Ladies and Gentlemen:
Given we find ourselves in a situation wherein all stakeholders desire the same optimal outcome and all
available data suggests the same conclusion, there is only one sensible path forward: an immediate sale
of the Company in whole, or in separate transactions for the Media and Marketplace assets. We have
observed an alarming track record of value destruction and disregard for shareholders over the last
several years at the Company and find it necessary to stress a renewed sense of urgency.
Shareholders have patiently waited long enough, the time to act is now. Nearly a year ago, the
Company announced the Board’s review of strategic alternatives. Since the formal announcement of
the review on April 15, 2019, the stock price of Leaf has sharply declined from $8.76 to $1.971
decrease of 77.51%. It is surprising how long this process is taking, and we fear the window of
opportunity is closing as management continues down their path of broken promises and
underperformance. We cannot fathom your reluctance to swiftly execute a plan that would likely lead
to multiples of the current enterprise value. We further believe that additional inaction would be a clear
failure of Board’s fiduciary duty to act in the best interest of ALL shareholders.
Despite the significant perceived value in the Media and Marketplace assets of the Company, Leaf’s
shares continue to languish as a standalone public company. The market has deemed the Company’s
strategy of managing a portfolio of disparate subscale businesses an exercise in futility. The simple
reality is that Leaf has been unable to sustain a reasonable valuation or investor confidence for many
years. In spite of that, the Company continues to subject itself to material public company costs and
quarterly reporting scrutiny. Corporate overhead alone for the latest fiscal year came in at 17.47% of
consolidated revenues, an untenable amount. With the above said, we firmly believe these assets
would flourish in the hands of a larger suitor that could provide a platform to operate at scale and
generate meaningful synergies.
Our research indicates that there are several logical financial and strategic suitors that could pay a
significant premium to the Company’s current valuation. In fact, in the case of Leaf’s Media segment,
GCA (your own advisor) has noted the average valuation for an Internet Content business is 4.10x
EV/Revenue in their latest sector report2
, implying a value for that segment of approximately $225.50
million. Additionally, the same report states the average valuation for a Marketplace business is 7.00x
Source: Closing stock price as of March 9
Source: GCA, Sector Report: Internet & Digital Media Q4 2019. https://gcaglobal.com/market-insights/sectorreport-internet-digital-media-q4-2019
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EV/Revenue, which suggests Leaf’s Marketplace segment is worth approximately $595.00 million.
Although that valuation for the Marketplace segment is optimistic given the growth and margin profile
of the businesses (Society6, Saatchi Art, The Other Art Fair), very conservative multiples based on
comparable public companies would still result in a value of at least $80.00 million for that segment3
Furthermore, the average sell-side analyst price target for Leaf stock is $6.75, a 242.63% premium to
current levels. We strongly feel the substantial imbedded value of the assets will be realized, and likely
only realized, as the auction process is concluded, and the businesses are sold to a financial or strategic
Let us also be clear, after nearly a year of waiting, the notion that small-scale asset sales and cost
cutting is a sufficient strategy would be misguided. We are confident the board recognizes this view
and understands that drastic change is necessary. Anything other than this would erode the little
credibility remining in the leadership of the Company.
It is now incumbent upon the Board to explain why, in the face of pressure from the stock price and
lackluster operating performance, the Company should not take transformative action to conclude the
strategic review - especially considering other large shareholders have separately declared their
frustration with the lack of progress. We believe the immediate sale of the Company in whole, or in
separate transactions for the Media and Marketplace segments, will undoubtedly provide the greatest
risk adjusted return compared to any substitute strategy. Resistance to this plan from the management
team must be weighed against their incentive to maintain the status quo and collect exorbitant
compensation for their historically poor performance. The time to act is now. We look forward to
working collaboratively with the Board and management to drive tangible progress ahead of the
upcoming annual meeting deadlines.
Erik A. Ritland
Boyle Capital Issues Press Release To Leaf Group Board, Urges 'immediate sale of the Company in whole, or in separate transactions for the Media and Marketplace assets'
Ladies and Gentlemen: Given we find ourselves in a situation wherein all stakeholders desire the same optimal outcome and all available data suggests the same conclusion, there is only one sensible path forward: an
Ladies and Gentlemen: