hyde franchise investment group€¦ · hyde franchise investment group presentation to investors...
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Hyde Franchise Investment GroupPresentation to Investors
• Hyde Investment Group was founded in 2012 to acquire, operate and
grow leading branded franchised businesses.
• Hyde is run by senior executives of retail franchised businesses and
private equity investment firms with significant operations experience.
• Hyde builds value by
• (i) creating and building on an enthusiastic and motivating culture
that drives growth and service initiatives to create strong results,
• (ii) driving disciplined model execution to improve efficiencies and
margins, and
• (iii) expanding the footprint through a combination of acquisitions
and new unit development to utilize newly created infrastructure
and increased purchasing power.
HYDE INVESTMENT GROUP
Hyde Franchise Investment Group
Location Legend
Initial Build Out
1.Edgewater, NJ
Acquisition of Franchisee locations
2. Millville, NJ
3. Williamstown, NJ
4. Newtown, PA
5. Philadelphia, PA
6. Somerton, PA
7. Jenkintown, PA
8. Warminster, PA
Proposed Build Out
Teterboro, NJ
Voorhees, PA
Bensalem, PA
Proposed acquisition of Corporate locations
Secaucus, NJ
New Brunswick, NJ
Growth Platform
• In 2014, Hyde became a franchisee of Supercuts, the leading nationally branded hair care salon in the country
• Hyde currently owns eight Supercuts franchise locations and has been exploring numerous growth opportunities
• Hyde is seeking financing commitments (the “Investor Preferred Equity”) of up to $1,500,000 to form a “sister” company to growth its platform, leveraging its existing management infrastructure
The Market
• The $65 billion-a-year hair care industry is a recession resistant, technology resistant, cash business with built-in demand
• Regis Corporation a NYSE company, is one of the largest and most well established hair salon companies in the world and owns the Supercuts brand along with other hair salon brands
• Supercuts are located in premier strip plazas in highly, very densely populated areas. Regis leases locations and sub leases to its franchisees, thereby obtaining favorable locations and lease terms
• Supercuts is routinely ranked as the top brand and is recognized as one of the overall leading franchises in the country
Investment Highlights
Recession proof
Proven business model
Leading brand
Attractive economics per store
Limited downside
Experienced management team
Corporate selling stores at discounts
Target area is very densely populated
Potential Opportunity for bulk purchases
Hyde opened its first Supercuts
location in October 2014 in Edgewater,
NJ, investing $175,000 for the
build-out, including franchise fee
Hyde expects to generate greater than $300,000 of
revenue and $60,000 of cash
flow
Acquisitions
• In April 2015, Hyde acquired seven locations from a franchisee who was retiring from the business.
• Including anticipated capital expenditures, Hyde’s all in cost incurred was approximately $875,000 or $125,000 per location.
• The locations were generating $1,750,000 of revenue per annum and $210,000 EBITDA for cash flow equating to an acquisition multiple of 3.5X.
• Hyde projects to generate $1,900,000 of revenue and $250,000 of salon contribution, representing an increase of 8.5% and 19%, respectively.
Economics
($ in 000's) 1 2 3 4 5
Revenue (1) 200$ 250$ 300$ 315$ 331$
Franchis Fee 6% 12 15 18 19 20
Advertising Fee 5% 10 13 15 16 17
Labor 42% 84 105 126 132 139
Total Variable Costs 53% 106 132 159 167 175
Rent 55 55 55 55 55
G&A 25 26 27 28 29
Total Fixed Costs 80 81 82 83 84
Salon Contribution 14$ 37$ 60$ 66$ 72$
(1) years 1 & 2 represent Hyde estimates from 1st location; year 3 represents Regis provided information from >1,000 franchises;
years 4 & 5 represent 5% growth rate
Year
Five Year Projection for an Average New Location
• Supercuts average revenue, EBITDA (salon contribution) and profit margin for a fully mature location is $300K, $60K and 20% respectively
• It takes an average of three years for a location to reach maturity and is usually breakeven in the first year, at approximately $200K in revenue
Sources and Uses of Funds
($ in 000's)
Days to
Type Location Price Timing Fund
Vendition Sale
Secaucus 125$ 9/30/2017 262
New Brunswick 125 9/30/2017 262 Total Venditions 250
New Builds
Teteboro 175 3/31/2017 79
Voorhees 175 6/30/2017 170
Bensalem 175 6/30/2017 170
Total New Builds 525
Current Assignments 775
Future Assignments 775
Total Commitment 1,550$
(1) Note that locations and timing are subject to change
Representative Funding Time Line• Hyde is seeking Investor Preferred Equity of up to $1,500,000 to fund its growth
• $775,000 of this amount would be used for the five proposed locations shown in the accompanying table
• The remaining $775,000 of the commitments are expected to be drawn for additional locations we expect to be assigned
• The average investment for a new location is $175K and the average investment for either a corporate or franchisee owned location is $125K
Sources and Uses of Funds per Type of Location
• Hyde is seeking to utilize the Investor Preferred Equity to fund its current growth program
• Hyde is actively working with Regis on their newly instituted “vendition” program whereby Regis sells corporate owned locations to franchisees at significant discounts
• While building new sites require more funding than the other methods of inorganic growth in the short term, the long term prospects can be very attractive
($ in 000's)
3 Buildout
Per Per Per 2 Venditions
New "Vendition" Franchisee 0 Franchise Sales
Build out Sale Sale Total
Uses
Franchise License 15$ 15$ -$ 75$
Purchase Price - 50 110 100
Capital Expenditure 75 25 10 275
Marketing & Advertising 20 10 5 80
Start Up costs 30 - - 90
Operating Funding 35 25 - 155
Total Uses 175$ 125$ 125$ 775$
Sources
Hyde Common Equity (10%) 18 13 13 78
Investor Preferred Equity (90%) 158 113 113 698
Total Sources 175$ 125$ 125$ 775$
Sources and Uses of Funds per Type of Location
assumes 5 new locations
Downside Sensitivity Scenario
($ in 000's) based on 5 locations in Year 3 10% 15% 20% 25%
Year 3 Summary P&L
Revenue 1,500$ 1,350$ 1,275$ 1,200$ 1,125$
Variable Costs 794 714 674 635 595
Fixed Costs 409 409 409 409 409
Salon Contribution 298 227 192 156 121
Corporate Overhead 75 75 75 75 75
Cash Flow 223 152 117 81 46
Hyde Common Equity 78 78 78 78 78
Investor Preferred Equity 698 698 698 698 698
Total Funding 775$ 775$ 775$ 775$ 775$
Returns
Investor Preferred Dividend (5% of investment) 35$ 35$ 35$ 35$ 35$
Investor Preferred Distribution from Profits 76 41 23 6 -
Total Investor Preferred Return 111 76 58 41 35
Investor Annual Return 16% 11% 8% 6% 5%
Hyde Common Return 149 113 96 78 -
Salon Contribution 260$ 189$ 154$ 119$ 35$
(1) based on financial performance from the 5 assumed new locations in year 3.
% Decrease in Revenue
Downside Sensitivity Scenario (1)• The Investor Preferred Equity
will have a dividend rate of
5%
• Hyde will prefund this
dividend for a period of two
years (historical data shows
that locations reach baseline
maturity in year 3)
• Please see table for an
illustration of investor returns
and a downside sensitivity
upon year 3. Note that the
dollar amounts are based on
the New Company owning 5
locations
• Alphonse Murasso – owner/manager
• Responsible for all day to day operation including
• Multi-Unit Operations Management• Vendor Sourcing & Negotiation• Project Planning & Development• Risk Management & Inventory Control• Facilities Selection & Build Out• Team Building, Training & Development
• Former district manager and regional director of H&R Block running up to 100 locations at any one time.
• Managed multi-million dollar P&L, building and managing to budgets, and managing risk
• BA from Trinity College
• MBA from Fordham University
Hyde Investment Team/Supercut Management• Joan DeStefano – financial analyst
• Responsible for finance functions of Supercuts including the creation of
• Weekly, monthly and annual profit and loss statements
• Manager and Stylist performance metrics and compensation calculations
• Employee goal sheets
• Project base analysis
• 20 -year career at H&R Block
• Most recently Former Finance Program Manager where she was responsible for a 4-5 region area while fully responsible for financial partnership and decision making with senior level leadership, both operational and functional
• BS from Boston College
• Ben Brandes – owner, active board member
• Responsible for certain operational functions of Supercuts including
• Best practices use for organizations structure, manager and stylist compensation, staff recruiting and guest retention
• Communication with franchisor and larger multi-unit Supercuts franchisees across country
• Current National Director of Private Equity for Grant Thornton
• Former general partner of private equity fund and investment banker
• Managed portfolio of >$1BN of control oriented private equity investments
• BSE from Wharton School of University of Pennsylvania;
• MBA from University of Chicago
Issuer Hyde Supercuts Acquisition Co., LLC (the “New Company”) – a newly formed LLC.
Amount of Financing Commitment Min $250,000 (the “Preferred Equity”) as part of $1,550,000 aggregate commitment.
Commitments/Closings The Company may close the sale of the Preferred Equity in one or more closings with one or more
purchaser of the Preferred Equity acceptable to the Company (the “Outside Investors”)
Funding Commitments will be funded upon a 10 day notification period. Funding will not take place at one time
but only when needed.
Commitment Fee A 1% commitment fee will be paid upon commitment and a 0.05% unused commitment fee will be paid
on a quarterly basis until used.
Dividend Rate 7% current pay.
After Preferred Equity is funded, the Dividend will be paid on a quarterly basis.
Dividend preference Investors will receive dividends before any, if any, distributions to owner managers.
% of Profits Investors will receive 50% of profits and distributions including dividends from the New Company.
Target return of >10% per annum
Payment of Dividend After Preferred Equity is funded, the current pay portion will be paid from pre funded pool of funds for
two years and then from cash flow thereafter.
Return of Capital Preference Investors will receive their return of capital before return of capital to owner managers
Non mandatory Redemption The Company may attempt to obtain leveraged financing within 5 years to provide liquidity to interested
preferred equity investors
Preferred Equity Term Sheet
