Black Rifle Coffee and SPACs are a logical blend

BRC

04/11/2021 14:46

(The author is a Reuters Breakingviews columnist.  The opinions
expressed are her own.)
    By Amanda Gomez
    NEW YORK, Nov 4 (Reuters Breakingviews) - Coffee energizes
some people, and makes others anxious. For Black Rifle Coffee, a
roaster run and founded by U.S. military veterans that’s merging
with a special-purpose acquisition company called SilverBox
Engaged Merger Corp I  SBEA.O , that’s sort of the
point urn:newsml:reuters.com:*:nL4N2RT2KP. It’s the kind of thing SPACs were made for. 
    The company led by Evan Hafer, himself a veteran, sells
coffee in stores like Walmart  WMT.N  and 7-Eleven, runs its own
coffee shops, and sells online, including to 270,000
subscribers. Sales doubled last year to $164 million and are
expected to grow 40% this year https://www.sec.gov/Archives/edgar/data/0001836707/000110465921132680/tm2131550d1_ex99-6.htm.
 While it doesn’t expect to be profitable for the next two
years, a gross margin of around 40%, larger than Starbucks’
 SBUX.O , shows it can charge a premium.
    Hiring veterans ought to be an ESG-plus, too. The level of
workforce participation by veterans was three-quarters that of
the U.S. population overall in September, according to the
Bureau of Labor Statistics. About half of Black Rifle Coffee
employees are veterans or veteran spouses. That plays to an
issue companies from JPMorgan https://www.jpmorganchase.com/impact/people/military-and-vets
  JPM.N  to Salesforce.com https://veterans.force.com/s  CRM.N 
have embraced.
    Beyond that, things get complicated. Black Rifle sells
coffee, not rifles, but in a traditional initial public
offering, its name, and direct appeal to fans of military-style
civilian firearms, would be likely to spook underwriters and
investors trying to do less business with gunmakers. Hafer had
to publicly distance his business from a man currently on trial
for charges related to a shooting in Kenosha, Wisconsin last
year. https://www.blackriflecoffee.com/pages/official-statement-kenosha
    Nonetheless, provocation is a feature, not a bug for a
company that sells rifle-themed mugs marketed as a way to scare
off workplace “snowflakes.” https://www.blackriflecoffee.com/products/rwb-ar-flag-ceramic-mug?variant=30940289433709
 Even as a public-benefit company, a designation that lets Hafer
consider goals other than shareholder value, many large
institutions might shy away from the brand’s associations. 
    A SPAC looks like a smart solution. Blank-check firms are
designed to cut out some of the usual middlemen and make it
easier for quirky, fast-growth companies to find equity
investors more directly. At $1.7 billion, Black Rifle Coffee’s
enterprise value is just above 5 times next year’s sales,
roughly a quarter higher than Starbucks according to Refinitiv.
Thanks to SPACs, Hafer has found investors with as strong a
stomach as his mug-toting customers.
    Follow @alpgomez https://twitter.com/alpgomez on Twitter
             
    CONTEXT NEWS 
    -  Black Rifle Coffee announced on Nov. 2 that it agreed to
go public via a merger with special-purpose acquisition company
SilverBox Engaged Merger Corp I. The deal values the coffee
roaster at $1.7 billion and includes an investment of up to $300
million from Engaged Capital and other investors. 
    - The companies said in a presentation that Black Rifle
Coffee is expected to have revenue of $230 million and a net
loss of $12.1 million in 2021. 

 (Editing by John Foley and Sharon Lam)
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