Newport Beach’s Engaged Capital LLC is investing $100 million to back a competitor to coffee giant Starbucks.
Engaged, which was founded in 2012 by longtime activist investor Glenn Welling, is the largest institutional investor in Black Rifle Coffee Co., which intends to go public next month through a special purpose acquisition company, or SPAC.
The Salt Lake City-based and veteran-founded coffee company, which aims to support veterans, active-duty military, and first responders via employment opportunities, donations, and other efforts, is valued around $1.7 billion, according to the SPAC.
“It’s a fantastic brand founded by a dedicated team of people who had a vision of creating a great business to give back to the veterans, law enforcement and first responder communities,” Welling told the Business Journal last week.
“Black Rifle meets the criteria of what we look for—great businesses that have the potential to get better.”
Activist Investor
Engaged Capital, which has climbed to $1.5 billion in assets since beginning with $85 million in 2012, employs a private equity-style investing strategy in publicly traded small- and mid-cap companies, and it often demands changes in the companies it invests in. Welling and his executives worked previously at Relational Investors, which was a $6 billion activist fund.
Among recent deals, Engaged in 2017 started investing in Rent-A-Center Inc. (Nasdaq: RCII) at around $7 to $8 a share. After initiating many changes, including new management, the shares now trade around $46, giving it a valuation around $3 billion.
The most recent three-year return for Engaged, which has eight portfolio companies, was 35% annually, Welling said.
Black Rifles
Evan Hafer, a former Green Beret soldier and CIA agent, founded Black Rifle in 2014.
“What do black rifles have to do with coffee?” Hafer wrote in a Jan. 13 prospectus.
“In the military, they issue each of us a black rifle. It’s the one thing that every veteran in the last 50 years has in common. Veterans also share a love of country and a passionate belief in service on behalf of others. The United States of America is the greatest nation on earth, and every citizen should be grateful for the men and women who have carried their black rifles to protect and preserve our freedoms.”
As of Nov. 30, Black Rifle had 657 full-time employees, and more than half are military vets, it said. It’s also roasted more than six million pounds of coffee and shipped 3.7 million orders. It claimed 270,000 subscribers to its “Coffee Club.”
It’s also aiming to expand its brick-and-mortar coffee shops, what it calls “outposts,” from 16 to 78 by the end of 2023 with an average annual revenue of $2.5 million. It also has a third channel shipping to retailers like 7-Eleven.
The company reported $161.3 million in revenue and an operating loss of $766,000 for the nine-month period ended Sept. 30. Its gross margin was 43%. A portion of its profits go to veteran groups and related causes.
“What attracted us to the business was that the quality of the product was equal to the quality of the mission,” Welling said.
“We think Black Rifle’s cause is one of the most noble that you can have. It’s a business created to support the individual and families that have given their time and in many cases their lives to protect all of us.”
1st of 5 SPACS
Black Rifle Coffee will merge with SilverBox Engaged Merger Corp I, a SPAC that went public last March in a $345 million IPO. Shares of the SPAC are currently trading around its $10 IPO price; they rose close to $15 at the time the deal with the coffee company was struck in early November but have since declined.
Along with Engaged Capital, the SPAC’s backers include a slew of Wall Street veterans: SilverBox Capital LLC co-founder Joseph Reece, a former head of capital markets at Credit Suisse, Steve Kadenacy, the former chief financial officer and chief operating officer at engineering giant AECOM, and Carl Meyer of Silver Rock, which was spun out of billionaire Michael Milken’s family office.
According to a Forbes article last May, Milken is “a whale among SPAC investors,” with exposure to 125 separate SPACs worth no less than $500 million.
Black Rifle may be the first of five SPACs where Engaged Capital intends to spend $100 million each, through stock investments in the companies going public.
“The intention of our Founder Group is for the management team and the Advisory Group to form the core of a differentiated, and repeatable SPAC issuer,” the group’s prospectus said. “We believe the long-term nature of this vision and strategy will serve as a competitive advantage for us.”
Upon closing, the combined company is expected to list on the New York Stock Exchange with its Class A common stock trading under the new ticker symbol “BRCC.”
Welling will be one of Black Rifle’s directors.
