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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

 

Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported): January 25, 2021

  

Franchise Group, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware 001-35588 27-3561876
(State or Other Jurisdiction of
Incorporation)
(Commission File Number) (I.R.S. Employer Identification No.)

 

2387 Liberty Way

Virginia Beach, Virginia 23456

(Address of Principal Executive Offices) (Zip Code)

 

(757) 493-8855

(Registrant's telephone number, including area code)

 

n/a

(Former name or former address, if changed since last report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class Trading Symbol(s) Name of each exchange on which
registered
Common Stock, par value $0.01 per share FRG Nasdaq Global Market
     
7.50% Series A Cumulative Perpetual Preferred Stock, par value $0.01 per share and liquidation preference of $25.00 per share FRGAP Nasdaq Global Market

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company ¨

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

 

 

 

Item 7.01. Regulation FD Disclosure.

 

On January 25, 2021, Franchise Group, Inc. (the “Company”) issued a press release announcing its acquisition of Pet Supplies Plus, a leading omnichannel retail chain and franchisor of pet supplies and services, in an all cash transaction valued at approximately $700 million from an affiliate of Sentinel Capital Partners (the “Acquisition”). The Company has obtained commitments from lenders to provide $1.3 billion of debt financing to refinance the Company’s existing term loan and provide financing for the Acquisition (the “Financing”). A copy of the press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K.

 

In addition, the Company will conduct a conference call and simultaneous presentation to investors at 8:45 a.m. EST on January 25, 2021 to discuss the Acquisition and the Financing. A copy of the investor presentation is attached hereto as Exhibit 99.2.

 

The information in this Item 7.01 of this Current Report on Form 8-K, including Exhibit 99.1 and Exhibit 99.2, is being furnished to the Securities and Exchange Commission (the “SEC”) pursuant to Item 7.01 of Form 8-K and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference into any of the Company’s filings with the SEC under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

 

Item 9.01. Financial Statements and Exhibits.

 

(d) Exhibits.

 

Exhibit No.   Description
     
99.1   Press Release, dated January 25, 2021.
     
99.2   Investor Presentation, dated January 25, 2021.
     
104   Cover Page Interactive Data File (embedded within the Inline XBRL document).

 

 

 

 

 

 

 

 

 

 

 

SIGNATURE

  

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

  Franchise Group, Inc.
     
     
Date: January 25, 2021 By:  /s/ Eric F. Seeton
    Eric F. Seeton
    Chief Financial Officer

 

 

 

 

 

 

 

 

 

 

 

 

EdgarFiling

EXHIBIT 99.1

Franchise Group, Inc. to Acquire Pet Supplies Plus for $700 Million

ORLANDO, Fla., Jan. 25, 2021 (GLOBE NEWSWIRE) -- Franchise Group, Inc. (NASDAQ: FRG) (“Franchise Group” or the “Company”) today announced that it has entered into a definitive agreement under which it will acquire Pet Supplies Plus (“PSP”), a leading omnichannel retail chain and franchisor of pet supplies and services, in an all cash transaction valued at approximately $700 million from affiliates of Sentinel Capital Partners (the “Transaction”). Additionally, the Company estimates that the net present value of the tax benefits related to the Transaction are expected to be approximately $100 million. The Transaction is expected to close in March 2021 and result in systemwide annualized revenue for Franchise Group, defined as total sales for both franchise and Company units, of more than $3.6 billion.

Founded more than 30 years ago, PSP is a mature and rapidly growing pet industry franchisor with a footprint of more than 500 locations, of which almost 60% are franchised. PSP is the leading franchisor in the pet industry, with superior unit economics and a turnkey franchise system driving a backlog of more than 185 new stores in various stages of development nationwide. PSP has a diversified revenue model comprised of corporate store revenue, royalties and revenue from internal distribution to franchisees. Additionally, PSP has developed broad and deep omnichannel capabilities, offering its neighbors varied cost-competitive shopping options through its convenient neighborhood locations, direct-to-consumer local delivery and buy-online-pickup-in-store model.

Brian Kahn, President & CEO of Franchise Group said, “We look forward to welcoming Pet Supplies Plus, its management team, employees, franchisees and neighbors to Franchise Group when this Transaction closes. PSP adds another franchise concept with strong unit economics, diversification into an economically resilient and secularly growing pet industry, and a brand that has and will continue to experience robust unit expansion from its franchise system. The additional scale and diversification that PSP will afford Franchise Group is expected to immediately lead to lower costs of capital and expanded free cash flow generation. We look forward to partnering with PSP’s outstanding and long tenured management team to accelerate their already ambitious expansion plans while leveraging Franchise Group’s best practice functions to drive incremental efficiencies.”        

