nov-22 May-23 Price Trading Summary FREEDOM Trading Update – Public Market Perspective $29.41 Unsolicited Offer Letter Received Mar. ‘23 Rumors Re: MBO Jan. ‘23 (5/5/23) Current (3/17/23) Unaffected ($Millions, except per share data) (2) (2) Pet Supplies Plus Acquired Jan. ‘21 Sylvan Learning Acquired Sept. ‘21 The Vitamin Shoppe Acquired Dec. ‘19 Badcock Acquired Nov. ‘21 American Freight Acquired Feb. ‘20 Source: Company filings, S&P Capital IQ as of May 5, 2023. Note: Shares outstanding based on fully diluted shares outstanding per most recent public filing. Pro forma capitalization table for reference to reflect ABL balance as of January 23, 2023 and pro forma for the paydown by the $300 million incremental first lien term loan transaction closed on February 2, 2023. (1) Rent expense capitalized at 6.0x and estimated based on LTM September 25, 2022 data. (2) Fully diluted shares outstanding comprised of 35,172,623 shares of common stock, 216,376 stock options outstanding and exercisable, 506,189 restricted stock units and 454,093 performance restricted stock units. (3) Pro forma debt and cash balances as of February 2, 2023. (4) Calculated based of 4,541,125 shares of Series A Cumulative Preferred Stock with a liquidation preference of $25.00, per Company filings dated December 31, 2022. (4) (4) (3) (3) (3) (3) EV / CY2023E Consensus Revenue 0.52x 0.58x EV / CY2023E Consensus EBITDA 6.5x 7.2x EV / CY2024P Consensus EBITDA 5.5x 6.1x Share Price $22.75 $29.41 52-Week High $44.66 $44.25 52-Week Low $22.45 $22.45 Current % of 52-Week High 50.9% 66.5% 3-M Avg. Daily Vol. ('000s) 524.91 423.44 Share Price $22.75 $29.41 Shares Outstanding 36.3 36.3 Market Capitalization $826.9 $1,069.0 Plus: Total Debt (2/2/23) 1,432.2 1,432.2 Plus: Preferred Equity 113.5 113.5 Less: Cash & Cash Eqv. (2/2/23) (80.8) (80.8) Enterprise Value $2,291.9 $2,534.0 CY2023E Consensus Revenue $4,412.8 $4,402.9 CY2023E Consensus EBITDA $350.6 $350.9 CY2024P Consensus EBITDA $416.0 $412.5 8 |
| Confidential Jefferies LLC / May 2023 FREEDOM Trading Performance Nov-19 Feb-20 May-20 Sep-20 Dec-20 Mar-21 Jun-21 Oct-21 Jan-22 Apr-22 Jul-22 Oct-22 Feb-23 May-23 (100%) 0% 100% 200% 300% 400% Stock Price Performance – Since NASDAQ Relisting (November 2019) Sources: Company filings, S&P Capital IQ and Wall Street research as of May 5, 2023. (1) Hybrid Franchisor Index comprised of DRVN, LOCO, SHAK and SNA. (2) Pet Retail Index comprised of MUSTI, PETS and WOOF. (3) Home and Furniture Index comprised of BBY, ETD, HVT, SNBR, TCS, TPX, TSX:ZZZ and WSM. (4) Beauty, Health and Wellness Index comprised of BBWI, NGVC, RAD, SBH, SFM, ULTA and WBA. (5) Finance Driven Retail Index comprised of AAN, CONN and UPBD. (6) Specialty Retail Index comprised of ASO, DKS, HIBB, JOAN and ODP. (7) Unit-Based Education Index comprised of BFAM, FC, LRN and LSE:PSON. FREEDOM: 147% Hybrid Franchisors(1): 41% Specialty Retail(6): 224% Beauty and Wellness(4): (7%) Finance Driven Retail(5): (17%) Unit Based Education(7): (8%) Pet Retail(2): 24% Home and Furniture(3): 17% YTD LTM FREEDOM 15% (23%) Hybrid Franchisor(1) 14% 15% Pet Retail(2)) 22% (26%) Home and Furniture(3) (3%) (10%) Beauty, Health and Wellness(4) (5%) (10%) Finance Driven Retail(5) 26% (20%) Specialty Retail(6) 12% 41% Unit-Based Education(7) 7% 7% 9 |
| Confidential Jefferies LLC / May 2023 Average EV / NTM EBITDA Multiple EV / NTM EBITDA Multiples Over Time 7.2x 12.5x 11.8x 6.9x 7.5x 6.1x 4.8x 12.8x 7.1x 11.4x 9.5x 5.3x 7.4x 5.7x 4.5x 11.3x 7.2x 11.1x 7.9x 5.3x 7.3x 7.0x 5.2x 8.8x FREEDOM Hybrid Franchisor Pet Retail Home and Furniture Beauty, Health and Wellness Finance Driven Retail Specialty Retail Unit-Based Education 3-Year 1-Year Current Sources: Company filings, S&P Capital IQ and Wall Street research as of May 5, 2023. (1) Hybrid Franchisor Index comprised of DRVN, LOCO, SHAK and SNA. (2) Pet Retail Index comprised of MUSTI, PETS and WOOF. (3) Home and Furniture Index comprised of BBY, ETD, HVT, SNBR, TCS, TPX, TSX:ZZZ and WSM. (4) Beauty, Health and Wellness Index comprised of BBWI, NGVC, RAD, SBH, SFM, ULTA and WBA. (5) Finance Driven Retail Index comprised of AAN, CONN and UPBD. (6) Specialty Retail Index comprised of ASO, DKS, HIBB, JOAN and ODP. (7) Unit-Based Education Index comprised of BFAM, FC, LRN and LSE:PSON. (1) (2) (3) (4) (5) (6) (7) FREEDOM 10 |
| Confidential Jefferies LLC / May 2023 FY 2023P FY 2024P 12-18 Month Firm Revenue EBITDA Revenue EBITDA Price Target Recommendation Oppenheimer (3/21/23) $4,372 $354 $4,473 $413 $40.00 Outperform Barrington (3/1/23) $4,375 $355 $4,500 $400 $35.00 Outperform Stephens (3/1/23) $4,426 $353 $4,485 $394 $28.00 Neutral CJS Securities (3/2/23) $4,365 $357 $4,507 $410 $42.00 Outperform D.A. Davidson (4/10/23) $4,483 $348 $4,625 $457 $39.00 Buy Mean: $4,404 $353 $4,518 $415 $36.80 Management: $4,223 $268 $4,428 $297 NA Selected Analyst Estimates (as of May 2023) Sources: Wall Street Research, S&P Capital IQ as of May 5, 2023. (1) Represents Adj. EBITDA per consolidated Long-Range Plan provided by FREEDOM management on May 1, 2023. Wall Street Research Perspectives ($Millions) Management projects meaningfully lower EBITDA vs. Mean (1) (1) 11 |
| Confidential Jefferies LLC / May 2023 FREEDOM Valuation Considerations 12 |
| Confidential Jefferies LLC / May 2023 Historical and Projected FREEDOM Financial Summary Source: Consolidated Long-Range Plan provided by FREEDOM management on May 4, 2023. Historical Management Estimates CAGR ($Millions) FY2020A FY2021A FY2022A FY2023E FY2024P FY2025P FY2026P '20A - '23E '23E - '26P Revenue Vitamin Shoppe $1,036 $1,173 $1,207 $1,248 $1,272 $1,309 $1,359 6.4% 2.9% Pet Supplies Plus 846 1,121 1,289 1,372 1,475 1,648 1,859 17.5% 10.7% American Freight 945 989 883 912 985 1,145 1,262 (1.2%) 11.4% Badcock 899 907 716 592 591 660 730 (13.0%) 7.2% Buddy's 97 64 57 57 60 67 73 (16.5%) 8.6% Sylvan 26 38 42 42 45 48 51 17.4% 6.4% Total Revenue $3,850 $4,292 $4,195 $4,223 $4,428 $4,876 $5,334 3.1% 8.1% % Growth 5.2% 11.5% (2.3%) 0.7% 4.9% 10.1% 9.4% Total COGS $2,096 $2,410 $2,519 $2,584 $2,724 $3,010 $3,320 7.2% 8.7% Contribution Margin $1,754 $1,882 $1,676 $1,639 $1,704 $1,866 $2,013 (2.2%) 7.1% % Margin 45.6% 43.9% 39.9% 38.8% 38.5% 38.3% 37.7% Total Operating Expenses $1,496 $1,467 $1,430 $1,389 $1,424 $1,501 $1,574 (2.5%) 4.3% Total EBITDA $234 $490 $288 $242 $281 $366 $440 1.1% 22.2% % Margin 6.1% 11.4% 6.9% 5.7% 6.3% 7.5% 8.3% Adjusted EBITDA Vitamin Shoppe $78 $137 $135 $136 $140 $145 $150 20.4% 3.5% Pet Supplies Plus 76 93 115 120 134 157 185 16.2% 15.6% American Freight 109 97 4 19 47 91 116 (44.0%) 82.3% Badcock 106 85 84 (21) (38) (27) (16) NM NM Buddy's 27 18 16 16 16 20 24 (16.3%) 15.3% Sylvan 6 12 14 14 15 16 17 36.2% 7.8% Total Adjusted EBITDA $395 $438 $354 $268 $297 $382 $456 (12.2%) 19.5% % Margin 10.3% 10.2% 8.4% 6.3% 6.7% 7.8% 8.6% Total D&A $111 $88 $82 $80 $82 $78 $78 (10.4%) (0.9%) Total Capital Expenditures $59 $66 $51 $47 $42 $45 $45 (7.3%) (1.7%) % Margin 1.5% 1.5% 1.2% 1.1% 1.0% 0.9% 0.8% 13 |
| Confidential Jefferies LLC / May 2023 Illustrative Payouts in 2026 Vitamin Shoppe Pet Supplies Plus Sylvan American Freight Monetization Scenario Change of Control(1) Optional Liquidity Optional Liquidity Optional Liquidity Contractual EBITDA for 2026 Payout (5) $150.4 $184.9 $17.5 $116.3 Contractual Multiplier (6) 9.0x 6.5x 7.0x 5.6x Implied EV $1,353.7 $1,201.6 $122.2 $651.3 Less: Invested Capital 21.9 (350.0) (40.5) (230.0) Less: Contractual Debt / Transaction Costs (35.0) (174.1) (6.8) (295.5) Incremental EV $1,340.6 $677.5 $74.9 $125.8 % of Equity Value (7) 11.0% 10.0% 6.7% 0.0% MIP Payout(8) $147.5 $67.8 $5.0 $0.0 MIP Payout / Share (Net of Tax)(9) $3.34 $1.38 $0.10 $0.00 Present Value of MIP Payout / Share (Net of Tax)(10)(11) $2.03 $0.84 $0.06 $0.00 Total Payout $220.2 Payout (Net of Tax)(9) 174.9 Payout / Share $4.82 Payout / Share (Present Value)(10) $2.93 Several of FREEDOM’s businesses have a Subsidiary Management Incentive Plan (MIP) in place representing ~10% of the equity value upon a change of control (net of certain adjustments including debt and contributed capital)(1) MIPs are triggered upon a change of control of Vitamin Shoppe, Pet Supplies Plus, Sylvan and American Freight businesses – but not upon a change in control of the parent company(2) Current obligations under MIPs cannot be changed by Company unilaterally(3)(4) Pet Supplies Plus, Sylvan and American Freight plans have an optional liquidity provision, while Vitamin Shoppe does not For preliminary valuation purposes, MIPs are analyzed as an aggregate payout in 2026, and are discounted to present value as part of the DCF analysis, such that all of the value of the Company’s businesses would be 100% owned by existing shareholders Description Commentary & Assumptions Detail Regarding FREEDOM Subsidiary Management Incentive Plans (MIPs) (1) Additionally, per FREEDOM management, through a verbal agreement, Buddy’s CEO holds a 1.5% stake that can only be monetized in a sale. (2) Change of Control in HoldCo does not trigger a liquidity event for the individual Operating Company plans. Vesting accelerates upon a Change of Control of individual businesses. (3) For Pet Supplies Plus and Sylvan, Company may terminate and liquidate the Plan in accordance with Code Section 409A in connection with a Change in Control. (4) Option to amend is applicable except with respect to outstanding awards. (5) Contractual EBITDAs are Reported Adjusted EBITDAs of individual segments in Consolidated LRP provided by FREEDOM Management on May 4, 2023. (6) Reflects an illustrative valuation multiple for Vitamin Shoppe in a sale transaction. (7) % of Equity Value reflects both Time Vested and Performance Vested Units. (8) Payout for American Freight is zero due to projected underperformance of the business. (9) Applied effective tax rate of 26% as per management estimates. (10) Based on illustrative WACC of 13.25%. (11) Payments above $1mm made to the former Vitamin Shoppe CEO as part of this plan are not tax deductible per Section 162(m) of Internal Revenue Code. ($Millions, except price per share) Vitamin Shoppe Incentive Unit Plan Details Pet Supplies Plus Incentive Unit Plan Details Represents 11% of Vitamin Shoppe Equity Value in a change in control scenario Currently fully vested given Vitamin Shoppe performance and timing Does not have Optional Liquidity provision Represents ~10% of Pet Supplies Plus Equity Value in a scenario where there is a change in control / optional liquidity exercise 1/3rd are time vested – Vest if one is employed for three years by March 2024 2/3rd are performance vested – Vest subject to a performance goal and if employed till March 2025 Optional liquidity available for both time and performance vested units in 2025 and 2026 Today @ 9.0x Sale: ~$3.00 14 |
| Confidential Jefferies LLC / May 2023 Analysis of Selected Publicly Traded Companies Estimates current market value of FREEDOM based on trading multiples of selected publicly traded companies generally considered relevant for comparative purposes Reviewed 34 publicly traded Hybrid Franchisor, Pet Retail, Home & Furniture, Beauty, Health & Wellness, Finance-driven Retail, Specialty Retail and Unit-Based Education companies relative to FREEDOM’s six business units Analysis of Selected Transactions Estimates value of FREEDOM based on a review of selected merger and acquisition transactions generally considered relevant for comparative purposes Reviewed 32 completed transactions with publicly available information in the Pet Retail, Home & Furniture, Health & Wellness, Finance-driven Retail, Specialty Retail and Unit-Based Education sectors Discounted Cash Flow Analysis Estimates the value of FREEDOM based on the present value of the Company’s risk-adjusted cash flow Terminal Value calculated using perpetuity growth method, stated net of hypothetical estimated MIP payments if triggered, per FREEDOM management Badcock terminal value as of 2026 calculated as the then present value of years 2027 to 2030 cash flow plus the subsequent years based on 2030 FCF and a 3% perpetuity growth rate M&A Premiums A review, as an additional reference point for informational purposes, of premiums paid in selected M&A transactions involving public companies Reviewed 355 public company all-cash transactions across all industries, excluding financial, real estate and energy targets, and with transaction equity values between $1B and $5B closed since January 1, 2010 Applied relevant premiums to FREEDOM’s unaffected stock price of $22.75 as of March 17, 2023 and certain stock prices prior to that point Methodology / Consideration General Description Comments Selected Valuation Methodologies Note: Jefferies did not attribute any particular weight to any analysis, methodology or factor considered by it, but rather made qualitative judgments as to the significance and relevance of each analysis and factor; accordingly, Jefferies’ analyses must be considered as a whole. Considering any portion of the analyses or the factors considered, without considering all analyses and factors, could create a misleading or incomplete view of the process undertaken by Jefferies. For Informational Purposes Only: 15 |
| Confidential Jefferies LLC / May 2023 Methodology Metrics Financial Analyses Summary – Based on May 4, 2023 LRP Implied Enterprise Value / For Informational Purposes Only All Industries (355) Transactions) Historical Premium Analysis Consumer / Retail (61) Transactions) 2023E Mgmt Adj. EBITDA of $268M Source: Consolidated Long-Range Plan provided by FREEDOM management on May 4, 2023. Valuation range figures rounded to the nearest $0.25. Note: Fully diluted shares outstanding comprised of 35,172,623 shares of common stock, 216,376 stock options outstanding and exercisable at various strike prices, 506,189 restricted stock units and 454,093 performance restricted stock units as provided by FREEDOM management on May 3, 2023. (1) Range reflects optional liquidity MIPs at both ends of the range and Vitamin Shoppe MIP only at the lower end. Discounted Cash Flow Analysis Pre-MIP Selected Public Companies Analysis 2023E Adj. EBITDA Multiple Selected Transactions Analysis Discount rate of 12.75% - 13.75% and perpetuity growth rate of 2.5% - 3.5% applied on Pre-MIP value 6.5x – 8.0x 2023E Adj. EBITDA ─ 2023E Mgmt Adj. EBITDA of $268M 25th and 75th Percentile 1-day premiums to unaffected share price ($22.75) as of 3/17/23 25th and 75th Percentile 1-day premiums to unaffected share price ($22.75) as of 3/17/23 LTM Q1 2023E Adj. EBITDA Multiple 6.75x – 8.25x LTM Q1 2023E Adj. EBITDA ─ Q1 2023E Mgmt Adj. EBITDA of $308M Proposed Purchase Price : $30.00 2024P Adj. EBITDA Multiple 6.0x – 7.5x 2024P Adj. EBITDA ─ 2024P Mgmt Adj. EBITDA of $297M 5.3x 6.5x 7.7x 9.0x 10.4x 6.1x 7.5x 8.9x 10.4x 11.9x Net of MIP(1) Discount rate of 12.75% - 13.75% and perpetuity growth rate of 2.5% - 3.5% applied on Net of MIP value LTM Q1’ 23A Mgmt Adj. EBITDA of $308M $26.50 $27.00 $23.50 $26.25 $17.00 $10.25 $9.00 $32.00 $34.75 $37.75 $38.50 $29.75 $22.50 $20.00 $5.00 $15.00 $25.00 $35.00 $45.00 16 |
| Confidential Jefferies LLC / May 2023 Analysis of Selected Public Companies – Valuation and Benchmarking Source: Company provided financials, S&P Capital IQ as of May 5, 2023, Public filings and Wall Street equity research. (1) Reflects pro forma debt and cash figures as of February 2, 2023. (2) Reflects consensus estimated EV / 2023E and 2024P Adjusted EBITDA multiples at the unaffected share price on March 17, 2023. (3) Reflects 2023E figures. ($Millions) (1) (2) (2) (3) (3) (3) Equity Enterprise 2022A Size and Scale 22A - '24P Projected Gowth EV / EBITDA Pet Retail Value Value Revenue EBITDA EBITDA % Unit Revenue EBITDA 2023E 2024P Petco Health and Wellness Company, Inc. $3,161 $4,653 $6,025 $582 9.7% 0.7% 3.4% (1.4%) 8.8x 8.2x Pets at Home Group Plc 2,454 2,523 1,636 314 19.2% NA 8.8% 5.4% 7.8x 7.2x Pet Supplies Plus NA NA 1,289 105 8.1% 14.1% 7.0% 12.7% - - Musti Group Oyj 714 865 422 74 17.5% NA 10.2% 12.6% 10.4x 9.3x Mean $2,110 $2,680 $2,343 $269 13.6% 7.4% 7.4% 7.3% 9.0x 8.2x Median $2,454 $2,523 $1,462 $209 13.6% 7.4% 7.9% 9.0% 8.8x 8.2x Home and Furniture Best Buy Co., Inc. $16,334 $15,652 $46,346 $3,961 8.5% (2.0%) (1.3%) (13.6%) 5.6x 5.3x Williams-Sonoma, Inc. 8,036 7,668 8,821 1,730 19.6% (5.2%) (1.6%) (9.2%) 5.4x 5.4x Tempur Sealy International, Inc. 6,556 9,327 4,954 892 18.0% NA 4.2% 9.3% 9.6x 8.8x Sleep Number Corporation 526 985 2,113 148 7.0% 3.5% 0.2% 9.5% 5.9x 5.5x The Container Store Group, Inc. 151 333 1,086 115 10.5% 11.2% 2.2% (1.5%) 3.2x 3.0x Haverty Furniture Companies, Inc. 441 318 1,034 135 13.0% NA (2.6%) NA NA NA American Freight NA NA 883 (69) (7.8%) 6.5% 5.6% - - - Ethan Allen Interiors Inc. 701 616 848 157 18.5% NA NA NA 4.8x NA Badcock Home Furniture NA NA 592 (21) (3.6%) (2.1%) (9.2%) - - - Sleep Country Canada Holdings Inc. 648 669 683 163 23.8% 2.1% 3.2% 0.2% 4.3x 4.1x Mean $4,174 $4,446 $6,736 $721 10.8% 2.0% 0.1% (0.9%) 5.5x 5.3x Median $675 $827 $1,060 $153 11.8% 2.1% 0.2% (0.7%) 5.4x 5.3x Beauty, Health and Wellness Walgreens Boots Alliance, Inc. $27,756 $47,205 $131,772 $5,710 4.3% NA 5.0% 9.6% 7.1x 6.9x Rite Aid Corporation 114 3,219 23,918 419 1.8% NA (3.7%) (5.2%) 9.0x 8.5x Ulta Beauty, Inc. 26,698 25,960 10,001 1,820 18.2% 3.6% 7.8% 4.9% 13.5x 13.0x Bath & Body Works, Inc. 7,790 11,421 7,474 1,597 21.4% NA 2.6% 1.9% 7.7x 6.9x Sprouts Farmers Market, Inc. 3,826 3,792 6,389 485 7.6% 7.0% 6.4% 3.4% 7.5x 7.3x Sally Beauty Holdings, Inc. 1,253 2,305 3,757 483 12.8% (0.8%) 1.5% 0.9% 4.9x 4.7x Vitamin Shoppe NA NA 1,207 136 11.2% 2.5% 2.7% 1.6% - - Natural Grocers by Vitamin Cottage, Inc. 270 316 1,090 56 5.2% NA NA 6.0% 5.3x 5.0x Mean $9,672 $13,460 $23,201 $1,338 10.3% 3.0% 3.2% 2.9% 7.9x 7.5x Median $3,826 $3,792 $6,932 $484 9.4% 3.0% 2.7% 2.7% 7.5x 6.9x FREEDOM $827 $2,292 $4,195 $288 6.9% 5.9% 2.7% (1.3%) 6.5x 5.5x Proposed Transaction 1,089 2,552 4,195 288 6.9% 5.9% 2.7% (1.3%) 9.5x 8.6x 17 |
| Confidential Jefferies LLC / May 2023 Equity Enterprise 2022A Size and Scale 22A - '24P Projected Gowth EV / EBITDA Finance Driven Retail Value Value Revenue EBITDA EBITDA % Unit Revenue EBITDA 2023E 2024P Upbound Group, Inc. $1,916 $3,172 $4,245 $454 10.7% 0.4% (2.3%) (2.0%) 7.7x 7.3x The Aaron's Company, Inc. 394 586 2,251 166 7.4% (1.5%) 0.9% 1.4% 3.9x 3.4x Conn's, Inc. 122 534 1,339 37 2.8% 6.9% 5.0% 64.2% 12.4x 5.3x Buddy's Home Furnishings NA NA 57 16 27.1% 9.1% 2.3% 1.7% - - Mean $811 $1,430 $1,973 $168 12.0% 3.7% 1.5% 16.3% 8.0x 5.3x Median $394 $586 $1,795 $102 9.0% 3.7% 1.6% 1.6% 7.7x 5.3x Specialty Retail DICK'S Sporting Goods, Inc. $12,915 $12,548 $12,217 $1,846 15.1% 1.2% 3.3% 3.0% 6.6x 6.4x The ODP Corporation 1,835 1,620 8,520 437 5.1% NA (2.9%) (4.8%) 4.0x 4.1x Academy Sports and Outdoors, Inc. 4,839 5,096 6,438 995 15.5% 5.8% 4.6% 1.5% 5.4x 5.0x JOANN Inc. 77 1,047 2,206 99 4.5% (0.6%) (0.7%) 30.0% 8.6x 6.3x Hibbett, Inc. 716 739 1,727 213 12.3% 3.6% 5.5% 5.1% 3.4x 3.1x Mean $4,076 $4,210 $6,221 $718 10.5% 2.5% 2.0% 7.0% 5.6x 5.0x Median $1,835 $1,620 $6,438 $437 12.3% 2.4% 3.3% 3.0% 5.4x 5.0x Unit-Based Education Pearson plc $7,729 $8,594 $4,613 $834 18.1% NA 2.7% 12.5% 8.6x 8.1x Bright Horizons Family Solutions Inc. 5,305 6,247 2,016 317 15.7% 1.5% 12.5% 16.0% 17.4x 14.6x Stride, Inc. 1,858 1,960 1,745 268 15.4% NA 7.8% 16.9% 6.5x 5.3x Franklin Covey Co. 494 459 270 44 16.3% NA 10.4% 13.1% 9.8x 8.2x Sylvan Learning NA NA 42 13 31.4% 2.6% 3.1% 5.3% - - Mean $3,847 $4,315 $1,737 $295 19.4% 2.0% 7.3% 12.8% 10.5x 9.1x Median $3,582 $4,103 $1,745 $268 16.3% 2.0% 7.8% 13.1% 9.2x 8.2x Hybrid Franchisors Snap-on Incorporated $14,124 $14,589 $4,489 $1,232 27.4% NA 3.9% 6.9% 10.8x 10.4x Driven Brands Holdings Inc. 4,916 7,473 2,043 274 13.4% 5.9% 14.4% 56.7% 12.7x 11.1x Shake Shack Inc. 2,795 2,845 900 70 7.8% 14.7% 18.5% 37.8% 24.0x 21.2x El Pollo Loco Holdings, Inc. 348 394 469 49 10.4% 3.5% 3.8% 16.1% 6.6x 6.0x Mean $5,545 $6,325 $1,976 $406 14.8% 8.0% 10.2% 29.4% 13.5x 12.2x Median $3,855 $5,159 $1,472 $172 11.9% 5.9% 9.1% 27.0% 11.7x 10.7x Weighted Median 7.8x 7.1x Median 7.5x 6.6x Mean 8.2x 7.3x _ FREEDOM $827 $2,292 $4,195 $288 6.9% 5.9% 2.7% (1.3%) 6.5x 5.5x Proposed Transaction 1,089 2,552 4,195 288 6.9% 5.9% 2.7% (1.3%) 9.5x 8.6x Analysis of Selected Public Companies – Valuation and Benchmarking (Cont’d) Source: Company provided financials, S&P Capital IQ as of May 5, 2023, company filings and Wall Street equity research. (1) Weighted according to the corresponding year’s Adj. EBITDA segment contribution to the total FREEDOM aggregate. Reflects Pet Retail median weighted by Pet Supplies Plus, Home and Furniture median weighted by American Freight and Badcock Home Furniture, Beauty Health and Wellness and Specialty Retail combined median weighted by Vitamin Shoppe, Finance Driven Retail median weighted by Buddy’s, and Unit Based Education median weighted by Sylvan Learning. (2) Reflects pro forma debt and cash figures as of February 2, 2023. (3) Reflects consensus estimated EV / 2023E and 2024P Adjusted EBITDA multiples at the unaffected share price on March 17, 2023. (1) (2) (3) (3) ($Millions) 18 |
| Confidential Jefferies LLC / May 2023 EV / LTM EBITDA Analysis of Selected Transactions – Since 2017 ($Millions) Source: Company filings, Definitive Proxy Statements, press releases, Wall Street equity research. (1) Weighted according to the Q1 2023 LTM Adj. EBITDA segment contribution to the total FREEDOM aggregate. Reflects Pet Retail median weighted by Pet Supplies Plus, Home and Furniture median weighted by American Freight and Badcock Home Furniture, Beauty Health and Wellness and Specialty Retail combined median weighted by Vitamin Shoppe, Finance Driven Retail median weighted by Buddy’s, and Unit Based Education median weighted by Sylvan Learning. Date Announced Target Acquiror Implied Enterprise Value Implied TEV / LTM EBITDA Pet Retail Jan-21 Pet Supplies Plus Franchise Group $700 8.8x Nov-18 Greencross TPG Capital $970 10.0x Home & Furniture Jan-22 Mattress Warehouse Wynnchurch Capital ND ND Nov-21 W.S. Badcock Franchise Group $580 4.2x Nov-21 Casper Sleep Durational Capital Management $332 NM May-21 At Home Hellman & Friedman $2,830 7.9x May-21 Dreams Tempur + Sealy $475 6.3x Dec-19 American Freight Franchise Group $450 9.6x Jan-17 Art Van Furniture Thomas H. Lee Partners $550 ND Beauty, Health & Wellness Jun-20 GNC Corporation Harbin Pharmaceutical Group $760 6.9x Aug-19 The Vitamin Shoppe Franchise Group $208 3.8x Jun-17 Whole Foods Amazon $13,733 10.3x Jun-17 The Body Shop Natura Cosmeticos $1,120 13.0x Finance Driven Retail Dec-21 American First Finance FirstCash $1,100 12.1x Dec-20 Acima Rent-a-Center $1,650 7.3x Specialty Retail Apr-22 BrandsMart U.S.A The Aaron's Company $230 5.0x Oct-23 Diamonds Direct Signet Jewlers $490 7.1x Apr-21 West Marine L Catterton ND ND Mar-21 The Michael's Companies Apollo Global Management $4,524 6.8x Dec-20 Sportsman's Warehouse Holdings, Inc. Great Outdoors Group, LLC $792 6.0x Sep-20 JCPenney Brookfield / Simon $800 ND Aug-19 Party City (Canada) Canadian Tire $131 9.9x Jun-19 Barnes & Noble Elliott Management Advisors $683 5.7x Apr-19 Smart and Final Apollo Global Management $1,100 ND Oct-18 Marshall Retail Group WH Smith plc $400 13.7x Jun-17 Staples Sycamore Partners $6,593 5.0x Apr-17 Cabela's Bass Pro Group $4,580 10.4x Jan-17 Leslie's Poolmart L Catterton ND ND Unit Based Education Jun-22 The Goddard School Sycamore Partners ~$1,100 22.0x Feb-22 Houghton Mifflin Harcourt Company Veritas Capital $2,666 9.9x Feb-22 Mathnasium Roark Capital ND ND Oct-21 Lakeshore Learning Leonard Green Partners ~$1,600 ND Weighted Median(1) 8.2x Overall Mean 8.8x Overall Median 7.9x Proposed Transaction $2,552 8.3x 19 |
| Confidential Jefferies LLC / May 2023 Year ending December 31, CAGR Normalized Terminal Yr (US $Ms, except price per share) 2023E 2024P 2025P 2026P 2023E - 2026P Excluding Badcock(1) EBITDA (net of SBC)(2) $242 $281 $366 $440 22.2% $457 % Margin 5.7% 6.3% 7.5% 8.3% 8.3% Less: D&A (80) (82) (78) (78) (35) EBIT $162 $199 $288 $363 30.9% $422 Less: Taxes(3) (42) (52) (75) (94) (110) Net Operating Profit After Tax (NOPAT) $120 $147 $213 $269 30.9% $312 Plus: D&A 80 82 78 78 35 Less: NWC (Increase) / Decrease 125 38 (18) (41) (32) Less: Other Assets / Liabilities (Increase) / Decrease(4) 16 (5) 13 3 - Less: Capital Expenditure (47) (42) (45) (45) (35) Unlevered FCF $293 $220 $242 $263 (3.5%) $281 % Conversion 111.4% 74.2% 63.3% 57.8% 59.4% Present Value of Unlevered FCF $275 $183 $177 $170 Net of MIP Payout Pre-MIP Terminal Value at 3.0% Growth Rate $3,000 $3,000 Less: Illustrative Management Incentive Payoff(5) ($175) - Plus: Badcock Terminal Value(6) ($97) ($97) Terminal Value Post Incentive Units Payoff & Badcock $2,728 $2,903 Present Value of Terminal Value(7) $1,658 $1,765 Sum of PV of Unlevered FCF $805 $805 Total Enterprise Value $2,463 $2,570 Plus: Cash (Q4 '22A) $81 $81 Less: Debt (Q4 '22A) ($1,381) ($1,381) Less: Preferred Equity ($114) ($114) Equity Value $1,049 $1,156 FDSO(8) 36.281 36.287 Implied Price Per Share $28.92 $31.85 Sensitivities FREEDOM Discounted Cash Flow Analysis – Based on May 4, 2023 LRP Note: Share prices in sensitivity tables are rounded to the nearest $0.25. Source: Consolidated Long-Range Plan provided by FREEDOM management on May 4, 2023. (1) Reflects depreciation equal to capital expenditures in Normalized Terminal Year. (2) As per Long-Range Plan EBITDA forecast through 2026P provided by FREEDOM management on May 4, 2023. (3) Applied effective tax rate of 26% as per management estimates. (4) Other assets / liabilities exclude non-current deferred tax assets, income taxes payable, right of use assets, long-term operating lease liabilities and non-current long-term debt. (5) Management Incentive payoff reflects tax-effected optional liquidity exercise of incentive units in 2026 across relevant businesses of FREEDOM based on contractual multipliers. (6) Reflects Badcock Unlevered FCF value for 2027 through future years. (7) Based on illustrative perpetuity growth rate of 3%. Based on illustrative WACC of 13.25%. (8) Fully diluted shares outstanding comprised of 35,172,623 shares of common stock, 216,376 stock options outstanding and exercisable at various strike prices, 506,189 restricted stock units and 454,093 performance restricted stock units as provided by FREEDOM management on May 3, 2023. (9) Reflects changes in EBITDA (net of SBC) from 2023E to 2026P and Normalized Terminal Year. ~$30.95 / share without VSI MIP payout Implied Price Per Share (Pre MIP) Perpetuity Discount Rate Growth 12.75% 13.25% 13.75% 2.5% $32.50 $29.25 $26.25 3.0% $35.50 $31.75 $28.75 3.5% $38.50 $34.75 $31.25 Implied Terminal EBITDA Multiple(7) Perpetuity Discount Rate Growth 12.75% 13.25% 13.75% 2.5% 6.3x 6.0x 5.8x 3.0% 6.7x 6.3x 6.1x 3.5% 7.1x 6.7x 6.4x (15.00%) $15.25 $25.25 (10.00%) 19.00 29.75 (5.00%) 22.50 34.00 0.0% 26.25 38.50 5.00% 30.00 43.00 10.00% 33.75 47.50 15.00% 37.50 52.00 Change in EBITDA(9) Implied Price Per Share (Low) Implied Price Per Share (High) 20 |
| Confidential Jefferies LLC / May 2023 1-day Premiums 17% 30% 41% 19% 31% 52% $27.02 $29.93 $34.70 $26.53 $29.52 $32.04 25% 36% 55% Illustrative Selected M&A Premiums Overview – Based on Unaffected Stock Price (3/17/2023) (For Reference Only) Source: Refinitiv as of May 1, 2023. (1) Data represents 355 all-cash transactions with Total Enterprise Values at Announcement Date of $1.0 Billion to $5.0 Billion since 2010. Excludes real estate, energy & power and financial sector transactions. (2) Data represents 61 all-cash transactions with Total Enterprise Values at Announcement Date of $1.0 Billion to $5.0 Billion involving consumer and retail U.S. domiciled and publicly listed traded targets since 2010. (3) Implied price based on premiums applied to unaffected share price as at close of March 17, 2023. U.S. M&A All-Cash Transactions, Closed Since January 1, 2010 Median – All Industries(1) Median – Consumer & Retail(2) 21% 31% 47% Implied Price / FREEDOM Share(3) Implied Price / FREEDOM Share(3) 30-day Premiums $28.39 $31.04 $35.34 $27.52 $29.89 $33.39 Proposed Purchase Price 25th Percentile Median 75th Percentile 25th Percentile Median 75th Percentile 25th Percentile Median 75th Percentile 25th Percentile Median 75th Percentile $30.00 1-Day Premium 30-Day Premium 32% 0% 21 |
| Confidential Jefferies LLC / May 2023 Appendix 22 |
| Confidential Jefferies LLC / May 2023 $109 $97 $4 $19 $47 $91 $116 FY2020A FY2021A FY2022A FY2023E FY2024P FY2025P FY2026P American Freight – Summary Financial Performance $945 $989 $883 $912 $985 $1,145 $1,262 11.6% 9.8% 0.4% 2.1% 4.8% 8.0% 9.2% ($4) ($1) ($25) $4 ($27) ($6) $8 Revenue American Freight’s 2022 performance deteriorated due to a number factors including pull-back by its lower income customer base, potential sales pull-forward during prior COVID periods and ongoing cost inflation ─ Q1 2023 remained EBITDA negative due to the weakest tax season of the past decade according to management Going forward, management is projecting a return to profitability beginning in Q2 2023 resulting in modest 2023 EBITDA which grows sharply through 2026 ─ 2026 EBITDA falls in line with 2020 and 2021 levels, albeit on lower margins against higher sales EBITDA Margin Adj. EBITDA FCF(1) Source: Consolidated Long-Range Plan provided by FREEDOM management on May 4, 2023, and FREEDOM management . (1) Calculated as Cash Flow from Operations less Capital Expenditures. 23 |
| Confidential Jefferies LLC / May 2023 A significant portion of Badcock’s revenue is dependent on providing consumer credit to its customers FREEDOM's approach to financing Badcock customers is currently in transition due to balance sheet constraints − Management has explored numerous solutions to date that have not proven fruitful (e.g., SPV, AFF as second look provider, sale / merger) The Company's LRP reflects an outsourcing arrangement with Fortiva which is currently under test − Management expects such arrangement would result in negative EBITDA for the next several years Alternatively, FREEDOM continues to explore several other options which may or may not be feasible and if so may or may not be more financially attractive: − Partnering with alternative third-party credit service providers (e.g., Genesis) − JV transaction with a consumer-financing operating company or credit provider (e.g., Fortiva) − Sale to a financial sponsor or management − Business liquidation $106 $85 $84 ($21) ($38) ($27) ($16) ($10) ($4) $3 $10 FY2020A FY2021A FY2022A FY2023E FY2024P FY2025P FY2026P FY2027P FY2028P FY2029P FY2030P Badcock – Summary Financial Performance $899 $907 $716 $592 $591 $660 $730 $774 $820 $869 $922 11.8% 9.4% 11.7% (3.5%) (6.4%) (4.1%) (2.2%) (1.4%) (0.5%) 0.3% 1.1% $162 $216 $45 $31 $26 ($15) ($24) ($22) ($18) ($13) ($8) Source: Consolidated Long-Range Plan provided by FREEDOM management on May 4, 2023, and FREEDOM management. (1) Calculated as Cash Flow from Operations less Capital Expenditures. Adj. EBITDA Revenue EBITDA Margin FCF(1) 24 |
| Confidential Jefferies LLC / May 2023 Cash flow for 2023 $4.6 Book Value Monetization % Monetization Value Liquidation of Q4' 23 Assets Account Receivables $52.0 25% $13.0 Inventory 122.0 50% 61.0 Income Tax Receivable 3.1 3.1 Intercompany Receivable 100.0 0.0 Property, Equipment, and Software, Net 17.6 10% 1.8 Other Assets 23.5 70% 16.4 Liquidation of Q4 '23 Liabilities Long-Term Financing Leases (0.9) (0.9) Accounts Payable (62.6) (62.6) Accrued Expenses (8.8) (8.8) Income Taxes Payable 1.5 1.5 Deferred Revenue (6.2) (6.2) Other Non-Current Liabilities (14.5) (14.5) Deferred Tax Liability - Non-Current (15.6) (15.6) Liquidation of Q4 '23 Net Assets $211.0 ($11.9) Severance Costs ($12.0) Operating Lease Liability ($383.0) Less: Sublease Income (@25% Sublease Rate) 95.8 Net Operating Lease Liability ($287.3) Aggregate Cost of Maintaining Collections Function ($25.0) Other Material Adjustments Not Quantified Less: Contractual Obligations with Dealers N.Q. Less: Litigation Expense N.Q. Less: Other Breakage from Vendor Contracts N.Q. Plus: Tax Benefits / Offsets to Parent N.Q. Total ($331.5) PV of Cash Proceeds ($292.7) Value Per Share ($8.07) Illustrative Badcock Liquidation Analysis (For Reference Only) Source: Consolidated Long-Range Plan provided by FREEDOM management on May 4, 2023, Monetization assumptions provided by FREEDOM management, Company filings and Capital IQ. Note: N.Q. indicates not quantified. (1) Cash flow includes cash flow from operating activities, investing activities and financing activities. (2) Net zero since Receivables are owed to Badcock by FREEDOM. (3) Includes other current assets, non-current notes receivables and other assets. (4) Severance costs are likely to be close to to $12.0 million. (5) Assumes $15.0 million going to zero over three years. (6) Discounted over 1 year using illustrative Weighted Average Cost of Capital (WACC) of 13.25%. (7) Value per share calculated based on Fully diluted shares outstanding comprised of 35,172,623 shares of common stock, 216,376 stock options outstanding and exercisable at various strike prices, 506,189 restricted stock units and 454,093 performance restricted stock units as provided by FREEDOM management on May 3, 2023. (3) (4) (5) (1) (6) (7) (2) Badcock Cash Flow and Valuation per Illustrative Liquidation Analysis 25 |
| Confidential Jefferies LLC / May 2023 Year ending December 31 CAGR Normalized (US $Ms, except price per share) 2027E 2028P 2029P 2030P 2027E - 2030P Terminal Yr(1) Revenue $774 $820 $869 $922 6.0% $922 EBITDA(2) ($10) ($4) $3 $10 NM $10 % Margin (1.4%) (0.5%) 0.3% 1.1% 1.1% Less: D&A (7) (7) (8) (8) (10) EBIT ($18) ($11) ($5) $3 NM $0 Less: Taxes(3) 5 3 1 (1) (0) Net Operating Profit After Tax (NOPAT) ($13) ($8) ($3) $2 NM $0 Plus: D&A 7 7 8 8 10 Less: NWC (Increase) / Decrease (6) (7) (7) (8) (8) Less: Capital Expenditure (10) (10) (10) (10) (10) Unlevered FCF ($22) ($18) ($13) ($8) NM ($7) Present Value of Unlevered FCF (as of Dec 31, 2026) ($21) ($15) ($10) ($5) Terminal Value at 3.0% Growth Rate ($77) Present Value of Terminal Value (as of Dec 31, 2026)(4) ($47) Sum of PV of Unlevered FCF (as of Dec 31, 2026) ($50) Present Value (as of Dec 31, 2026) ($97) Badcock Extended Discounted Cash Flow Analysis – Based on May 4, 2023 LRP (For Reference Only) Source: Consolidated Long-Range Plan provided by FREEDOM management on May 4, 2023. (1) Reflects depreciation equal to capital expenditures in Normalized Terminal Year. (2) As per Long-Range Plan EBITDA forecast through 2030P provided by FREEDOM management. (3) Effective tax rate for each year as per FREEDOM management estimates. (4) Based on illustrative perpetuity growth rate of 3%. Based on illustrative WACC of 13.25%. 26 |
| Confidential Jefferies LLC / May 2023 FREEDOM Weighted Average Cost of Capital Analysis ($Millions, except per share data) Source: Public Company Filings, Kroll, Bloomberg. Note: Market data as of May 5, 2023. (1) Tax Rate calculated as the summation of US Federal and State statutory tax rates. (2) 5-Year Weekly Adjusted Beta sourced from Bloomberg as of May 4, 2023. Selected Companies Company Name Equity Value Total Debt Cash Minority Interest Preferred Stock Total EV D / E Ratio Equity / Total Cap. Debt / Total Cap. Tax Rate(1) Bloomberg Beta(2) Unlevered Beta Adj. Levered Beta Pet Retail Musti Group Oyj $714 $166 $16 $0 $0 $865 21.0% 82.6% 17.4% 20.0% 1.02 0.87 0.95 Pets at Home Group Plc 2,454 249 181 0 0 2,523 2.8% 97.3% 2.7% 25.0% 0.71 0.69 0.75 Petco Health and Wellness Company, Inc. 3,161 1,694 202 0 0 4,653 47.2% 67.9% 32.1% 29.8% 1.19 0.90 0.97 Mean 23.7% 82.6% 17.4% 24.9% 0.97 0.82 0.89 Median 21.0% 82.6% 17.4% 25.0% 1.02 0.87 0.95 Home and Furniture Best Buy Co., Inc. $16,334 $1,192 $1,874 $0 $0 $15,652 (4.2%) 104.4% (4.4%) 30.8% 1.24 1.28 1.38 Williams-Sonoma, Inc. 8,036 0 367 0 0 7,668 (4.6%) 104.8% (4.8%) 29.8% 1.30 1.34 1.46 Sleep Number Corporation 526 460 2 0 0 985 87.1% 53.5% 46.5% 30.8% 1.54 0.96 1.04 Tempur Sealy International, Inc. 6,556 2,831 69 10 0 9,327 42.1% 70.3% 29.6% 26.0% 1.55 1.18 1.28 Sleep Country Canada Holdings Inc. 648 74 58 5 0 669 2.4% 96.9% 2.3% 39.5% 1.21 1.19 1.28 Ethan Allen Interiors Inc. 701 0 85 (0) 0 616 (12.2%) 113.9% (13.9%) 28.5% 0.96 1.05 1.14 Haverty Furniture Companies, Inc. 441 0 123 0 0 318 (27.9%) 138.7% (38.7%) 26.8% 0.92 1.15 1.25 The Container Store Group, Inc. 151 189 6 0 0 333 121.4% 45.2% 54.8% 21.0% 1.21 0.62 0.68 Mean 25.5% 90.9% 8.9% 29.1% 1.24 1.10 1.19 Median (0.9%) 100.6% (1.0%) 29.2% 1.23 1.17 1.27 Finance Driven Retail Upbound Group, Inc. $1,916 $1,400 $144 $0 $0 $3,172 65.5% 60.4% 39.6% 21.0% 1.25 0.82 0.90 Conn's, Inc. 122 432 20 0 0 534 338.1% 22.8% 77.2% 21.0% 1.57 0.43 0.47 The Aaron's Company, Inc. 394 219 28 0 0 586 48.5% 67.3% 32.7% 26.8% 1.19 0.88 0.95 Mean 150.7% 50.2% 49.8% 22.9% 1.34 0.71 0.77 Median 65.5% 60.4% 39.6% 21.0% 1.25 0.82 0.90 Beauty, Health and Wellness Ulta Beauty, Inc. $26,698 $0 $738 $0 $0 $25,960 (2.8%) 102.8% (2.8%) 30.5% 1.22 1.24 1.35 Sprouts Farmers Market, Inc. 3,826 259 293 0 0 3,792 (0.9%) 100.9% (0.9%) 25.9% 0.57 0.57 0.62 Sally Beauty Holdings, Inc. 1,253 1,151 99 0 0 2,305 84.0% 54.3% 45.7% 21.0% 1.16 0.69 0.76 Bath & Body Works, Inc. 7,790 4,862 1,232 1 0 11,421 46.6% 68.2% 31.8% 21.0% 1.54 1.12 1.23 Rite Aid Corporation 114 3,208 103 0 0 3,219 2728.7% 3.5% 96.5% 31.0% 0.96 0.05 0.05 Walgreens Boots Alliance, Inc. 27,756 13,042 1,840 8,247 0 47,205 40.4% 58.8% 23.7% 30.5% 0.87 0.68 0.73 Natural Grocers by Vitamin Cottage, Inc. 270 63 17 0 0 316 16.9% 85.5% 14.5% 25.6% 0.56 0.49 0.54 Mean 416.1% 67.7% 29.8% 26.5% 0.98 0.69 0.75 Median 40.4% 68.2% 23.7% 25.9% 0.96 0.68 0.73 27 |
| Confidential Jefferies LLC / May 2023 FREEDOM Weighted Average Cost of Capital Analysis (Cont’d) ($Millions, except per share data) Source: Public Company Filings, Kroll, Bloomberg. Note: Market data as of May 5, 2023. (1) Tax Rate calculated as the summation of US Federal and State statutory tax rates. (2) 5-Year Weekly Adjusted Beta sourced from Bloomberg as of May 4, 2023. Selected Companies Company Name Equity Value Total Debt Cash Minority Interest Preferred Stock Total EV D / E Ratio Equity / Total Cap. Debt / Total Cap. Tax Rate(1) Bloomberg Beta(2) Unlevered Beta Adj. Levered Beta Specialty Retail DICK'S Sporting Goods, Inc. $12,915 $1,558 $1,924 $0 $0 $12,548 (2.8%) 102.9% (2.9%) 31.0% 1.42 1.45 1.57 Academy Sports and Outdoors, Inc. 4,839 595 337 0 0 5,096 5.3% 94.9% 5.1% 21.0% 1.31 1.26 1.38 The ODP Corporation 1,835 188 403 0 0 1,620 (11.7%) 113.3% (13.3%) 26.5% 1.12 1.22 1.33 JOANN Inc. 77 991 20 0 0 1,047 1266.2% 7.3% 92.7% 21.0% 1.11 0.10 0.11 Hibbett, Inc. 716 39 16 0 0 739 3.2% 96.9% 3.1% 27.5% 1.33 1.30 1.41 Mean 252.0% 83.1% 16.9% 25.4% 1.26 1.07 1.16 Median 3.2% 96.9% 3.1% 26.5% 1.31 1.26 1.38 Unit-Based Education Bright Horizons Family Solutions Inc. $5,305 $978 $36 $0 $0 $6,247 17.7% 84.9% 15.1% 29.0% 1.24 1.10 1.19 Stride, Inc. 1,858 420 318 0 0 1,960 5.5% 94.8% 5.2% 27.0% 0.72 0.69 0.76 Franklin Covey Co. 494 20 55 0 0 459 (7.1%) 107.6% (7.6%) 25.9% 1.15 1.22 1.32 Pearson plc 7,729 1,535 686 16 0 8,594 11.0% 89.9% 9.9% 25.0% 0.73 0.67 0.73 Mean 6.8% 94.3% 5.6% 26.7% 0.96 0.92 1.00 Median 8.2% 92.4% 7.5% 26.4% 0.94 0.90 0.97 Hybrid Franchsiors El Pollo Loco Holdings, Inc. $348 $66 $20 $0 $0 $394 13.1% 88.4% 11.6% 29.8% 1.04 0.96 1.04 Shake Shack Inc. 2,795 256 231 25 0 2,845 0.9% 98.2% 0.9% 28.3% 1.37 1.36 1.48 Driven Brands Holdings Inc. 4,916 2,784 227 1 0 7,473 52.0% 65.8% 34.2% 23.5% 1.13 0.81 0.88 Snap-on Incorporated 14,124 1,200 757 22 0 14,589 3.1% 96.8% 3.0% 28.9% 1.05 1.02 1.11 Mean 17.3% 87.3% 12.4% 27.6% 1.26 1.04 1.13 Median 8.1% 92.6% 7.3% 28.6% 1.13 0.99 1.07 Overall Selected Companies Mean 147.0% 80.6% 18.8% 26.7% 1.15 0.92 1.00 Median 12.0% 89.2% 10.7% 26.8% 1.19 0.96 1.04 FREEDOM Normalized Cap Structure $1,067 $736 $98 $114 $1,819 59.8% 58.7% 35.1% 26.0% 1.61 1.12 1.61 FREEDOM Actual Cap Structure $1,067 $1,448 $98 $114 $2,531 126.5% 42.2% 53.3% 26.0% 1.61 0.83 1.61 28 |
| Confidential Jefferies LLC / May 2023 FREEDOM Weighted Average Cost of Capital Analysis (Cont’d) ($Millions, except per share data) Source: Public Company Filings, Kroll, Bloomberg. Note: Market data as of May 5, 2023. (1) Spot rate for 20-Year US Treasury Yield as of May 5, 2023. (2) Normalized FREEDOM Debt / Capital ratio calculated as the average over the last 5 years. (3) Adjusted for FREEDOM Debt / Capital ratio and median Debt / Capital ratio for selected public companies. (4) Represents long-horizon expected equity risk premium per Kroll Cost of Capital Navigator. (5) FREEDOM size premium based on 7th decile in Kroll Cost of Capital Navigator. (6) Tax rate based on FREEDOM’s effective tax rate of 2023E as per consolidated Long-Range Plan provided by FREEDOM management on May 4, 2023 (7) FREEDOM pre-tax cost of debt is based on estimated cost of debt for refinancing current debt at SOFR+475 trading at 96.5. WACC Assumptions WACC Calculation FREEDOM Actual FREEDOM Normalized Selected Peers Illustrative Range Risk-Free Rate (Rf)(1) 3.9% 3.9% 3.9% 3.9% 3.9% Unlevered Beta 0.83 1.12 0.96 1.00 1.25 Debt / Equity Ratio(2) 126.5% 59.8% 12.0% 66.7% 42.9% Adj. Levered Beta(3) 1.61 1.61 1.04 1.49 1.65 Market Risk Premium (Rm)(4) 7.2% 7.2% 7.2% 7.2% 7.2% Size Premium (Rs)(5) 1.4% 1.4% 1.4% 1.4% 1.4% Tax Rate(6) 26.0% 26.0% 26.8% 26.0% 26.0% Pre-Tax Cost of Debt (Kd)(7) 10.2% 10.2% 10.2% 10.2% 10.2% Illustrative After-tax Cost of Debt 7.5% 7.5% 7.5% 7.5% 7.5% Illustrative Debt / Total Capital 53.3% 35.1% 10.7% 40.0% 30.0% FREEDOM Actual FREEDOM Normalized Selected Peers Illustrative Range Market Risk Premium (Rm) 7.2% 7.2% 7.2% 7.2% 7.2% Multiplied by: Adj. Levered Beta 1.61 1.61 1.04 1.49 1.65 Adjusted Equity Risk Premium 11.5% 11.5% 7.5% 10.7% 11.8% Plus: Risk-Free Rate (Rf) 3.9% 3.9% 3.9% 3.9% 3.9% Plus: Size Premium (Rs) 1.4% 1.4% 1.4% 1.4% 1.4% Cost of Equity (Ke) 16.8% 16.8% 12.7% 15.9% 17.0% Multiplied by: E / (D + E) 46.7% 64.9% 89.3% 60.0% 70.0% Cost of Equity Portion 7.8% 10.9% 11.3% 9.6% 11.9% After-Tax Cost of Debt 7.5% 7.5% 7.5% 7.5% 7.5% Multiplied by: D / (D + E) 53.3% 35.1% 10.7% 40.0% 30.0% Cost of Debt Portion 4.0% 2.6% 0.8% 3.0% 2.3% WACC 11.84% 13.52% 12.12% 12.57% 14.18% 29 |
| Confidential Jefferies LLC / May 2023 Selected Changes Since Board Presentation on April 14, 2023 Topic Summary Changes FREEDOM Management Projections & Subsidiary Management Incentive Plans Certain cash flow and debt adjustments by Management Additional Badcock projected data through 2030 Tax benefit of (offset) of MIP payouts related to Vitamin Shoppe in 2026 lowered by ~$12M or $0.20 per share due to Section 162(m) of the Internal Revenue Code limitations Selected Transaction Analysis Increase in range for Selected Transactions Analysis from 6.5x - 8.0x to 6.75x - 8.25x Discounted Cash Flow Normalized Terminal year adjusted to exclude Badcock negative contribution Badcock projections extended by FREEDOM management to 2030 to achieve normalized state and terminal value included as a separate line item in DCF 30 |
| Confidential Jefferies LLC Member SIPC The information provided in this document, including valuation discussions, represents the views of Jefferies Investment Banking. There is no assurance that the views expressed herein will be consistent with the views expressed by Jefferies Research or its Analysts. Nothing in this document should be understood as a promise or offer of favorable research coverage. Project FREEDOM Presentation to the Special Committee May 9, 2023 / Confidential |
| Confidential Jefferies LLC / May 2023 Background 2 Transaction Overview 4 FREEDOM Overview 7 FREEDOM Valuation Considerations 12 Appendix 22 Table of Contents i |
| Confidential Jefferies LLC / May 2023 Disclaimer The following pages contain material provided to the Special Committee (the “Special Committee”) of the Board of Directors (the “Board”) of FREEDOM (the “Company”) by Jefferies LLC (“Jefferies”) in connection with Project FREEDOM. These materials were prepared on a confidential basis in connection with an oral presentation to the Special Committee and not with a view toward complying with the disclosure standards under state or federal securities laws or otherwise. These materials are solely for use of the Special Committee in its evaluation of the proposed transaction and may not be used for any other purpose or disclosed to any party without Jefferies’ prior written consent. The information contained in this presentation was based solely on publicly available information or information furnished to Jefferies by the Company. Jefferies has relied, without independent investigation or verification, on the accuracy, completeness and fair presentation of all such information and the conclusions contained herein are conditioned upon such information (whether written or oral) being accurate, complete and fairly presented in all respects. None of Jefferies, its affiliates or its or their respective employees, directors, officers, contractors, advisors, members, successors or agents makes any representation or warranty in respect of the accuracy, completeness or fair presentation of any information or any conclusion contained herein. Jefferies, its affiliates and its and their respective employees, directors, officers, contractors, advisors, members, successors and agents shall have no liability with respect to any information or matter contained herein, or any oral information provided herewith or data any of them generates. Jefferies undertakes no obligation to update these materials. Neither Jefferies nor any of its affiliates is an advisor as to legal, tax, accounting or regulatory matters in any jurisdiction. 1 |
| Confidential Jefferies LLC / May 2023 Background 2 |
| Confidential Jefferies LLC / May 2023 On March 20, 2023, FREEDOM (or the “Company”) announced publicly the receipt of an unsolicited non-binding proposal from B. Riley Financial Inc. (“B. Riley”) to acquire all of the outstanding shares of the Company’s common stock (the “Initial Proposed Transaction”) for $30.00 per share in cash ─ The proposal implied a 31.9% and 10.3% premium to FREEDOM’s unaffected stock price and 30-day VWAP as of March 17, 2023, respectively, and 7.2x FREEDOM’s 2022A Adjusted EBITDA and 9.5x FREEDOM’s 2023E Adjusted EBITDA, respectively ─ Conditioned on: o Current management agreeing to roll their equity and continue with the Company o Approval of the Special Committee and majority of non-Bidder and non-management shareholders o Other customary conditions (e.g., HSR) o 30 days of diligence o Transaction funded by cash on hand and newly raised debt financing; no financing condition A transaction led by Permitted Holders, including B.Riley, Irradiant, Pimco (and Brian Kahn), should not require the refinancing of FREEDOM’s existing debt The Initial Proposed Transaction was subsequently restructured such that B. Riley’s investment would take the form of a bridge commitment to a post-signing syndication of NewCo preferred equity with senior management (the “Management Group”), led by CEO Brian Kahn, holding majority control of NewCo In its capacity as financial advisor to the Special Committee of the Board of Directors of FREEDOM (the “Special Committee”), Jefferies has: ─ Reviewed the Company’s publicly available information and internal financial information and analyses, including its long-range plan (“LRP”) dated as of May 4, 2023, as well as participated in business diligence sessions along with the Bidder and its lenders ─ Engaged in numerous discussions with the Bidder and its approved partners, including current Company lenders Irradiant and Pimco ─ Contacted 11 third party financial buyers with retail investment experience regarding potential interest in a transaction with FREEDOM out of which 7 parties passed; another 4 parties executed NDA and passed subsequently(1) o No additional inbound inquiries after public release of Bidder proposal on March 20, 2023 Background Source: Offer letter dated March 20, 2023. (1) At the Special Committee’s request, Jefferies contacted an additional 8 parties regarding a transaction involving Vitamin Shoppe of which none is in a position to pursue a transaction. Parties Contacted Parties Passed Current Interested Parties (ex. Bidder) Before NDA Post NDA 11 7 4 0 3 |
| Confidential Jefferies LLC / May 2023 Transaction Overview 4 |
| Confidential Jefferies LLC / May 2023 Transaction Overview On May 9, 2023, FREEDOM’s Board of Directors is expected to consider the sale of the Company (the “Proposed Transaction”) to the Management Group for a purchase price of $30.00 per share in cash (the “Proposed Purchase Price”) ─ Represents a premium of 31.9% based on FREEDOM’s unaffected stock price of $22.75 as of March 17, 2023 (day of 52 week low) The Proposed Transaction will be financed with a combination of preferred equity and new committed debt from existing lenders Source: S&P Capital IQ as of May 8, 2023, and Consolidated Long-Range Plan provided by FREEDOM management on May 4, 2023. (1) Fully diluted shares outstanding comprised of 35,172,623 shares of common stock, 216,376 stock options outstanding and exercisable at various strike prices, 506,189 restricted stock units and 454,093 performance restricted stock units as provided by FREEDOM management on May 3, 2023. Excludes 803,426 out-of-the-money Market-Based Restricted Stock Units that are not expected to vest in connection with the Proposed Transaction. (2) Per Mergermarket Story regarding a rumored management buyout dated January 10, 2023. (3) VWAP calculated based on calendar days, ending on March 17, 2023. (4) 52-week high and low prices calculated as the highest and lowest price that a stock has traded at during the previous 52 weeks (including intra-day prices) ending May 8, 2023. Proposed Purchase Price $30.00 Diluted Shares Outstanding(1) 36.3 Implied Equity Value $1,089 Plus: Total Debt (Q1'23) 1,448 Plus: Preferred Equity 114 Less: Cash and Cash Equivalents (Q1'23) (98) Total Enterprise Value (TEV) $2,552 Implied Premiums FREEDOM Statistic Implied Premium to Current Stock Price $29.46 1.8% (Discount) / Premium to Unaffected Stock Price (as of 3/17/23) $22.75 31.9% 30-day (Discount) / Premium to Unaffected Stock Price (as of 2/17/23) $30.06 (0.2%) (Discount) / Premium to Stock Price Pre-Mergermarket Story (12/30/22) (2) $23.82 25.9% 90-day (Discount) / Premium to Unaffected Stock Price (as of 12/19/23) $23.51 27.6% (Discount) / Premium to 30-day VWAP (as of 3/17/23) (3) $27.21 10.3% (Discount) / Premium to 90-day VWAP (as of 3/17/23) (3) $27.95 7.3% (Discount) / Premium to 52-Week High (6/9/22) (4) $44.25 (32.2%) (Discount) / Premium to 52-Week Low (3/17/23) (4) $22.45 33.6% FREEDOM Statistic TEV / EBITDA Managament Adj. EBITDA LTM Q1 2023 EBITDA $308 8.3x FY2023E EBITDA $268 9.5x FY2024P EBITDA $297 8.6x 5 |
