[CITY], [STATE] [ZIP]
Dear John Doe:
Buyer LLC is pleased to submit this indication of interest to purchase Specialty Retailer, Inc. (the “Company”) in an asset transaction. Based on our discussions with the management team and the information provided, we believe the Company is a good fit with our investment criteria – to invest in growing companies with scalable management teams and infrastructure. We have a strong track record investing in specialty retail companies and are excited about the opportunity Specialty Retailer represents. We believe our background and years of experience building retailers both through organic initiatives and acquisitions makes us a valuable partner in achieving the Company’s strategic growth plans.
Based on the Company’s estimated and adjusted EBITDA for the twelve months ended December 31, 2007 of approximately $15 million, we would value the Company at up to 8.0x EBITDA, or approximately $90 million. This preliminary indication assumes the Company is acquired debt-free and has sufficient working capital.
We anticipate paying up to 7.0x EBITDA in cash at closing and up to 1.0x EBITDA based upon mutually agreed targets. We would finance the proposed transaction from our current fund. We would expect management to roll an existing portion of its ownership. The specific amount of the rollover will be mutually agreed upon and will impact the cash payouts on a pro-rata basis. In addition, as part of the proposed transaction, we would establish an option pool of 10% for the management team and other key employees.
This proposal is only an indication of interest and is not intended to be legally binding. Any offer would be subject to further due diligence, including but not limited to meetings with management, validating key customer relationships and any other potential due diligence. The transaction would also be subject to the execution of mutually agreeable definitive agreements, among other conditions.
Provided we have the appropriate and satisfactory due diligence information, we could be in a position to agree on a letter of intent (“LOI”) within two weeks from our meeting with the management team. Following the execution of an LOI, we would strive to complete our due diligence and draft the necessary agreements to close within 60 days. Further, as general partner of our fund, we control all investment decisions, which allows us to move quickly to close this transaction.
Upon successful completion of a transaction, we would work with Specialty Retailer and its management to grow the firm aggressively through funding organic initiatives and acquisitions. As you know, we have extensive experience building and growing retail companies including OldTime Retailer. We worked with management to profitably grow OldTime Retailer from $30 mm in revenue to greater than $100 mm. In addition, we helped grow NewTime Retailer from $50 mm in revenue to greater than $200 mm.
Once again, this proposal is only an indication of interest and is not intended to be legally binding. Any offer would be subject to further due diligence, including but not limited to business, customer, financial and insurance and any other potential due diligence. The transaction would also be subject to the execution of mutually agreeable definitive agreements, among other conditions.
We look forward to moving ahead in the process. If you have any questions about this preliminary indication of interest, please contact me at [xxx] -[xxxx] or [email protected]
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