For fiscal year 2020, PSP is estimating total systemwide revenue of approximately $1.2 billion, company revenue of over $825 million and Adjusted EBITDA of nearly $80 million.  Franchise Group estimates that the Transaction and the Financing, described below, will be immediately accretive to its Non-GAAP EPS in 2021. Franchise Group management will update its guidance inclusive of PSP upon closing the Transaction.

Closing of the Transaction is subject to the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as well as other customary closing conditions.

In connection with the signing of the definitive agreement, Franchise Group entered into commitments arranged by J.P. Morgan, Citizens Bank and Credit Suisse for $1.3 billion in new term loan credit facilities to refinance the Company’s existing term loan for its Buddy’s Home Furnishings, American Freight and Liberty Tax businesses and provide acquisition financing for the Transaction, including commitments from an affiliate of B. Riley Financial for up to $300 million in unsecured financings (the “Financing”).

B. Riley Securities served as financial advisor and Willkie Farr & Gallagher LLP served as legal counsel to Franchise Group.  Piper Sandler, North Point, and Baird served as financial advisors to Pets Supplies Plus and Kramer Levin provided legal counsel.

Conference Call Information
Franchise Group will conduct a conference call today at 8:45 A.M. ET to discuss the Transaction and the Financing.  A real-time webcast of the conference call with slides will be available on the Events page of Franchise Group’s website at www.franchisegrp.com which will remain available under the “Past Events” portion of the Events page following the conference call. The conference call can also be accessed live via telephone at (877) 784-1793. The passcode is 5164976. Please dial in 5-10 minutes prior to the scheduled start time.

About Franchise Group
Franchise Group is an operator of franchised and franchisable businesses that continually looks to grow its portfolio of brands while utilizing its operating and capital allocation philosophy to generate strong cash flow for its shareholders.  Franchise business lines include Liberty Tax Service, Buddy’s Home Furnishings, American Freight and The Vitamin Shoppe.  On a combined basis, Franchise Group currently operates over 4,100 locations predominantly located in the U.S. and Canada that are either Company-run or operated pursuant to franchising agreements.

Forward-Looking Statements
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as amended, including, without limitation, those that contain, or are identified by, words such as “outlook”, “guidance”, “believes”, “expects”, “potential”, “continues”, “may”, “will”, “should”, “predicts”, “intends”, “plans”, “estimates”, “anticipates”, “could” or the negative version of these words or other comparable words. Forward-looking statements include, without limitation, projections, predictions, expectations, or beliefs about future events or results and are not statements of historical fact, including the Company’s expectations regarding its financial condition, statements relating to the Transaction, the Financing and anticipated benefits resulting therefrom, the performance of PSP and the success of PSP its strategic growth plans if the Transaction and/or the Financing are consummated, which are subject to various significant risks and uncertainties, many of which are outside of the control of the Company and the effects of the coronavirus (COVID-19) pandemic on economic conditions and the industry in general, the success of its financing efforts and the financial position and operating results of the Company. Such forward-looking statements are based on various assumptions as of the time they are made, and are inherently subject to known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements are often accompanied by words that convey projected future events or outcomes such as “expect,” “believe,” “estimate,” “plan,” “project,” “anticipate,” “intend,” “will,” “may,” “view,” “opportunity,” “potential,” or words of similar meaning or other statements concerning opinions or judgment of the Company or its management about future events. Although the Company believes that its expectations with respect to forward-looking statements are based upon reasonable assumptions within the bounds of its existing knowledge of its business and operations, there can be no assurance that actual results, performance, or achievements of the Company will not differ materially from any projected future results, performance or achievements expressed or implied by such forward-looking statements. Actual future results, performance or achievements may differ materially from historical results or those anticipated depending on a variety of factors, many of which are beyond the control of the Company. Additional factors that could cause actual results to differ materially from forward-looking statements include, among others, the risk that the Transaction and/or the Financing may not be completed in a timely manner or at all, which may adversely affect the business and stock price of the Company; the risk of any event, change or other circumstance that could give rise to the termination of the equity purchase agreement; the effect of the announcement or pendency of the Transaction on the ability of the Company and PSP to retain and hire key personnel and maintain relationships with their franchisees, customers, suppliers, partners and others with whom they do business, or on their respective operating results and business generally; risks associated with the diversion of management’s attention from ongoing business operations due to the Transaction and/or the Financing; legal proceedings related to the Transaction and/or the Financing; costs, charges or expenses resulting from the Transaction and/or the Financing; growth of the franchise base at PSP; the strength of the economy; changes in the overall level of consumer spending; the performance of the products and services of the Company and PSP within the prevailing retail or other business environment; implementation of the strategy of the Company and PSP; maintaining appropriate levels of inventory; changes in tax policy; or the failure to satisfy any of the other conditions to the completion of the Transaction and/or the Financing. We refer you to the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of the Company’s Transition Report on Form 10-K/T for the transition period ended December 28, 2019, and comparable sections of the Company’s Quarterly Reports on Form 10-Q and other filings, which have been filed with the SEC and are available on the SEC’s website at www.sec.gov. All of the forward-looking statements made in this press release are expressly qualified by the cautionary statements contained or referred to herein. The actual results or developments anticipated may not be realized or, even if substantially realized, they may not have the expected consequences to or effects on the Company or its business or operations. Readers are cautioned not to rely on the forward-looking statements contained in this press release. Forward-looking statements speak only as of the date they are made and the Company does not undertake any obligation to update, revise or clarify these forward-looking statements, whether as a result of new information, future events or otherwise.

Franchise Group Investor Relations Contact:
Andrew F. Kaminsky
EVP & Chief Administrative Officer
Franchise Group, Inc.
akaminsky@franchisegrp.com
(914) 939-5161

 

EXHIBIT 99.2

 

January 25, 2021

 

 

CONFIDENTIAL This presentation contains forward - looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 , as amended, including, without limitation, those that contain, or are identified by, words such as “outlook”, “guidance”, “believes”, “expects”, “potential” , “ continues”, “may”, “will”, “should”, “predicts”, “intends”, “plans”, “estimates”, “anticipates”, “could” or the negative version of these words or other comparabl e w ords. Forward - looking statements include, without limitation, projections, predictions, expectations, or beliefs about future events or results and are not st ate ments of historical fact, including the Company’s expectations regarding its financial condition, statements relating to the Transaction, the Financing and anticipat ed benefits resulting therefrom, the performance of PSP and the success of PSP its strategic growth plans if the Transaction and/or the Financing are consummated, wh ich are subject to various significant risks and uncertainties, many of which are outside of the control of the Company and the effects of the coronavir us (COVID - 19) pandemic on economic conditions and the industry in general, the success of its financing efforts and the financial position and operatin g r esults of the Company. Such forward - looking statements are based on various assumptions as of the time they are made, and are inherently subject to known an d unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from any future resul ts, performance or achievements expressed or implied by such forward - looking statements. Forward - looking statements are often accompanied by words that convey p rojected future events or outcomes such as “expect,” “believe,” “estimate,” “plan,” “project,” “anticipate,” “intend,” “will,” “may,” “view,” “opportun ity ,” “potential,” or words of similar meaning or other statements concerning opinions or judgment of the Company or its management about future events. Although th e C ompany believes that its expectations with respect to forward - looking statements are based upon reasonable assumptions within the bounds of its existing knowledge of its business and operations, there can be no assurance that actual results, performance, or achievements of the Company will not differ materi all y from any projected future results, performance or achievements expressed or implied by such forward - looking statements. Actual future results, performance or achievements may differ materially from historical results or those anticipated depending on a variety of factors, many of which are beyond the contr ol of the Company. Additional factors that could cause actual results to differ materially from forward - looking statements include, among others, the risk that the Tr ansaction and/or the Financing may not be completed in a timely manner or at all, which may adversely affect the business and stock price of the Company; the ri sk of any event, change or other circumstance that could give rise to the termination of the equity purchase agreement; the effect of the announcement or pend enc y of the Transaction on the ability of the Company and PSP to retain and hire key personnel and maintain relationships with their franchisees, customers, su ppliers, partners and others with whom they do business, or on their respective operating results and business generally; risks associated with the diversion o f m anagement’s attention from ongoing business operations due to the Transaction and/or the Financing; legal proceedings related to the Transaction and/or the Financing; costs, charges or expenses resulting from the Transaction and/or the Financing; growth of the franchise base at PSP; the strength of the econom y; changes in the overall level of consumer spending; the performance of the products and services of the Company and PSP within the prevailing retail or other bus iness environment; implementation of the strategy of the Company and PSP; maintaining appropriate levels of inventory; changes in tax policy; or th e failure to satisfy any of the other conditions to the completion of the Transaction and/or the Financing. We refer you to the “Risk Factors” and “Managemen t’s Discussion and Analysis of Financial Condition and Results of Operations” sections of the Company’s Transition Report on Form 10 - K/T for the transition per iod ended December 28, 2019, and comparable sections of the Company’s Quarterly Reports on Form 10 - Q and other filings, which have been filed with the SEC an d are available on the SEC’s website at www.sec.gov. All of the forward - looking statements made in this press release are expressly qualified by the cautiona ry statements contained or referred to herein. The actual results or developments anticipated may not be realized or, even if substantially realized, th ey may not have the expected consequences to or effects on the Company or its business or operations. Readers are cautioned not to rely on the forward - lookin g statements contained in this press release. Forward - looking statements speak only as of the date they are made and the Company does not undertake any obligat ion to update, revise or clarify these forward - looking statements, whether as a result of new information, future events or otherwise. Forward Looking Statements 2

 

 

CONFIDENTIAL Transaction summary 3 • Franchise Group, Inc. (“FRG" or the "Company") signed a definitive agreement to acquire Pet Supplies Plus (“PSP”) for $700 million in cash – FRG estimates that the net present value of the tax benefit related to the Transaction is approximately $100 million • PSP is headquartered in Livonia, MI and is a leading U.S. pet care franchisor; the Company has over 520 locations, including over 300 franchised locations • On a combined basis, Franchise Group will operate over 4,600 locations that are either Company - run or operated pursuant to a franchising agreement – Combined 2020 estimated revenue of ~$3 billion, with FRG and PSP system wide sales of ~$3.6 billion • FRG has obtained commitments from lenders to provide $1.3 billion of debt financing to refinance FRG’s existing term loan and provide acquisition financing for the Transaction • Pro forma for the transaction, FRG will have Net Total Leverage of under 3.4x

 

 

CONFIDENTIAL Key investment highlights 4 • Adds diversification to Franchise Group’s capex - light, strong cash generating franchise business model – ~60% of PSP is already franchised – Pro forma for PSP, ~67% of all FRG locations will be franchised • Unique and strong operator – Differentiated in - store and omnichannel platform with same day delivery – Diversified revenue stream – in - store services, self - distribution, private label – Deep pipeline of franchising and refranchising opportunities including independent conversions – Opportunity to continue to delver through refranchising • Strong unit economics – 2 to 3 - year payback on a ~$500k investment – Average of ~$185k unit level contribution to PSP from a franchise unit and over $250k per corporate location • Strong growth profile with franchise backlog provides visibility into near - term growth – Over 185 units in backlog, with many in LOI, signed leases, or onboarding; the remaining are in site selection – Diversified revenue model comprised of corporate store revenue, royalties and revenue from internal distribution to franchisees with over 50% of cash flow coming from the franchise system • Defensible category with economic resilience • Experienced and strong management team with franchising expertise • Opportunity to drive incremental operating efficiencies on the FRG platform

 

 

CONFIDENTIAL Business overview: Pet Supplies Plus Company description PSP store footprint • Pet Supplies Plus is a leading US pet care franchisor with 500+ corporate and franchise stores across 34 states (58% franchised) • Above - market growth over last 5 years has been enabled by PSP’s differentiated in - store and online experience, strong omnichannel offering and captive distribution capabilities • Same - day delivery, BOPUS underpin differentiated online model • Offers a curated selection of premium brands, proprietary private labels and retail price parity with online players 500+ store locations 34 US states with Husky stores 3 Distribution centers by 1Q21 300 219 55 69 110 165 172 199 519 1,515 1,522 No other franchisor has more than 110 stores in the U.S. Franchised Company - owned Dog food 34% Dog treats 11% Cat food 12% Cat treats 1% Cat Litter 4% Dog hard goods 18% Cat hard goods 4% Companion animal 13% Services & other 3% ~25% of neighbors surveyed have used services ~62% of sales from high - frequency, replenishment sales $145mm 2020E private label #1 pet franchisor with significant whitespace (1) Systemwide sales by category (1) 2020E revenue and EBITDA business mix Over 1,433 opportunities incremental to existing store base, plus massive independent pet franchise conversion opportunity (2) 7 5 2 1 6 6 48 3 4 1 7 4 1 1 12 1 21 25 5 9 4 25 8 2 3 2 9 8 45 10 1 7 11 11 57 1 22 7 9 37 1 2 2 17 3 7 7 4 1 3 3 17 3 5 1. Excludes averages for mid - size chains (23) and independents (18); 2. Buxton Whitespace Analysis Corporate stores 54% Distribution 43% Franchise services 3% Corporate stores 49% Distribution 39% Franchise services 12% Revenue EBITDA 2020E PSP store footprint Franchised: 300 Company - owned: 219

 

 

CONFIDENTIAL 6 Highly favorable industry dynamics Growing U.S. pet retail market (1) Pet ownership continues to grow (2) COVID - driven acceleration of pet ownership (1) • 19 consecutive years of pet industry growth • 2/3rds of U.S. households own a pet • 95% of U.S. pet owners consider their pets to be a part of the family • Recession - resilient: +4% market growth from 2007 – 2010 and +6% growth through COVID compared to 2019 x x x x 73.0 84.9 2010 2020 75 80 83 76 81 84 151 161 167 2015 2019 2020E Cats Dogs 47 49 52 54 58 61 65 69 72 76 80 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 ($ in mm) 5% ’15 – ’25 CAGR U.S. dog and cat population (mm) People with pets (mm) +2% CAGR +4% CAGR +11.9mm Pets 1. Third Party Market Study, September 2020; 2. APPA Large and growing market with strong industry tailwinds

 

 

CONFIDENTIAL Captive distribution is a strategic asset Compelling proprietary brand offering Powerful CRM program As PSP’s franchise base grows, revenue and profitability grows beyond royalties and franchisee fees Franchise - led growth amplified by robust capabilities 1 2 3 • Acts like an added royalty stream while saving franchisees money • ~8 - 10% higher margin than branded products; drives customer loyalty • 11.3 million members driving 91% of transactions Distribution revenue & EBITDA Private label offering Preferred pet club membership ($ in mm) ($ in mm) 23% 14’ - PF20E EBITDA CAGR 19% 12’ - Aug ‘20 CAGR $195 $211 $249 $300 $339 $377 $461 $12 $15 $22 $28 $32 $34 $39 2014 2015 2016 2017 2018 2019 2020E 2.8 4.0 5.1 5.8 6.8 8.0 9.2 10.4 11.3 2012 2013 2014 2015 2016 2017 2018 2019 Aug-20 13% Private Label Sales Percentage of Total Systemwide Sales 2020E • Launched in 2016 • 176 SKUs • Top 2 dry dog food brand • Launched in 2011 • 1,125 SKUs • 20+ product categories • Launched in 2019 • 20 SKUs 7

 

 

CONFIDENTIAL Proven franchisee model with established and deep pipeline Number of stores per franchisee Years as PSP franchisee Franchisee sales mix by high / Low population density areas 1 Store 54% 2 Stores 21% 3 - 5 Stores 20% 6+ Stores 5% 46% of franchisees purchase a 2 nd store 10+ Years 29% 6 - 9 Years 8% 2 - 5 Years 41% <2 Years 23% Low density 47% High density 53% Accelerating franchise unit openings with high buy - in rate of existing franchisees Franchise segment EBITDA (1) Source: Franchise Business Review (July 2020) Franchise stores signed as of Jan. 2021 108 71 7 186 Franchise pipeline Existing New Conversions ($ in mm) $7.4 $9.4 $10.2 $11.9 2017 2018 2019 2020E 8 1. Includes royalties and franchise fees & expenses associated with supporting franchise segment

 

 

CONFIDENTIAL Demonstrated track record of growth experiencing recent acceleration Exceptional historical SSS performance 9.7% 7.3% 2.0% 5.2% 2.6% 4.7% 1.7% 5.3% 2.6% (0.4%) 3.2% 2.5% 10.5% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 9

 

 

CONFIDENTIAL Sustained performance during & post COVID Continued positive same store sales Consistent franchise openings throughout COVID 1% 1% 17% (9.5%) 6% 10% 15% 16% 14% 14% 15% 15% 11% Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 2020E Actual 261 302 4 5 5 3 2 1 2 3 3 3 2 8 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 2020 Despite the pandemic, franchise stores continued to open at a normalized rate 10

 

 

CONFIDENTIAL PSP is complimentary with Franchise Group’s core strategy Leading platform of franchised or franchisable concepts, producing asset light recurring revenue 1 Synergistic platform drives significant revenue and cost synergies across portfolio concepts 2 Disciplined, value - based acquisition strategy targeting asset - light businesses with superior cash flow 4 Resilient throughout economic cycles and COVID - 19 pandemic 3 Committed to a conservative financial policy and a refranchising strategy that creates significant cash inflows 5 Experienced management team with strong shareholder alignment 6 11