Only investors who made a reservation can invest in Project Buffalo.
VC-Backed
Raised $250K or more from a venture firm
The target company is a Midwest-based manufacturing partner for America's largest mining, iron, and steel manufacturing sites: engineering, sourcing, and delivering the products to keep American steel in business. In simpler terms, steel mills in America need certain materials and parts to run their day-to-day operations. The target company supplies some of the biggest names in steel with engineering services and parts, for them to maintain their assets.
While the target company has steadily grown revenues to $24M over the past 10 years, they still only have about .06% of the $4B spend every year which steel manufacturers need to pay to stay in business. Furthermore, as steel manufacturers transition to "Green Steel" (or steel made using less carbon intensive processes), there have been $75B in projects announced to be executed by 2030.
We believe this is the right time to invest in the American Steel Industry because of the following reasons:
While there are many startups on Wefunder, which traditionally have an unproven technology and are trying to build a better mousetrap, this is an opportunity to invest in an established company with real traction, reputation, and history in this market. We are under contract with the sellers of Project Buffalo, and are arranging a Private Equity, Leveraged Buyout deal which has historically never been available to retail investors due to the investment size minimums and the fact that they are behind NDA walls.
What is Private Equity, and how does this model work?
Think of this opportunity as a real estate investment. When you buy a property, you pay an equity downpayment and take out a mortgage. In our case, we are raising $8M of equity- of which we are opening a small amount up to the Wefunder Network. Rather than a mortgage, we have a lenders signed up who will grant a $13M loan on the company. As long as we are able to pay it back, our equity investment will grow to be the size of the company. Since the company makes $6M/year in earnings, we plan to have the principal and interest paid back in around 3 years, bringing our equity value to at least $21M (the original purchase price). This model is commonly referred to as a Leveraged Buyout (LBO). As we continue to grow the company with our value creation plan, our EBITDA (Earnings before Interest, Taxes, Depreciation, Amortization) or "Earnings before accounting comes in" will grow. Our model shows a modest growth in EBITDA over the next 5 years, and then a market sales price at a more typical market rate. Between the several factors at play here, we are able to make a considerable return for all equity investors with significantly lower risk vs. a standard venture capital or startup opportunity. Why? because the company has product-market fit, and it is a necessary company to keep the economy going in the USA!
How are we going to grow Earnings/Profits/ EBITDA?
The below graphic shows some of the "Thrusts" we plan to use for value creation. Simply summarized, we are going to update the processes, marketing, and reporting to continue its growth trajectory for the next phase of growth. These improvements will lead to more market oriented innovation, and allow us to both scale in geographic footprint as well as target applications.
How are profits distributed?
This opportunity has a typical waterfall for private equity style transactions. Private equity styled opportunties first return capital to investors in full of their original investment, then provide a certain “hurdle rate” of an annual dividend to be paid at exit, and then distributes remaining proceeds with the PE group receiving a portion of the profits (called “carried interest”, typically 20-35% of the profits). They typically also charge an annual fee on assets under management. Ultimately, this deal follows a fairly standard private equity waterfall that we believe will result in Net IRRs to investors as disclosed herein. We are not charging an annual fee on the invested capital, and we only participate in profits from a future successful outcome.
For specifics on the distributions this WeFunder vehicle will participate in, returns of capital "waterfall" works as follows:
The common equity can own up to 28% of the fully diluted equity holdings of the company subject to the waterfall above and based on certain returns requirements. The common equity vests in three evenly split 9.333% tranches. The first tranche vests at closing of the funding, the second tranche vests over a 48 month period on a monthly basis, and the third tranche vests on a sliding scale based on Net IRR to preferred equity investors on a straight line basis from 20-35% (For example, at a 21% Net IRR 1/(35-20) = 1/15 of the third tranche would vest; at 35% the third tranche is fully vested). In reference to “Net IRRs” on this investment opportunity page, the figures account for the “carried interest” described here.
As we enter the greatest transfer of wealth in history, coined as the "Silver Tsunami", many baby boomer business owners face succession issues. This has presented opportunities for experienced operators, like Adam, to come in and take well-established cash-flowing companies into the next chapter of ownership and growth.
Companies that face succession issues tend to trade at a discount, and thus give us what they call "Multiple Arbitrage". What is a multiple? In short, companies in the private markets tend to sell on a multiple of their EBITDA (earnings before interest, taxes, depreciation, and amortization). The public market eqivelant would be the P/E (price to earnings) ratio. While the average PE ratio for public companies on the S&P 500 is around 24, Private companies usually trade at lower multiples- depending on the reliability and growth of the industry. A common industry multiple for this sector would be purchasing a company at 6X EBITDA, we are under an exclusive LOI (Letter Of Intent... to purchase the company) at a 3.3X on the 2023 EBITDA. This purchase price leaves plenty of room for return on investment when we solve the succession issue, and exit the business at a 6X+ multiple.
(Future projections are never guaranteed.)
Adam is a seasoned operator leading this transaction. His entire career has been based on global industrial markets and has experience in all the geographies in which the company operates.
The existing management is expected to stay post-transaction, and the previous CEO is interested in moving into a more technical role, which is where his expertise and passion reside. The current team is rolling a meaningful amount of equity, as they have confidence in the long term vision of the company.
As opposed to a VC startup, or new consumer brand, Private Equity purchases an existing company. While we get the benefits of established product/market fit and a long track record with customers, this company also has employees, customers, and competitors who do not know this transaction is about to take place. We are also bound by non-disclosure and confidentiality obligations with the target company.
So to facilitate you knowing the name of the company, you need to first go through the investment process, and sign a Non-Disclosure Agreement. Once you sign this NDA and invest, you will be able to see the company name through the wefunder platform. Should you decide post investment that you do not like this investment, you will have the unconditional right to cancel your subscription to this offering. You will, however, still be bound by the NDA.
See the below slides to learn more about this opportunity:
Please see a selection of slides below which describe the opportunity in more detail:
