Crumbs Holdings LLC and 57th Street General Acquisition Corp. Announce Execution of Business Combination Agreement
Companies to Conduct Investor Conference Call on Monday, January 10 at 11:00 a.m. EST
Presentation at the 13th Annual ICR XChange Conference on January 12 at 4:40 p.m. EST
Press Release Source: Crumbs Holdings LLC On Monday January 10, 2011, 7:00 am EST
NEW YORK--(BUSINESS WIRE)-- Crumbs Bake Shop Highlights
--- Creator of the gourmet cupcake and the largest US-based retailer of cupcakes
--- Demonstrated track record of profitable growth with a 3-year revenue CAGR of 81.8%
--- Attractive unit economics with an average transaction of $18-$20 and average sales per square foot in excess of $1,000
---- Transaction allows for an initial expansion to a planned 200 locations in the top 15 markets by year-end 2014
--- Ranked number 10 on Inc. Magazine’s list of the fastest-growing private companies of 2009 within the food & beverage industry, and ranked number 10 on their list of breakout companies of 2010
--- Business combination valued at approximately $82.1 million on a fully diluted basis, implying a multiple of 16.4 times projected 2011 Adjusted EBITDA, and 6.7 times projected 2012 Adjusted EBITDA
Crumbs Holdings LLC (“Crumbs”), the creator of the gourmet cupcake and the largest US-based retailer of cupcakes, which operates under the name Crumbs Bake Shop, and 57th Street General Acquisition Corp. (“57th Street”) (OTC BB:SQTCU.OB.ob - News), a special purpose acquisition company, announced today that they have entered into an agreement through which 57th Street will acquire Crumbs. The proposed transaction is expected to be completed in March 2011. Following the closing of the transaction, 57th Street intends to change its name to Crumbs Bake Shop and list on the NASDAQ Stock Market as soon as reasonably practicable.
The Crumbs management team, led by Jason Bauer, co-Founder and Chief Executive Officer; Mia Bauer, co-Founder and Chief Creative Officer; and John Ireland, Chief Financial Officer; will continue to lead the Crumbs following the consummation of the business transaction with 57th Street. Edwin Lewis, former Chief Executive Officer of both Tommy Hilfiger, Inc., and Mossimo, Inc., and a former senior executive at Polo Ralph Lauren Corporation, is expected to serve on the Crumbs Board of Directors. Mr. Lewis, an early investor in Crumbs, played a crucial role in the growth and success of both the Polo Ralph Lauren and Tommy Hilfiger brands and is credited with the turnaround of Mossimo along with its subsequent sale to Iconix Brands.
Jason Bauer, co-Founder and Chief Executive Officer of Crumbs, said, “Mia and I never could have envisioned how far Crumbs would come when we started eight years ago. This transaction is a statement for us about how many lives Crumbs has touched and eight years of really hard work and the dedication of our amazing employees. We are very excited about Crumbs’ future and look forward to becoming a public company upon the closing of our transaction with 57th Street. The additional equity capital that may be available should enable us to execute our development strategy more quickly and help us reach our initial expansion to a planned 200 locations in the top 15 markets by year-end 2014.”
Edwin Lewis added, “My initial investment in Crumbs was predicated on my high personal regard for Jason and Mia, the performance of their initial stores, and the significant potential for the brand. To that point, with their creation of the gourmet cupcake and the subsequent experience they provide, they have defined a new, high-end fast-casual category. Although the concept’s broad day-part acceptance, wide demographic appeal, and numerous growth statistics back up that positioning, what I’m most impressed by is the power of the brand which exhibits fierce customer loyalty in all its markets. Ultimately, it is this relationship with consumers that will serve as the foundation for unit expansion, the development of additional baked goods, and the growth of the Crumbs’ emerging beverage platform. I look forward to working with management and I’m excited to see the company so well positioned to create value for shareholders as they execute their plan.”
Mark Klein, Chairman, Chief Executive Officer and President of 57th Street, commented, “We are very pleased to be partnering with Crumbs on this transaction. The cupcake category is a unique subsection of the burgeoning fast-casual segment of the restaurant industry, and Crumbs has emerged as the cupcake leader with significant long-term potential. Crumbs benefits from a founder-driven culture and an experienced management team that has proven successful in expanding from a single Manhattan bake shop to 34 locations across the country. After reviewing a significant number of potential opportunities, we determined that given its significant potential for growth and further development of its brand, Crumbs presented the most attractive and compelling private company and was best aligned with our goal of maximizing value for our shareholders.”
Overview of Crumbs Bake Shop
Crumbs, the creator of the original gourmet cupcake, was co-founded in 2003 in New York City by Mia and Jason Bauer. Crumbs is now the industry standard for cupcakes and the largest US-based retailer of cupcakes. As of January 10, 2011 Crumbs operated 34 company stores in six states and Washington DC, including 14 locations in New York City. The Company also has a rapidly expanding e-commerce division at www.crumbs.com that ships cupcakes nationwide.
Crumbs offers an enticing blend of comfort-oriented classics and elegant baked goods, with a specialty in Crumbs Signature-size cupcakes. Its over 75 cupcake varieties are baked fresh daily using only natural ingredients, including Black Bottom Cheesecake, Caramel Apple, Cookies & Cream, Chocolate Covered Strawberry, Chocolate Pecan Pie, and Red Velvet. Crumbs also offers more than 150 different sweets daily including cakes, pies, cookies, danishes, scones, croissants, brownies, and muffins. Birthday and special occasion cakes can be custom ordered, and are baked fresh within 24 hours. In addition, Crumbs offers gourmet whole leaf teas, espresso and drip coffees, hot chocolate made with real Ghirardelli chocolate, homemade sodas, and fresh squeezed lemonade. The average sales transaction is between $18 and $20, as it is common for customers to purchase a six pack of cupcakes to share at the office, to bring home to their family, or to take to some other event.
Crumbs appeals to a wide demographic of customers who span every socio-economic class. It has already proven to be successful in urban, suburban, commercial, and residential markets, and more recently, it has expanded into transportation hubs such as Union Station in Washington DC and the Continental Airlines Terminal at Newark Liberty Airport in Newark, NJ. The Newark location marks the first time a bake shop concept specializing in cupcakes has had an airport presence.
Crumbs’ sales metrics are among the highest in its peer group, as a typical Crumbs bake shop generates $1.1 million in average volumes and in excess of $1,000 in sales per square foot. Its distinctive operating model, which consists of company stores, unique recipes, and geographic clustering, is rapidly scalable and generates industry high margins and returns on investment. Further details on Crumbs’ unit-level metrics will be discussed on the conference call announcing the business combination and can be found in the investor presentation posted on www.crumbs.com.
Crumbs is gaining significant brand recognition and was ranked number 10 on Inc. magazine’s list of the nation’s fastest-growing private companies of 2009 within the food & beverage industry. Crumbs was also ranked number 10 on Inc. Magazine’s list of top breakout companies of 2010, which includes such notable entities as Foursquare, Groupon, and Pandora Radio.
Crumbs Financial Highlights and Multiyear Outlook
Based on preliminary results for the fourth quarter ended December 31, 2010, total sales for 2010 are expected to be $31.1 million while net income is expected to be between $1.7 and $1.9 million and Adjusted EBITDA is expected to be between $2.4 and $2.6 million. These preliminary results above are only estimates and may change. Crumbs is continuing to prepare its financial statements for its fourth quarter and fiscal year ended December 31, 2010 and has not finalized its financial results. Additionally, the financial statements for the fiscal year ended December 31, 2010 will be subject to audit and as a result are subject to adjustment and change.
Crumbs opened a total of seven stores in 2010, and ended the year with 34 locations in six states and Washington DC.