| Confidential Jefferies LLC / May 2023 Key Terms of the Merger Agreement Proposed Transaction Summary Proposed Purchase Price $30.00 per share in cash Parties: Franchise Group, Inc. (the “Company”) Freedom VCM, Inc. (“Parent”), a newly formed affiliate of B. Riley Financial, Inc. and management rollover investors Freedom VCM Subco, Inc. (“Merger Sub”), a wholly owned subsidiary of Parent B. Riley Financial Inc. is providing an equity commitment and limited guaranty; management rollover investors are providing equity Structure: Reverse triangular merger in which Merger Sub will merge into the Company with the Company surviving as a wholly owned subsidiary of Parent Single step “voted” merger (no tender offer) Management equity rollover will occur immediately prior to Merger Financing Combination of fully committed debt financing, cash equity and management rollover equity No financing condition; however, acquiror only required to close if debt financing is funded Certain Closing Conditions: Stockholder approval, including approval by holders of a majority of the outstanding shares held by unaffiliated stockholders Customary bringdown of representations, compliance with covenants and absence of MAE HSR approval Alternative Transactions: 30-day go-shop period; after which no additional solicitation, subject to fiduciary out Outside Date: 6 months after signing Termination Fees: Reverse Termination Fee of $55 million Company Termination Fee of $10.35 million for Acquisition Proposal received during the go-shop period; $20.72 million thereafter Source: Draft Agreement and Plan of Merger dated May 9, 2023, which we understand remains subject to further negotiation and revision in all respects. 6 |
| Confidential Jefferies LLC / May 2023 FREEDOM Overview 7 |
| Confidential Jefferies LLC / May 2023 2/2/23 Gross Gross Adj. Interest $ % Leverage Leverage(1) Rate Maturity Cash and Cash Equivalents $80.8 ABL Revolver ($400M) $16 1.1% 4.0x 2.4x S+175 3/10/26 1st Lien Term Loan (With Add-On) $1,099 76.7% 2.6x 4.0x S + CSA + 475 3/10/26 2nd Lien Term Loan $300 20.9% 3.3x 4.4x L + 750 9/10/26 Finance Lease Liabilities $11 0.8% 3.4x 4.4x - - Other Long Term Obligations $6 0.4% 3.4x 4.4x - - Total Debt $1,432.2 100.0% 3.4x 4.4x Based on FY2022 Bank Adj. EBITDA of: $425.6 Based on FY2022 Bank Adj. EBITDAR of: $705.0 Pro Forma Capitalization Table(3) Valuation Metrics Stock Price Performance – Since NASDAQ Relisting (November 2019) Trading Statistics $0.00 $10.00 $20.00 $30.00 $40.00 $50.00 $60.00 Nov-19 May-20 Nov-20 May-21 Nov-21 May-22 Nov-22 May-23 Price FREEDOM Trading Update – Public Market Perspective $29.46 Unsolicited Offer Letter Received Mar. ’23 ($22.75) Pre-Mergermarket Story Dec. ’23 ($23.82) (5/8/23) Current (3/17/23) Unaffected ($Millions, except per share data) (2) (2) Pet Supplies Plus Acquired Jan. ‘21 Sylvan Learning Acquired Sept. ‘21 The Vitamin Shoppe Acquired Dec. ‘19 Badcock Acquired Nov. ‘21 American Freight Acquired Feb. ‘20 Source: Company filings, S&P Capital IQ as of May 8, 2023. Note: Shares outstanding based on fully diluted shares outstanding per most recent public filing. Pro forma capitalization table for reference to reflect ABL balance as of January 23, 2023 and pro forma for the paydown by the $300 million incremental first lien term loan transaction closed on February 2, 2023. (1) Rent expense capitalized at 6.0x and estimated based on LTM September 25, 2022 data. (2) Fully diluted shares outstanding comprised of 35,172,623 shares of common stock, 216,376 stock options outstanding and exercisable, 506,189 restricted stock units and 454,093 performance restricted stock units. Excludes 840,926 out-of-the-money Market-Based Restricted Stock Units that are not expected to vest in connection with the Proposed Transaction. (3) Pro forma debt and cash balances as of February 2, 2023. (4) Calculated based of 4,541,125 shares of Series A Cumulative Preferred Stock with a liquidation preference of $25.00, per Company filings dated December 31, 2022. (5) 52-week high and low prices calculated as the highest and lowest price that a stock has traded at during the previous 52 weeks (including intra-day prices). (4) (4) (3) (3) (3) (3) EV / CY2023E Consensus Revenue 0.52x 0.58x EV / CY2023E Consensus EBITDA 6.5x 7.2x EV / CY2024P Consensus EBITDA 5.5x 6.1x Trading Summary Share Price $22.75 $29.46 52-Week High $44.66 $44.25 52-Week Low $22.45 $22.45 Current % of 52-Week High 50.9% 66.6% 3-M Avg. Daily Vol. ('000s) 524.91 424.11 Share Price $22.75 $29.46 Shares Outstanding (mm) 36.3 36.3 Market Capitalization $826.9 $1,070.8 Plus: Total Debt (2/2/23) 1,432.2 1,432.2 Plus: Preferred Equity 113.5 113.5 Less: Cash & Cash Eqv. (2/2/23) (80.8) (80.8) Enterprise Value $2,291.9 $2,535.8 CY2023E Consensus Revenue $4,412.8 $4,402.9 CY2023E Consensus EBITDA $350.6 $350.9 CY2024P Consensus EBITDA $416.0 $412.5 (5) (5) 8 |
| Confidential Jefferies LLC / May 2023 FREEDOM Trading Performance Nov-19 Feb-20 May-20 Sep-20 Dec-20 Mar-21 Jun-21 Oct-21 Jan-22 Apr-22 Jul-22 Oct-22 Feb-23 May-23 (100%) 0% 100% 200% 300% 400% Stock Price Performance – Since NASDAQ Relisting (November 2019) Sources: Company filings, S&P Capital IQ and Wall Street research as of May 8, 2023. (1) Hybrid Franchisor Index comprised of DRVN, LOCO, SHAK and SNA. (2) Pet Retail Index comprised of MUSTI, PETS and WOOF. (3) Home and Furniture Index comprised of BBY, ETD, HVT, SNBR, TCS, TPX, TSX:ZZZ and WSM. (4) Beauty, Health and Wellness Index comprised of BBWI, NGVC, RAD, SBH, SFM, ULTA and WBA. (5) Finance Driven Retail Index comprised of AAN, CONN and UPBD. (6) Specialty Retail Index comprised of ASO, DKS, HIBB, JOAN and ODP. (7) Unit-Based Education Index comprised of BFAM, FC, LRN and LSE:PSON. FREEDOM: 147% Hybrid Franchisors(1): 40% Specialty Retail(6): 222% Beauty and Wellness(4): (8%) Finance Driven Retail(5): (17%) Unit Based Education(7): (8%) Pet Retail(2): 24% Home and Furniture(3): 16% YTD LTM FREEDOM 15% (21%) Hybrid Franchisor(1) 14% 18% Pet Retail(2)) 22% (22%) Home and Furniture(3) (3%) (9%) Beauty, Health and Wellness(4) (7%) (10%) Finance Driven Retail(5) 26% (11%) Specialty Retail(6) 12% 45% Unit-Based Education(7) 7% 12% 9 |
| Confidential Jefferies LLC / May 2023 Average EV / NTM EBITDA Multiple EV / NTM EBITDA Multiples Over Time 7.2x 12.5x 11.8x 6.9x 7.5x 6.1x 4.8x 12.8x 7.1x 11.4x 9.4x 5.3x 7.4x 5.7x 4.5x 11.3x 7.2x 11.1x 8.0x 5.3x 7.2x 7.0x 5.2x 8.8x FREEDOM Hybrid Franchisor Pet Retail Home and Furniture Beauty, Health and Wellness Finance Driven Retail Specialty Retail Unit-Based Education 3-Year 1-Year Current Sources: Company filings, S&P Capital IQ and Wall Street research as of May 8, 2023. (1) Hybrid Franchisor Index comprised of DRVN, LOCO, SHAK and SNA. (2) Pet Retail Index comprised of MUSTI, PETS and WOOF. (3) Home and Furniture Index comprised of BBY, ETD, HVT, SNBR, TCS, TPX, TSX:ZZZ and WSM. (4) Beauty, Health and Wellness Index comprised of BBWI, NGVC, RAD, SBH, SFM, ULTA and WBA. (5) Finance Driven Retail Index comprised of AAN, CONN and UPBD. (6) Specialty Retail Index comprised of ASO, DKS, HIBB, JOAN and ODP. (7) Unit-Based Education Index comprised of BFAM, FC, LRN and LSE:PSON. (1) (2) (3) (4) (5) (6) (7) FREEDOM 10 |
| Confidential Jefferies LLC / May 2023 FY 2023P FY 2024P 12-18 Month Firm Revenue EBITDA Revenue EBITDA Price Target Recommendation Oppenheimer (3/21/23) $4,372 $354 $4,473 $413 $40.00 Outperform Barrington (3/1/23) $4,375 $355 $4,500 $400 $35.00 Outperform Stephens (3/1/23) $4,426 $353 $4,485 $394 $28.00 Neutral CJS Securities (3/2/23) $4,408 $357 $4,551 $410 $42.00 Outperform D.A. Davidson (4/10/23) $4,483 $348 $4,625 $457 $39.00 Buy Mean: $4,413 $353 $4,527 $415 $36.80 Management: $4,223 $268 $4,428 $297 NA Selected Analyst Estimates (as of May 8, 2023) Sources: Wall Street Research, S&P Capital IQ as of May 8, 2023. (1) Represents Adj. EBITDA per consolidated Long-Range Plan provided by FREEDOM management on May 4, 2023. Wall Street Research Perspectives ($Millions) Management projects meaningfully lower EBITDA vs. Mean (1) (1) 11 |
| Confidential Jefferies LLC / May 2023 FREEDOM Valuation Considerations 12 |
| Confidential Jefferies LLC / May 2023 Historical and Projected FREEDOM Financial Summary Source: Consolidated Long-Range Plan provided by FREEDOM management on May 4, 2023. Historical Management Estimates CAGR ($Millions) FY2020A FY2021A FY2022A FY2023E FY2024P FY2025P FY2026P '20A - '23E '23E - '26P Revenue Vitamin Shoppe $1,036 $1,173 $1,207 $1,248 $1,272 $1,309 $1,359 6.4% 2.9% Pet Supplies Plus 846 1,121 1,289 1,372 1,475 1,648 1,859 17.5% 10.7% American Freight 945 989 883 912 985 1,145 1,262 (1.2%) 11.4% Badcock 899 907 716 592 591 660 730 (13.0%) 7.2% Buddy's 97 64 57 57 60 67 73 (16.5%) 8.6% Sylvan 26 38 42 42 45 48 51 17.4% 6.4% Total Revenue $3,850 $4,292 $4,195 $4,223 $4,428 $4,876 $5,334 3.1% 8.1% % Growth 5.2% 11.5% (2.3%) 0.7% 4.9% 10.1% 9.4% Total COGS $2,096 $2,410 $2,519 $2,584 $2,724 $3,010 $3,320 7.2% 8.7% Contribution Margin $1,754 $1,882 $1,676 $1,639 $1,704 $1,866 $2,013 (2.2%) 7.1% % Margin 45.6% 43.9% 39.9% 38.8% 38.5% 38.3% 37.7% Total Operating Expenses $1,496 $1,467 $1,430 $1,389 $1,424 $1,501 $1,574 (2.5%) 4.3% Total EBITDA $234 $490 $288 $242 $281 $366 $440 1.1% 22.2% % Margin 6.1% 11.4% 6.9% 5.7% 6.3% 7.5% 8.3% Adjusted EBITDA Vitamin Shoppe $78 $137 $135 $136 $140 $145 $150 20.4% 3.5% Pet Supplies Plus 76 93 115 120 134 157 185 16.2% 15.6% American Freight 109 97 4 19 47 91 116 (44.0%) 82.3% Badcock 106 85 84 (21) (38) (27) (16) NM NM Buddy's 27 18 16 16 16 20 24 (16.3%) 15.3% Sylvan 6 12 14 14 15 16 17 36.2% 7.8% Total Adjusted EBITDA $395 $438 $354 $268 $297 $382 $456 (12.2%) 19.5% % Margin 10.3% 10.2% 8.4% 6.3% 6.7% 7.8% 8.6% Total D&A $111 $88 $82 $80 $82 $78 $78 (10.4%) (0.9%) Total Capital Expenditures $59 $66 $51 $47 $42 $45 $45 (7.3%) (1.7%) % Margin 1.5% 1.5% 1.2% 1.1% 1.0% 0.9% 0.8% 13 |
| Confidential Jefferies LLC / May 2023 Illustrative Payouts in 2026 Vitamin Shoppe Pet Supplies Plus Sylvan American Freight Monetization Scenario Change of Control Optional Liquidity Optional Liquidity Optional Liquidity Contractual EBITDA for 2026 Payout (5) $150.4 $184.9 $17.5 $116.3 Contractual Multiplier (6) 9.0x 6.5x 7.0x 5.6x Implied EV $1,353.7 $1,201.6 $122.2 $651.3 Less: Invested Capital 21.9 (350.0) (40.5) (230.0) Less: Contractual Debt / Transaction Costs (35.0) (174.1) (6.8) (295.5) Incremental EV $1,340.6 $677.5 $74.9 $125.8 % of Equity Value (7) 11.0% 10.0% 6.7% 0.0% MIP Payout(8) $147.5 $67.8 $5.0 $0.0 MIP Payout / Share (Net of Tax)(9) $3.34 $1.38 $0.10 $0.00 Present Value of MIP Payout / Share (Net of Tax)(10)(11) $2.03 $0.84 $0.06 $0.00 Total Payout $220.2 Payout (Net of Tax)(9) 174.9 Payout / Share $4.82 Payout / Share (Present Value)(10) $2.93 Several of FREEDOM’s businesses have a Subsidiary Management Incentive Plan (MIP) in place representing ~10% of the equity value upon a change of control (net of certain adjustments including debt and contributed capital)(1) MIPs are triggered upon a change of control of Vitamin Shoppe, Pet Supplies Plus, Sylvan and American Freight businesses – but not upon a change in control of the parent company(2) Current obligations under MIPs cannot be changed by Company unilaterally(3)(4) Pet Supplies Plus, Sylvan and American Freight plans have performance-based and time-vested units which have an optional liquidity provision (“Optional Liquidity MIPs”), in which beneficiaries can elect to receive proceeds at specified points in the future Vitamin Shoppe beneficiaries only receive proceeds upon a Vitamin Shoppe change of control (“Change of Control” only plan) For preliminary valuation purposes, MIPs are analyzed as an aggregate payout in 2026, and are discounted to present value as part of the DCF analysis, such that all of the value of the Company’s businesses would be 100% owned by existing shareholders Description Commentary & Assumptions Detail Regarding FREEDOM Subsidiary Management Incentive Plans (MIPs) (1) Additionally, per FREEDOM management, through a verbal agreement, Buddy’s CEO holds a 1.5% stake in Buddy’s that can only be monetized in a sale of Buddy’s. (2) Change of Control in HoldCo does not trigger a liquidity event for the individual Operating Company plans. Vesting accelerates upon a Change of Control of individual businesses. (3) For Pet Supplies Plus and Sylvan, FREEDOM may terminate and liquidate the Plan in accordance with Code Section 409A in connection with a Change in Control. (4) Option to amend is applicable except with respect to outstanding awards. (5) Contractual EBITDAs are Reported Adjusted EBITDAs of individual segments in Consolidated LRP provided by FREEDOM Management on May 4, 2023. (6) Reflects an illustrative valuation multiple for Vitamin Shoppe in a sale transaction. (7) % of Equity Value reflects both Time Vested and Performance Vested Units. (8) Payout for American Freight is zero due to projected underperformance of the business. (9) Applied effective tax rate of 26% as per management estimates. (10) Based on illustrative WACC of 13.25%. (11) Payments above $1mm made to the former Vitamin Shoppe CEO as part of this plan are not tax deductible per Section 162(m) of Internal Revenue Code. ($Millions, except price per share) Vitamin Shoppe Incentive Unit Plan Details Pet Supplies Plus Incentive Unit Plan Details Represents 11% of Vitamin Shoppe Equity Value in a change in control scenario Currently fully vested given Vitamin Shoppe performance and timing Does not have Optional Liquidity provision Represents ~10% of Pet Supplies Plus Equity Value in a scenario where there is a change in control / optional liquidity exercise 1/3rd are time vested – Vest if one is employed for three years by March 2024 2/3rd are performance vested – Vest subject to a performance goal and if employed till March 2025 Optional liquidity available for both time and performance vested units in 2025 and 2026 Today @ 9.0x Sale: ~$3.00 14 |
| Confidential Jefferies LLC / May 2023 Analysis of Selected Publicly Traded Companies Estimates current market value of FREEDOM based on trading multiples of selected publicly traded companies generally considered relevant for comparative purposes Reviewed 34 publicly traded Hybrid Franchisor, Pet Retail, Home & Furniture, Beauty, Health & Wellness, Finance-driven Retail, Specialty Retail and Unit-Based Education companies relative to FREEDOM’s six business units Analysis of Selected Transactions Estimates value of FREEDOM based on a review of selected merger and acquisition transactions generally considered relevant for comparative purposes Reviewed 33 completed transactions with publicly available information in the Pet Retail, Home & Furniture, Health & Wellness, Finance-driven Retail, Specialty Retail and Unit-Based Education sectors Discounted Cash Flow Analysis Estimates the value of FREEDOM based on the present value of the Company’s risk-adjusted cash flow Terminal Value calculated using perpetuity growth method Implied values per share, stated pre and net of hypothetical estimated MIP payments, per FREEDOM management Badcock terminal value as of 2026 calculated as the then present value of years 2027 to 2030 cash flow plus the subsequent years based on 2030 FCF and a 3% perpetuity growth rate M&A Premiums A review, as an additional reference point for informational purposes, of premiums paid in selected M&A transactions involving public companies Reviewed 355 public company all-cash transactions across all industries, excluding financial, real estate and energy targets, and with transaction equity values between $1B and $5B closed since January 1, 2010 Applied relevant premiums to FREEDOM’s unaffected stock price of $22.75 as of March 17, 2023 and FREEDOM’s stock prices 30 days prior to that point Methodology / Consideration General Description Comments Selected Valuation Methodologies Note: Jefferies did not attribute any particular weight to any analysis, methodology or factor considered by it, but rather made qualitative judgments as to the significance and relevance of each analysis and factor; accordingly, Jefferies’ analyses must be considered as a whole. Considering any portion of the analyses or the factors considered, without considering all analyses and factors, could create a misleading or incomplete view of the process undertaken by Jefferies. For Informational Purposes Only: 15 |
| Confidential Jefferies LLC / May 2023 $26.50 $27.00 $23.50 $26.25 $17.00 $10.25 $10.75 $32.00 $34.75 $35.50 $38.50 $31.75 $22.50 $22.00 $5.00 $15.00 $25.00 $35.00 $45.00 Methodology Metrics Financial Analyses Summary – Based on May 4, 2023 LRP Implied Enterprise Value / For Informational Purposes Only All Industries (355) Transactions) Historical Premium Analysis Consumer / Retail (61) Transactions) 2023E Mgmt Adj. EBITDA of $268M Source: Consolidated Long-Range Plan provided by FREEDOM management on May 4, 2023. Valuation range figures rounded to the nearest $0.25. Note: Fully diluted shares outstanding comprised of 35,172,623 shares of common stock, 216,376 stock options outstanding and exercisable at various strike prices, 506,189 restricted stock units and 454,093 performance restricted stock units as provided by FREEDOM management on May 3, 2023. Excludes 803,426 out-of-the-money Market-Based Restricted Stock Units that are not expected to vest in connection with the Proposed Transaction. (1) The selected multiple range of 6.75x to 8.25x for FY 2023E (which corresponds to the indicated reference range of implied per share equity values of $10.75 to $22.00) was updated from the range of 6.5x to 8.0x that was stated in the presentation reviewed by the Special Committee on May 9, 2023, based on current market data as of such date. Jefferies provided the Special Committee with the updated range and informed the Special Committee that the update did not impact in any material respect Jefferies’ analyses and did not affect the conclusion rendered in Jefferies’ opinion. The reference range of implied per share equity values reviewed by the Special Committee on May 9, 2023 was unchanged. (2) $35.50 represents high end of range ($37.75) less the present value of the Vitamin Shoppe MIP. Discounted Cash Flow Analysis Pre-MIP Selected Public Companies Analysis 2023E Adj. EBITDA Multiple Selected Transactions Analysis Discount rate of 12.75% - 13.75% and perpetuity growth rate of 2.5% - 3.5% applied on Pre-MIP value 6.75x – 8.25x 2023E Adj. EBITDA ─ 2023E Mgmt Adj. EBITDA of $268M 25th and 75th Percentile 1-day premiums to unaffected share price ($22.75) as of 3/17/23 25th and 75th Percentile 1-day premiums to unaffected share price ($22.75) as of 3/17/23 LTM Q1 2023E Adj. EBITDA Multiple 6.75x – 8.5x LTM Q1 2023E Adj. EBITDA ─ Q1 2023E Mgmt Adj. EBITDA of $308M Proposed Purchase Price : $30.00 2024P Adj. EBITDA Multiple 6.0x – 7.5x 2024P Adj. EBITDA ─ 2024P Mgmt Adj. EBITDA of $297M 5.3x 6.5x 7.7x 9.0x 10.4x 6.1x 7.5x 8.9x 10.4x 11.9x Net of MIP High end of range reflects present value impact from exercise of Optional Liquidity MIPs (ex-Vitamin Shoppe); bottom end of range reflects full deduction of estimated present value of all potential MIP payments (~$3.00 / share) LTM Q1’ 23A Mgmt Adj. EBITDA of $308M $37.75 (2) (1) 16 |
| Confidential Jefferies LLC / May 2023 Equity Enterprise 2022A Size and Scale 22A - '24P Projected Gowth EV / EBITDA Pet Retail Value Value Revenue EBITDA EBITDA % Unit Revenue EBITDA 2023E 2024P Petco Health and Wellness Company, Inc. $3,186 $4,678 $6,025 $582 9.7% 0.7% 3.4% (1.4%) 8.8x 8.3x Pets at Home Group Plc 2,454 2,523 1,636 314 19.2% NA 8.8% 5.4% 7.8x 7.2x Pet Supplies Plus NA NA 1,289 105 8.1% 14.1% 7.0% 12.7% - - Musti Group Oyj 702 852 422 74 17.5% NA 10.2% 12.6% 10.2x 9.1x Mean $2,114 $2,684 $2,343 $269 13.6% 7.4% 7.4% 7.3% 8.9x 8.2x Median $2,454 $2,523 $1,462 $209 13.6% 7.4% 7.9% 9.0% 8.8x 8.3x Home and Furniture Best Buy Co., Inc. $16,087 $15,405 $46,346 $3,961 8.5% (2.0%) (1.3%) (13.6%) 5.5x 5.2x Williams-Sonoma, Inc. 7,914 7,547 8,821 1,730 19.6% (5.2%) (1.6%) (9.2%) 5.3x 5.3x Tempur Sealy International, Inc. 6,798 9,569 4,954 892 18.0% NA 4.2% 9.3% 9.8x 9.0x Sleep Number Corporation 538 996 2,113 148 7.0% 3.5% 0.2% 9.5% 5.9x 5.6x The Container Store Group, Inc. 154 337 1,086 115 10.5% 11.2% 2.2% (1.5%) 3.3x 3.0x Haverty Furniture Companies, Inc. 430 307 1,034 135 13.0% NA (2.6%) NA NA NA American Freight NA NA 883 (69) (7.8%) 6.5% 5.6% - - - Ethan Allen Interiors Inc. 700 615 848 157 18.5% NA NA NA 4.8x NA Badcock Home Furniture NA NA 592 (21) (3.6%) (2.1%) (9.2%) - - - Sleep Country Canada Holdings Inc. 657 678 683 164 24.0% 2.1% 3.4% 0.2% 4.3x 4.1x Mean $4,160 $4,432 $6,736 $721 10.8% 2.0% 0.1% (0.9%) 5.6x 5.4x Median $679 $837 $1,060 $153 11.8% 2.1% 0.2% (0.7%) 5.3x 5.2x Beauty, Health and Wellness Walgreens Boots Alliance, Inc. $27,316 $46,765 $131,772 $5,710 4.3% NA 5.0% 9.6% 7.0x 6.8x Rite Aid Corporation 114 3,219 23,918 419 1.8% NA (3.7%) (5.2%) 9.0x 8.5x Ulta Beauty, Inc. 26,476 25,738 10,001 1,820 18.2% 3.6% 7.8% 4.9% 13.3x 12.8x Bath & Body Works, Inc. 7,536 11,167 7,474 1,597 21.4% NA 2.6% 1.9% 7.6x 6.7x Sprouts Farmers Market, Inc. 3,769 3,735 6,389 485 7.6% 7.0% 6.4% 3.4% 7.4x 7.2x Sally Beauty Holdings, Inc. 1,209 2,261 3,757 483 12.8% (0.8%) 1.5% 0.9% 4.9x 4.6x Vitamin Shoppe NA NA 1,207 136 11.2% 2.5% 2.7% 1.6% - - Natural Grocers by Vitamin Cottage, Inc. 253 299 1,090 56 5.2% NA NA 6.0% 5.0x 4.7x Mean $9,525 $13,312 $23,201 $1,338 10.3% 3.0% 3.2% 2.9% 7.7x 7.3x Median $3,769 $3,735 $6,932 $484 9.4% 3.0% 2.7% 2.6% 7.4x 6.8x FREEDOM $827 $2,292 $4,195 $288 6.9% 5.9% 2.7% (1.3%) 6.5x 5.5x Proposed Transaction 1,089 2,552 4,195 288 6.9% 5.9% 2.7% (1.3%) 9.5x 8.6x Analysis of Selected Public Companies – Valuation and Benchmarking Source: Company provided financials, S&P Capital IQ as of May 8, 2023, Public filings and Wall Street equity research. (1) Reflects pro forma debt and cash figures as of February 2, 2023. (2) Reflects consensus estimated EV / 2023E and 2024P Adjusted EBITDA multiples at the unaffected share price on March 17, 2023. (3) Reflects 2023E figures. ($Millions) (1) (2) (2) (3) (3) (3) 17 |
| Confidential Jefferies LLC / May 2023 Equity Enterprise 2022A Size and Scale 22A - '24P Projected Gowth EV / EBITDA Finance Driven Retail Value Value Revenue EBITDA EBITDA % Unit Revenue EBITDA 2023E 2024P Upbound Group, Inc. $1,917 $3,172 $4,245 $454 10.7% 0.4% (2.3%) (2.0%) 7.7x 7.3x The Aaron's Company, Inc. 395 586 2,251 166 7.4% (1.5%) 0.9% 1.4% 3.9x 3.4x Conn's, Inc. 123 535 1,339 37 2.8% 6.9% 5.0% 64.2% 12.4x 5.3x Buddy's Home Furnishings NA NA 57 16 27.1% 9.1% 2.3% 1.7% - - Mean $811 $1,431 $1,973 $168 12.0% 3.7% 1.5% 16.3% 8.0x 5.3x Median $395 $586 $1,795 $102 9.0% 3.7% 1.6% 1.6% 7.7x 5.3x Specialty Retail DICK'S Sporting Goods, Inc. $12,863 $12,497 $12,217 $1,846 15.1% 1.2% 3.3% 3.0% 6.6x 6.4x The ODP Corporation 1,816 1,601 8,520 437 5.1% NA (2.9%) (4.8%) 4.0x 4.0x Academy Sports and Outdoors, Inc. 4,806 5,064 6,438 995 15.5% 5.8% 4.6% 1.5% 5.4x 4.9x JOANN Inc. 88 1,059 2,206 99 4.5% (0.6%) (0.7%) 30.0% 8.7x 6.4x Hibbett, Inc. 700 723 1,727 213 12.3% 3.6% 5.5% 5.1% 3.4x 3.1x Mean $4,055 $4,189 $6,221 $718 10.5% 2.5% 2.0% 7.0% 5.6x 5.0x Median $1,816 $1,601 $6,438 $437 12.3% 2.4% 3.3% 3.0% 5.4x 4.9x Unit-Based Education Pearson plc $7,728 $8,593 $4,613 $834 18.1% NA 2.7% 12.5% 8.6x 8.1x Bright Horizons Family Solutions Inc. 5,357 6,299 2,016 317 15.7% 1.5% 12.5% 16.0% 17.5x 14.8x Stride, Inc. 1,862 1,963 1,745 268 15.4% NA 7.8% 16.9% 6.5x 5.4x Franklin Covey Co. 489 454 270 44 16.3% NA 10.4% 13.1% 9.7x 8.1x Sylvan Learning NA NA 42 13 31.4% 2.6% 3.1% 5.3% - - Mean $3,859 $4,327 $1,737 $295 19.4% 2.0% 7.3% 12.8% 10.6x 9.1x Median $3,609 $4,131 $1,745 $268 16.3% 2.0% 7.8% 13.1% 9.1x 8.1x Hybrid Franchisors Snap-on Incorporated $14,071 $14,536 $4,489 $1,232 27.4% NA 3.9% 6.9% 10.7x 10.3x Driven Brands Holdings Inc. 4,903 7,461 2,043 274 13.4% 5.9% 14.4% 56.7% 12.7x 11.1x Shake Shack Inc. 2,854 2,904 900 70 7.8% 14.7% 18.6% 39.8% 24.4x 21.1x El Pollo Loco Holdings, Inc. 337 383 469 49 10.4% 3.5% 3.8% 16.1% 6.5x 5.8x Mean $5,541 $6,321 $1,976 $406 14.8% 8.0% 10.2% 29.9% 13.6x 12.1x Median $3,879 $5,183 $1,472 $172 11.9% 5.9% 9.1% 27.9% 11.7x 10.7x Weighted Median 7.8x 7.2x Median 7.4x 6.6x Mean 8.1x 7.3x _ FREEDOM $827 $2,292 $4,195 $288 6.9% 5.9% 2.7% (1.3%) 6.5x 5.5x Proposed Transaction 1,089 2,552 4,195 288 6.9% 5.9% 2.7% (1.3%) 9.5x 8.6x Analysis of Selected Public Companies – Valuation and Benchmarking (Cont’d) Source: Company provided financials, S&P Capital IQ as of May 8, 2023, company filings and Wall Street equity research. (1) Weighted according to the corresponding year’s Adj. EBITDA segment contribution to the total FREEDOM aggregate. Reflects Pet Retail median weighted by Pet Supplies Plus, Home and Furniture median weighted by American Freight and Badcock Home Furniture, Beauty Health and Wellness and Specialty Retail combined median weighted by Vitamin Shoppe, Finance Driven Retail median weighted by Buddy’s, and Unit Based Education median weighted by Sylvan Learning. (2) Reflects pro forma debt and cash figures as of February 2, 2023. (3) Reflects consensus estimated EV / 2023E and 2024P Adjusted EBITDA multiples at the unaffected share price on March 17, 2023. (1) (2) (3) (3) ($Millions) 18 |
| Confidential Jefferies LLC / May 2023 EV / LTM EBITDA Analysis of Selected Transactions – Since 2017 ($Millions) Source: Company filings, Definitive Proxy Statements, press releases, Wall Street equity research. (1) Weighted according to the Q1 2023 LTM Adj. EBITDA segment contribution to the total FREEDOM aggregate. Reflects Pet Retail median weighted by Pet Supplies Plus, Home and Furniture median weighted by American Freight and Badcock Home Furniture, Beauty Health and Wellness and Specialty Retail combined median weighted by Vitamin Shoppe, Finance Driven Retail median weighted by Buddy’s, and Unit Based Education median weighted by Sylvan Learning. Date Announced Target Acquiror Implied Enterprise Value Implied TEV / LTM EBITDA Pet Retail Jan-21 Pet Supplies Plus Franchise Group $700 8.8x Nov-18 Greencross TPG Capital $970 10.0x Home & Furniture May-23 Mattress Firm Tempur Sealy International $4,000 9.3x Jan-22 Mattress Warehouse Wynnchurch Capital ND ND Nov-21 W.S. Badcock Franchise Group $580 4.2x Nov-21 Casper Sleep Durational Capital Management $332 NM May-21 At Home Hellman & Friedman $2,830 7.9x May-21 Dreams Tempur Sealy International $475 6.3x Dec-19 American Freight Franchise Group $450 9.6x Jan-17 Art Van Furniture Thomas H. Lee Partners $550 ND Beauty, Health & Wellness Jun-20 GNC Corporation Harbin Pharmaceutical Group $760 6.9x Aug-19 The Vitamin Shoppe Franchise Group $208 3.8x Jun-17 Whole Foods Amazon $13,733 10.3x Jun-17 The Body Shop Natura Cosmeticos $1,120 13.0x Finance Driven Retail Dec-21 American First Finance FirstCash $1,100 12.1x Dec-20 Acima Rent-a-Center $1,650 7.3x Specialty Retail Apr-22 BrandsMart U.S.A The Aaron's Company $230 5.0x Oct-23 Diamonds Direct Signet Jewlers $490 7.1x Apr-21 West Marine L Catterton ND ND Mar-21 The Michael's Companies Apollo Global Management $4,524 6.8x Dec-20 Sportsman's Warehouse Holdings, Inc. Great Outdoors Group, LLC $792 6.0x Sep-20 JCPenney Brookfield / Simon $800 ND Aug-19 Party City (Canada) Canadian Tire $131 9.9x Jun-19 Barnes & Noble Elliott Management Advisors $683 5.7x Apr-19 Smart and Final Apollo Global Management $1,100 ND Oct-18 Marshall Retail Group WH Smith plc $400 13.7x Jun-17 Staples Sycamore Partners $6,593 5.0x Apr-17 Cabela's Bass Pro Group $4,580 10.4x Jan-17 Leslie's Poolmart L Catterton ND ND Unit Based Education Jun-22 The Goddard School Sycamore Partners ~$1,100 22.0x Feb-22 Houghton Mifflin Harcourt Company Veritas Capital $2,666 9.9x Feb-22 Mathnasium Roark Capital ND ND Oct-21 Lakeshore Learning Leonard Green Partners ~$1,600 ND Weighted Median(1) 8.4x Overall Mean 8.8x Overall Median 8.3x Proposed Transaction $2,552 8.3x 19 |
| Confidential Jefferies LLC / May 2023 Year ending December 31, CAGR Normalized Terminal Yr (US $Ms, except price per share) 2023E 2024P 2025P 2026P 2023E - 2026P Excluding Badcock(1) EBITDA (net of Stock Based Compensation)(2) $242 $281 $366 $440 22.2% $457 % Margin 5.7% 6.3% 7.5% 8.3% 8.3% Less: D&A (80) (82) (78) (78) (35) EBIT $162 $199 $288 $363 30.9% $422 Less: Taxes(3) (42) (52) (75) (94) (110) Net Operating Profit After Tax (NOPAT) $120 $147 $213 $269 30.9% $312 Plus: D&A 80 82 78 78 35 Less: NWC (Increase) / Decrease 125 38 (18) (41) (32) Less: Other Assets / Liabilities (Increase) / Decrease(4) 16 (5) 13 3 - Less: Capital Expenditure (47) (42) (45) (45) (35) Unlevered FCF $293 $220 $242 $263 (3.5%) $281 % Conversion 111.4% 74.2% 63.3% 57.8% 59.4% Present Value of Unlevered FCF $275 $183 $177 $170 Net of MIP Payout Pre-MIP Terminal Value at 3.0% Growth Rate $3,000 $3,000 Less: Illustrative Management Incentive Payoff(5) ($175) - Plus: Badcock Terminal Value(6) ($97) ($97) Terminal Value Post Incentive Units Payoff & Badcock $2,728 $2,903 Present Value of Terminal Value(7) $1,658 $1,765 Sum of PV of Unlevered FCF $805 $805 Total Enterprise Value $2,463 $2,570 Plus: Cash (Q4 '22A) $81 $81 Less: Debt (Q4 '22A) ($1,381) ($1,381) Less: Preferred Equity ($114) ($114) Equity Value $1,049 $1,156 Fully Diluted Shares Outstanding (in millions)(8) 36.281 36.287 Implied Price Per Share (Rounded to the nearest $0.25) $29.00 $31.75 Sensitivities FREEDOM Discounted Cash Flow Analysis – Based on May 4, 2023 LRP Note: Share prices in sensitivity tables are rounded to the nearest $0.25. Source: Consolidated Long-Range Plan provided by FREEDOM management on May 4, 2023. (1) Reflects depreciation equal to capital expenditures in Normalized Terminal Year. (2) As per Long-Range Plan EBITDA forecast through 2026P provided by FREEDOM management on May 4, 2023. (3) Applied effective tax rate of 26% as per FREEDOM management. (4) Other assets / liabilities exclude non-current deferred tax assets, income taxes payable, right of use assets, long-term operating lease liabilities and non-current long-term debt. (5) Management Incentive payoff reflects tax-effected exercise of Optional Liquidity MIPs in 2026 for Pet Supplies Plus, Sylvan and American Freight and Change of Control for Vitamin Shoppe based on contractual multipliers. (6) Badcock terminal value as of 2026 calculated as the then present value of years 2027 to 2030 cash flow plus the subsequent years based on 2030 FCF and a 3% perpetuity growth rate. (7) Based on illustrative perpetuity growth rate of 3%. Based on midpoint WACC of 13.25%. (8) Fully diluted shares outstanding comprised of 35,172,623 shares of common stock, 216,376 stock options outstanding and exercisable at various strike prices, 506,189 restricted stock units and 454,093 performance restricted stock units as provided by FREEDOM management on May 3, 2023. Excludes 803,426 out-of-the-money Market-Based Restricted Stock Units that are not expected to vest in connection with the Proposed Transaction. (9) Reflects changes in EBITDA (net of Stock Based Compensation) from 2023E to 2026P and Normalized Terminal Year. ~$31.00 / share without VSI MIP payout Implied Terminal EBITDA Multiple(7) Perpetuity Discount Rate Growth 12.75% 13.25% 13.75% 2.5% 6.3x 6.0x 5.8x 3.0% 6.7x 6.3x 6.1x 3.5% 7.1x 6.7x 6.4x Pre-MIP (15.00%) $15.25 $25.25 (10.00%) 19.00 29.75 (5.00%) 22.50 34.00 0.0% 26.25 38.50 5.00% 30.00 43.00 10.00% 33.75 47.50 15.00% 37.50 52.00 Change in EBITDA(9) Implied Price Per Share (Low) Implied Price Per Share (High) Implied Price Per Share (Pre MIP) Perpetuity Discount Rate (Refer to pages 23-25) Growth 12.75% 13.25% 13.75% 2.5% $32.50 $29.25 $26.25 3.0% $35.50 $31.75 $28.75 3.5% $38.50 $34.75 $31.25 20 |
| Confidential Jefferies LLC / May 2023 1-day Premiums 17% 30% 41% 19% 31% 52% $27.02 $29.93 $34.70 $26.53 $29.52 $32.04 25% 36% 55% Illustrative Selected M&A Premiums Overview – Based on Unaffected Stock Price (3/17/2023) (For Reference Only) Source: Refinitiv as of May 8, 2023. (1) Data represents 355 all-cash transactions with Total Enterprise Values at Announcement Date of $1.0 Billion to $5.0 Billion since 2010. Excludes real estate, energy & power and financial sector transactions. (2) Data represents 61 all-cash transactions with Total Enterprise Values at Announcement Date of $1.0 Billion to $5.0 Billion involving consumer and retail U.S. domiciled and publicly listed traded targets since 2010. (3) Implied price based on premiums applied to unaffected share price as of close on March 17, 2023. (4) Per Mergermarket report dated January 10, 2023. U.S. M&A All-Cash Transactions, Closed Since January 1, 2010 Median – All Industries(1) Median – Consumer & Retail(2) 21% 31% 47% Implied Price / FREEDOM Share(3) Implied Price / FREEDOM Share(3) 30-day Premiums $28.39 $31.04 $35.34 $27.52 $29.89 $33.39 Proposed Purchase Price 25th Percentile Median 75th Percentile 25th Percentile Median 75th Percentile 25th Percentile Median 75th Percentile 25th Percentile Median 75th Percentile $30.00 30-Day Premium 1-Day Premium 32% 0% 21 |
| Confidential Jefferies LLC / May 2023 Appendix 22 |
| Confidential Jefferies LLC / May 2023 FREEDOM Weighted Average Cost of Capital (WACC) Analysis ($Millions, except per share data) Source: Public Company Filings, Kroll, Bloomberg. Note: Market data as of May 8, 2023. (1) Tax Rate calculated as the summation of US Federal and State statutory tax rates. (2) 5-Year Weekly Adjusted Beta sourced from Bloomberg. Selected Companies Company Name Equity Value Total Debt Cash Minority Interest Preferred Stock Total EV D / E Ratio Equity / Total Cap. Debt / Total Cap. Tax Rate(1) Bloomberg Beta(2) Unlevered Beta Adj. Levered Beta Pet Retail Musti Group Oyj $702 $166 $16 $0 $0 $852 21.4% 82.4% 17.6% 20.0% 1.02 0.87 0.95 Pets at Home Group Plc 2,454 249 181 0 0 2,523 2.8% 97.3% 2.7% 25.0% 0.71 0.69 0.76 Petco Health and Wellness Company, Inc. 3,186 1,694 202 0 0 4,678 46.8% 68.1% 31.9% 29.8% 1.19 0.90 0.98 Median 21.4% 82.4% 17.6% 25.0% 1.02 0.87 0.95 Mean 23.7% 82.6% 17.4% 24.9% 0.97 0.82 0.89 Home and Furniture Best Buy Co., Inc. $16,087 $1,192 $1,874 $0 $0 $15,405 (4.2%) 104.4% (4.4%) 30.8% 1.24 1.28 1.39 Williams-Sonoma, Inc. 7,914 0 367 0 0 7,547 (4.6%) 104.9% (4.9%) 29.8% 1.30 1.34 1.46 Sleep Number Corporation 538 460 2 0 0 996 85.2% 54.0% 46.0% 30.8% 1.54 0.97 1.05 Tempur Sealy International, Inc. 6,793 2,831 69 10 0 9,564 40.7% 71.0% 28.9% 26.0% 1.55 1.19 1.30 Sleep Country Canada Holdings Inc. 657 74 59 5 0 678 2.4% 96.9% 2.3% 39.5% 1.21 1.19 1.28 Ethan Allen Interiors Inc. 700 0 85 (0) 0 615 (12.2%) 113.9% (13.9%) 28.5% 0.96 1.05 1.14 Haverty Furniture Companies, Inc. 430 0 123 0 0 307 (28.6%) 140.1% (40.1%) 26.8% 0.92 1.16 1.26 The Container Store Group, Inc. 154 189 6 0 0 337 119.0% 45.7% 54.3% 21.0% 1.21 0.62 0.68 Median (0.9%) 100.7% (1.1%) 29.2% 1.23 1.17 1.27 Mean 24.7% 91.4% 8.5% 29.1% 1.24 1.10 1.19 Finance Driven Retail Upbound Group, Inc. $1,917 $1,400 $144 $0 $0 $3,172 65.5% 60.4% 39.6% 21.0% 1.25 0.83 0.90 Conn's, Inc. 123 432 20 0 0 535 336.0% 22.9% 77.1% 21.0% 1.57 0.43 0.47 The Aaron's Company, Inc. 395 219 28 0 0 586 48.5% 67.4% 32.6% 26.8% 1.19 0.88 0.95 Median 65.5% 60.4% 39.6% 21.0% 1.25 0.83 0.90 Mean 150.0% 50.2% 49.8% 22.9% 1.34 0.71 0.78 Beauty, Health and Wellness Ulta Beauty, Inc. $26,476 $0 $738 $0 $0 $25,739 (2.8%) 102.9% (2.9%) 30.5% 1.22 1.25 1.35 Sprouts Farmers Market, Inc. 3,770 259 293 0 0 3,735 (0.9%) 100.9% (0.9%) 25.9% 0.57 0.57 0.62 Sally Beauty Holdings, Inc. 1,209 1,151 99 0 0 2,261 87.1% 53.5% 46.5% 21.0% 1.16 0.68 0.75 Bath & Body Works, Inc. 7,536 4,862 1,232 1 0 11,167 48.2% 67.5% 32.5% 21.0% 1.54 1.11 1.22 Rite Aid Corporation 114 3,208 103 0 0 3,219 2714.9% 3.6% 96.4% 31.0% 0.96 0.05 0.05 Walgreens Boots Alliance, Inc. 27,316 13,042 1,840 8,247 0 46,765 41.0% 58.4% 24.0% 30.5% 0.87 0.67 0.73 Natural Grocers by Vitamin Cottage, Inc. 253 63 17 0 0 299 18.0% 84.7% 15.3% 25.6% 0.56 0.49 0.53 Median 41.0% 67.5% 24.0% 25.9% 0.96 0.67 0.73 Mean 415.1% 67.3% 30.1% 26.5% 0.98 0.69 0.75 23 |
| Confidential Jefferies LLC / May 2023 FREEDOM Weighted Average Cost of Capital (WACC) Analysis (Cont’d) ($Millions, except per share data) Source: Public Company Filings, Kroll, Bloomberg. Note: Market data as of May 8, 2023. (1) Tax Rate calculated as the summation of US Federal and State statutory tax rates. (2) 5-Year Weekly Adjusted Beta sourced from Bloomberg. Selected Companies Company Name Equity Value Total Debt Cash Minority Interest Preferred Stock Total EV D / E Ratio Equity / Total Cap. Debt / Total Cap. Tax Rate(1) Bloomberg Beta(2) Unlevered Beta Adj. Levered Beta Specialty Retail DICK'S Sporting Goods, Inc. $12,863 $1,558 $1,924 $0 $0 $12,497 (2.8%) 102.9% (2.9%) 31.0% 1.42 1.45 1.57 Academy Sports and Outdoors, Inc. 4,807 595 337 0 0 5,065 5.4% 94.9% 5.1% 21.0% 1.31 1.26 1.38 The ODP Corporation 1,816 188 403 0 0 1,601 (11.8%) 113.4% (13.4%) 26.5% 1.12 1.23 1.34 JOANN Inc. 88 991 20 0 0 1,059 1101.3% 8.3% 91.7% 21.0% 1.11 0.11 0.13 Hibbett, Inc. 700 39 16 0 0 723 3.2% 96.9% 3.1% 27.5% 1.33 1.29 1.41 Median 3.2% 96.9% 3.1% 26.5% 1.31 1.26 1.38 Mean 219.0% 83.3% 16.7% 25.4% 1.26 1.07 1.16 Unit-Based Education Bright Horizons Family Solutions Inc. $5,357 $978 $36 $0 $0 $6,299 17.6% 85.1% 14.9% 29.0% 1.24 1.10 1.20 Stride, Inc. 1,862 420 318 0 0 1,963 5.5% 94.8% 5.2% 27.0% 0.72 0.69 0.76 Franklin Covey Co. 489 20 55 0 0 454 (7.1%) 107.7% (7.7%) 25.9% 1.15 1.22 1.33 Pearson plc 7,728 1,535 686 16 0 8,593 11.0% 89.9% 9.9% 25.0% 0.73 0.67 0.73 Median 8.2% 92.4% 7.5% 26.4% 0.94 0.90 0.98 Mean 6.7% 94.4% 5.6% 26.7% 0.96 0.92 1.00 Hybrid Franchsiors El Pollo Loco Holdings, Inc. $337 $66 $20 $0 $0 $383 13.5% 88.1% 11.9% 29.8% 1.04 0.95 1.03 Shake Shack Inc. 2,854 256 231 25 0 2,904 0.9% 98.3% 0.9% 28.3% 1.37 1.36 1.48 Driven Brands Holdings Inc. 4,903 2,784 227 1 0 7,461 52.1% 65.7% 34.3% 23.5% 1.13 0.81 0.88 Snap-on Incorporated 14,073 1,200 757 22 0 14,538 3.1% 96.8% 3.0% 28.9% 1.05 1.02 1.11 Median 8.3% 92.5% 7.5% 28.6% 1.13 0.99 1.07 Mean 17.4% 87.2% 12.5% 27.6% 1.26 1.04 1.13 Overall Selected Companies Median 12.2% 89.0% 10.9% 26.8% 1.19 0.96 1.04 Mean 141.6% 80.7% 18.7% 26.7% 1.15 0.92 1.01 FREEDOM Normalized Cap Structure $1,069 $735 $98 $114 $1,819 59.6% 58.8% 35.0% 26.0% 1.61 1.12 1.61 FREEDOM Actual Cap Structure $1,069 $1,448 $98 $114 $2,533 126.3% 42.2% 53.3% 26.0% 1.61 0.83 1.61 24 |
| Confidential Jefferies LLC / May 2023 FREEDOM Actual FREEDOM Normalized Selected Peers Illustrative Range Market Risk Premium (Rm) 7.2% 7.2% 7.2% 7.2% 7.2% Multiplied by: Adj. Levered Beta 1.61 1.61 1.05 1.43 1.65 Adjusted Equity Risk Premium 11.5% 11.5% 7.5% 10.3% 11.8% Plus: Risk-Free Rate (Rf) 3.9% 3.9% 3.9% 3.9% 3.9% Plus: Size Premium (Rs) 1.4% 1.4% 1.4% 1.4% 1.4% Cost of Equity (Ke) 16.8% 16.8% 12.8% 15.6% 17.1% Multiplied by: E / (D + E) 46.7% 65.0% 89.1% 60.0% 70.0% Cost of Equity Portion 7.9% 10.9% 11.4% 9.3% 12.0% After-Tax Cost of Debt 7.5% 7.5% 7.5% 7.5% 7.5% Multiplied by: D / (D + E) 53.3% 35.0% 10.9% 40.0% 30.0% Cost of Debt Portion 4.0% 2.6% 0.8% 3.0% 2.3% WACC 11.87% 13.58% 12.20% 12.35% 14.23% FREEDOM Weighted Average Cost of Capital (WACC) Analysis (Cont’d) ($Millions, except per share data) Source: Public Company Filings, Kroll, Bloomberg. Note: Market data as of May 8, 2023. (1) Spot rate for 20-Year US Treasury Yield as of May 8, 2023. (2) Normalized leverage ratios per FREEDOM management. (3) Adjusted for FREEDOM Debt / Capital ratio and median Debt / Capital ratio for selected public companies. (4) Represents long-horizon expected equity risk premium per Kroll Cost of Capital Navigator. (5) FREEDOM size premium based on 7th decile in Kroll Cost of Capital Navigator. (6) Tax rate based on FREEDOM’s effective tax rate of 2023E as per consolidated Long-Range Plan provided by FREEDOM management on May 4, 2023 (7) FREEDOM pre-tax cost of debt is based on estimated cost of debt for refinancing current debt at SOFR+475 trading at 96.5. WACC Assumptions WACC Calculation FREEDOM Actual FREEDOM Normalized Selected Peers Illustrative Range Risk-Free Rate (Rf)(1) 3.9% 3.9% 3.9% 3.9% 3.9% Unlevered Beta 0.83 1.12 0.96 0.96 1.25 Debt / Equity Ratio 126.3% 59.6% 12.2% 66.7% 42.9% Adj. Levered Beta(3) 1.61 1.61 1.05 1.43 1.65 Market Risk Premium (Rm)(4) 7.2% 7.2% 7.2% 7.2% 7.2% Size Premium (Rs)(5) 1.4% 1.4% 1.4% 1.4% 1.4% Tax Rate(6) 26.0% 26.0% 26.8% 26.0% 26.0% Pre-Tax Cost of Debt (Kd)(7) 10.2% 10.2% 10.2% 10.2% 10.2% Illustrative After-tax Cost of Debt 7.5% 7.5% 7.5% 7.5% 7.5% Illustrative Debt / Total Capital 53.3% 35.0% 10.9% 40.0% 30.0% (2) (2) 25 |
| Confidential Jefferies LLC / May 2023 $109 $97 $4 $19 $47 $91 $116 FY2020A FY2021A FY2022A FY2023E FY2024P FY2025P FY2026P American Freight – Supplemental Management Commentary on Financial Performance $945 $989 $883 $912 $985 $1,145 $1,262 11.6% 9.8% 0.4% 2.1% 4.8% 8.0% 9.2% ($4) ($1) ($25) $4 ($27) ($6) $8 Revenue American Freight’s 2022 performance deteriorated due to a number factors including pull-back by its lower income customer base, potential sales pull-forward during prior COVID periods and ongoing cost inflation ─ Q1 2023 remained EBITDA negative due to the weakest tax season of the past decade according to management Going forward, management is projecting a return to profitability beginning in Q2 2023 resulting in modest 2023 EBITDA which grows sharply through 2026 ─ 2026 EBITDA falls in line with 2020 and 2021 levels, albeit on lower margins against higher sales EBITDA Margin Adj. EBITDA FCF(1) Note: Supplemental Commentary provided in light of meaningful performance change in FREEDOM LRP, per FREEDOM management. Source: Consolidated Long-Range Plan provided by FREEDOM management on May 4, 2023 and FREEDOM management. (1) Calculated as Cash Flow from Operations less Capital Expenditures. 26 |
| Confidential Jefferies LLC / May 2023 A significant portion of Badcock’s revenue is dependent on providing consumer credit to its customers FREEDOM's approach to financing Badcock customers is currently in transition due to balance sheet constraints − Management has explored numerous solutions to date that have not proven fruitful (e.g., SPV, AFF as second look provider, sale / merger) The Company's LRP reflects an outsourcing arrangement with Fortiva which is currently under test − Management expects such arrangement would result in negative EBITDA for the next several years Alternatively, FREEDOM continues to explore several other options which may or may not be feasible and if so may or may not be more financially attractive: − Partnering with alternative third-party credit service providers (e.g., Genesis) − JV transaction with a consumer-financing operating company or credit provider (e.g., Fortiva) − Sale to a financial sponsor or management − Business liquidation $106 $85 $84 ($21) ($38) ($27) ($16) ($10) ($4) $3 $10 FY2020A FY2021A FY2022A FY2023E FY2024P FY2025P FY2026P FY2027P FY2028P FY2029P FY2030P Badcock – Supplemental Management Commentary on Financial Performance $899 $907 $716 $592 $591 $660 $730 $774 $820 $869 $922 11.8% 9.4% 11.7% (3.5%) (6.4%) (4.1%) (2.2%) (1.4%) (0.5%) 0.3% 1.1% $162 $216 $45 $31 $26 ($15) ($24) ($22) ($18) ($13) ($8) Note: Supplemental Commentary provided in light of meaningful performance change in FREEDOM LRP, per FREEDOM management. Source: Consolidated Long-Range Plan provided by FREEDOM management on May 4, 2023, and FREEDOM management. (1) Calculated as Cash Flow from Operations less Capital Expenditures. Adj. EBITDA Revenue EBITDA Margin FCF(1) 27 |
| Confidential Jefferies LLC / May 2023 Cash flow for 2023 $4.6 Book Value Monetization % Monetization Value Liquidation of Q4' 23 Assets Account Receivables $52.0 25% $13.0 Inventory 122.0 50% 61.0 Income Tax Receivable 3.1 3.1 Intercompany Receivable 100.0 0.0 Property, Equipment, and Software, Net 17.6 10% 1.8 Other Assets 23.5 70% 16.4 Liquidation of Q4 '23 Liabilities Long-Term Financing Leases (0.9) (0.9) Accounts Payable (62.6) (62.6) Accrued Expenses (8.8) (8.8) Income Taxes Payable 1.5 1.5 Deferred Revenue (6.2) (6.2) Other Non-Current Liabilities (14.5) (14.5) Deferred Tax Liability - Non-Current (15.6) (15.6) Liquidation of Q4 '23 Net Assets $211.0 ($11.9) Severance Costs ($12.0) Operating Lease Liability ($383.0) Less: Sublease Income (@25% Sublease Rate) 95.8 Net Operating Lease Liability ($287.3) Aggregate Cost of Maintaining Collections Function ($25.0) Other Material Adjustments Not Quantified Less: Contractual Obligations with Dealers N.Q. Less: Litigation Expense N.Q. Less: Other Breakage from Vendor Contracts N.Q. Plus: Tax Benefits / Offsets to Parent N.Q. Total ($331.5) PV of Cash Proceeds ($292.7) Value Per Share ($8.07) Illustrative Badcock Liquidation Analysis (For Reference Only) Source: Consolidated Long-Range Plan provided by FREEDOM management on May 4, 2023, Monetization assumptions provided by FREEDOM management, Company filings and Capital IQ. Note: N.Q. indicates not quantified. (1) Cash flow includes cash flow from operating activities, investing activities and financing activities. (2) Net zero since Receivables are owed to Badcock by FREEDOM. (3) Includes other current assets, non-current notes receivables and other assets. (4) Severance costs are likely to be close to $12.0 million. (5) Reflects initial annual expense of $15.0 million falling to zero over three years. (6) Discounted over 1 year using illustrative Weighted Average Cost of Capital (WACC) of 13.25%. (7) Value per share calculated based on Fully diluted shares outstanding comprised of 35,172,623 shares of common stock, 216,376 stock options outstanding and exercisable at various strike prices, 506,189 restricted stock units and 454,093 performance restricted stock units as provided by FREEDOM management on May 3, 2023. Excludes 803,426 out-of-the-money Market-Based Restricted Stock Units that are not expected to vest in connection with the Proposed Transaction. (3) (4) (5) (1) (6) (7) (2) Badcock Cash Flow and Valuation per Illustrative Liquidation Analysis 28 |
| Confidential Jefferies LLC / May 2023 Year ending December 31 CAGR Normalized (US $Ms, except price per share) 2027E 2028P 2029P 2030P 2027E - 2030P Terminal Yr(1) Revenue $774 $820 $869 $922 6.0% $922 EBITDA(2) ($10) ($4) $3 $10 NM $10 % Margin (1.4%) (0.5%) 0.3% 1.1% 1.1% Less: D&A (7) (7) (8) (8) (10) EBIT ($18) ($11) ($5) $3 NM $0 Less: Taxes(3) 5 3 1 (1) (0) Net Operating Profit After Tax (NOPAT) ($13) ($8) ($3) $2 NM $0 Plus: D&A 7 7 8 8 10 Less: NWC (Increase) / Decrease (6) (7) (7) (8) (8) Less: Capital Expenditure (10) (10) (10) (10) (10) Unlevered FCF ($22) ($18) ($13) ($8) NM ($7) Present Value of Unlevered FCF (as of Dec 31, 2026) ($21) ($15) ($10) ($5) Terminal Value at 3.0% Growth Rate ($77) Present Value of Terminal Value (as of Dec 31, 2026)(4) ($47) Sum of PV of Unlevered FCF (as of Dec 31, 2026) ($50) Present Value (as of Dec 31, 2026) ($97) Badcock Extended Discounted Cash Flow Analysis – Based on May 4, 2023 LRP (For Reference Only) Source: Consolidated Long-Range Plan provided by FREEDOM management on May 4, 2023. (1) Reflects depreciation equal to capital expenditures in Normalized Terminal Year. (2) As per Long-Range Plan EBITDA forecast through 2030P provided by FREEDOM management. (3) Effective tax rate for each year as per FREEDOM management estimates. (4) Based on illustrative perpetuity growth rate of 3%. Based on illustrative WACC of 13.25%. 29 |
| Confidential Jefferies LLC / May 2023 Selected Changes Since Board Presentation on April 14, 2023 Topic Summary Changes FREEDOM Management Projections & Subsidiary Management Incentive Plans Certain cash flow and debt adjustments by Management Additional Badcock projected data through 2030 Tax benefit of (offset) of MIP payouts related to Vitamin Shoppe in 2026 lowered by ~$12M or $0.20 per share due to Section 162(m) of the Internal Revenue Code limitations Selected Transaction Analysis Increase in range for Selected Transactions Analysis from 6.5x - 8.0x to 6.75x - 8.5x based on inclusion of additional transactions Discounted Cash Flow Normalized Terminal year adjusted to exclude Badcock negative contribution Badcock projections extended by FREEDOM management to 2030 to achieve normalized state and terminal value included as a separate line item in DCF Note: In the presentation reviewed by the Special Committee on May 9, 2023, the description of the selected multiple range for FY 2023E in the “Metrics” column on page 16 had not been updated to reflect the increase (based on current market data as of such date) in the selected multiple range from 6.5x - 8.0x to 6.75x - 8.25x, which corresponds to the implied reference range of per share equity values of $10.75 to $22.00 and, as a result, was not highlighted in the table of Selected Changes Since Board Presentation on April 14, 2023. 30 |
1 Year Franchise Chart |
1 Month Franchise Chart |
It looks like you are not logged in. Click the button below to log in and keep track of your recent history.
Support: +44 (0) 203 8794 460 | support@advfn.com
By accessing the services available at ADVFN you are agreeing to be bound by ADVFN's Terms & Conditions
Hot Features
Premium