Total sales for 2011 are expected to be between $45 to $50 million, while net income is expected to be between $3.1 and $3.9 million and Adjusted EBITDA is expected to be between $4.6 and $5.4 million. Crumbs intends to open another 15 to 21 stores in 2011 (49 to 55 by year-end), with the majority of new locations to open in the second half of 2011.
In terms of longer-term projections, total sales for 2012 are expected to be between $85 and $90 million, while net income is expected to be between $8.0 and $9.0 million and Adjusted EBITDA is expected to be between $11.8 and $12.8 million. Crumbs anticipates opening another 40 to 45 stores in 2012 (89 to 100 by year-end). Lastly, Crumbs plans an initial expansion to 200 locations in the top 15 markets by year-end 2014.
Summary of Business Combination Transaction
Under the terms of the definitive agreement, the initial consideration to the owners of Crumbs will be equity securities exchangeable into 3.9 million shares of 57th Street common stock and $27.0 million in cash for aggregate consideration at closing of approximately $66.0 million.
In addition, Crumbs shareholders will be entitled to receive up to an aggregate of 4.4 million earn-out shares which will be held in escrow at the closing of the transaction and released based on either meeting certain Adjusted EBITDA targets in 2013 - 2015 or stock-price performance targets in 2011 - 2013.
As a condition to closing the transaction, 57th Street will provide its current stockholders with the opportunity to redeem their shares of common stock for cash equal to their pro rata share of the aggregate amount on deposit in the trust account set up to hold the proceeds of 57th Street’s initial public offering, less taxes, upon the consummation of the business transaction. 57th Street intends to conduct these redemptions without a stockholder vote and pursuant to the tender offer rules of the Securities and Exchange Commission, or SEC. The tender offer documents to be filed with the SEC will contain substantially the same financial and other information about the business transaction and the redemption rights as is required under the SEC’s proxy rules. The tender offer is expected to close simultaneously with the closing of the business combination.
Concurrent with the closing of the business combination, a voluntary warrant tender offer for 9.2 million outstanding 57th Street warrants at $1.00 per warrant will be made by 57th Street. The 57th Street sponsor group has agreed to tender all 3.7 million private placement warrants held by the sponsor group. The warrant tender offer is expected to close simultaneously with the closing of the business combination.
On a fully-diluted basis, including 57th Street’s existing capitalization, the pro forma enterprise value at closing is approximately $82.1 million. Based on Crumbs’ financial outlook, this implies a valuation multiple of 16.4 times estimated 2011 Adjusted EBITDA of approximately $5.0 million, and 6.7 times projected 2012 Adjusted EBITDA of approximately $12.3 million. Both of these Adjusted EBITDA estimates are at the midpoint of the aforementioned projected ranges.
The business combination is currently expected to be completed in March 2011. The actual closing is subject to the completion of a tender offer pursuant to the terms of 57th Street’s initial public offering, along with customary closing conditions.
Conference Call Information
Crumbs and 57th Street will host a joint conference call to discuss the business combination today, January 10, 2011 at 11:00 a.m. EST. Interested parties may listen to the call via telephone by dialing 888-378-4353, or for international callers, 719-457-2632. A telephone replay will be available shortly after the call and can be accessed by dialing 877-870-5176 (confirmation code: 4458421), or for international callers, 858-384-5517 (confirmation code: 4458421). The replay will be available until January 30, 2011, at 11:59 p.m. EST.
The conference call webcast and an investor presentation with more detailed information regarding the business transaction will be available at www.crumbs.com and www.sec.gov.
Presentation at the ICR XChange Conference
Jason Bauer, co-Founder and Chief Executive Officer, and John Ireland, Chief Financial Officer, will present Crumbs at the 13th Annual ICR XChange Conference at The St. Regis Monarch Beach Resort & Spa in Dana Point, California on Wednesday, January 12, 2011 at 4:40 p.m. EST. Interested parties may listen to a webcast of this presentation at www.crumbs.com.
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