Top Deal: Not your Grandfather’s Mill

Key Stats:

Summary

At time of publication, November 29th, 2018, Braidy Industries had raised $12.1M.

The Braidy Industries team has been selected as a “Top Deal” by KingsCrowd. This distinction is reserved for deals selected into the top 10% of our deal diligence funnel. If you have questions regarding our deal diligence and selection methodology please reach out to hello@kingscrowd.com.

Problem

A few years ago, automakers, due to consumer and regulatory demand for greater fuel efficiencies, set a goal of dramatically increasing the fuel efficiency of vehicles by 2025. In addition to greater fuel efficiency, US consumers want large vehicles, with entertainment, technological and safety features.

All this adds weight to a vehicle, making greater fuel efficiency more challenging. In order to meet consumer demands, automakers focused methods of reducing weight without compromising size, safety or creature comforts.

Automakers quickly revisited replacing steel components with aluminum. Revisited? Yes. In 1953, Cars Magazine’s cover story predicted by 1960, steel would no longer be the predominate material in cars. The logic was, steel was heavy and made cars gas guzzlers.  

Even as recent as 10 years ago automakers, while still searching for a lightweight alternative to steel snubbed aluminum, as it was difficult to shape and secure pieces together. Consumer pressures forced innovation in aluminum manufacturing, which paved the way for steel in autos to be increasingly replaced with aluminum.  

Does it Work  

Tesla’s, S and X models are made entirely of aluminum and prestigiously hold a five-star crash test rating. Naysayers counter, aluminum is only economically viable in luxury vehicles, Tesla, Audi, Mercedes and Land Rover were early adopters.

In 2015, the Ford F-150, the most popular vehicle of any kind in the US shed a jaw dropping 15% weight or 700 pounds (0.32 ton) by launching an all-aluminum body. Since the launch of the all-aluminum frame, the F-150 has continued to see sales increases each year.

Where will it come from

Aluminum as a metal never degrades. At the end of a vehicles’ life, an average of 90% of the aluminum is recyclable. In 2012, the US had the capacity to produce 200 million pounds of ABS (Auto Body Sheets).

The US is on track to need 4 Billion pounds of ABS by 2025. Existing US production will barely reach close to 1 Billion pounds of ABS by 2025, according to The Aluminum Association report, but the recently announced restarting of mills and construction of new mills are forecasted to meet the demand.

Solution

Braidy Industries has gathered an all-star team of metal, manufacturing, research and business executives to collect cutting edge aluminum technologies and build the first greenfield aluminum rolling mill in the United States in 35 years.

The environmental ly friendly mill will produce industry leading 104 inch (2.64 meters) wide aluminum sheets. Braidy has also acquired the technology from two companies spun off from incubators at MIT and Northwestern University to round out the offerings.

Veloxint

In March 2018, Braidy Industries bought Veloxint, which has commercialized an MIT-developed powder metal technology, delivering ultra-high-strength nanocrystalline metal technology.

Braidy promotes the Veloxint technology in the production of reciprocating or rotating powertrain components. The Veloxint technology will enable the delivery of stronger, lighter parts for the auto and aerospace industries even at extreme temperatures.  

There is also a reference to Veloxint’s application in 3D printing. To date, Braidy has not revealed much detail about the technology due to reportedly protecting the innovative nature of the technology.

Nanoal

Nanoal

In September 2018, Braidy acquired Nanoal, a Northwestern University incubated technology. Nanoal’s team successfully developed a groundbreaking process increasing the strength of aluminum utilizing a patented, nanocrystal embedding process.

Local Support 

To say Kentucky rolled out the red carpet for Braidy is not strong enough. The state of Kentucky’s, Commonwealth Seed Capital, is the second largest shareholder of Braidy Industries with an investment of $15 million or 3 million shares of stock. This is by far the largest investment for the nearly two decades old fund.

 In addition to the investment, Kentucky has committed over $12 million in state tax incentives. Braidy negotiated favorable power rates with no peak loading.

The land for the Mill is designated as an Opportunity Zone, meaning it qualifies for low cost to no cost Federal capital gains tax. According to Braidy, the Mill will be “the only aluminum rolling mill to achieve a low emissions air permit from the EPA.”

The plant broke ground (via contractual necessity), in June 2018 in Ashland, Kentucky. Ashland is on the east side of Kentucky and is plagued with Opioid addiction and poverty. The poverty level in Ashland is 23% as compared to the national average of 15%.

Braidy Industry has closely partnered with influential politicians promising to provide 600 jobs paying at least twice the average once the plant is operational. The Braidy Mill’s job creation is often cited as a critical component to combating Kentucky’s opioid addiction epidemic.

Competitors

Competitors

 There is plenty of competition in the US aluminum rolled products market. Kentucky, due to its central proximity to both northern and southern auto manufacturing facilities, is already US’s top aluminum producer.

At the Braidy Mill’s full production capacity of 600 million tons per year, it will catapult Braidy to the 6^th ranked producer of aluminum in US, behind giants Alcoa (2,500m), Novelis (2,490m), Wise Metals Group (1,100), Aleris International (840m) and Arco Aluminum (660m) according to research by Fastmarkets AMM.

Capacity

With the success of the F-150’s transformation to aluminum, experts agree, vehicles will increasingly utilize aluminum. So, what is the capacity of aluminum? Do we need more aluminum?

According to the Aluminum Association report, US production for auto body rolled aluminum in 2012 was approximately 200 million pounds. If no additional mills begin producing, supply would reach 900 million pounds by 2025.

Demand for auto body rolled aluminum in the US could reach as high as 4 billion pounds. According to the report, the current and future plans of US production mills will meet the demands.

Rolled Aluminum will have a much higher demand in the next decade. Current and future production is from old, non-environmentally friendly, and low-tech mills. Braidy may well have an extraordinary cost advantage over competitors to capture the growing demand for aluminum rolls.

Why We Like it

1. Aluminum Market Forecast: According to the World Bank, Aluminum prices will enjoy a steady rise through 2030. Lighter, stronger and cheaper of many products will enable aluminum to replace heavier, less environmentally friendly materials.
2. The automotive market, largely driven by the Obama administration 2012 mandate to reach greater fuel efficiency of 54.5 mpg by 2025, is committed to greater fuel efficiency.
3. This mandate has caused a spike in the production of aluminum as it is half the weight and pound for pound, and twice as crash absorbent. The lighter the vehicle, the less fuel required to propel the vehicle.
4. In response to recent revitalization in the aluminum market, multiple leading metals companies have restarted idled aluminum plants. Auto manufacturing is currently the key driver of demand for aluminum, yet there are many other uses which Braidy Industries is positioning itself to serve.

Leadership Team

CEO Craig Bouchard, has assembled a team of industry leaders from diverse backgrounds. Bouchard is the largest stockholder with 25% ownership.

Before investing, you should be clear Bouchard is in charge, with virtually no oversight, as he controls 85% of the voting rights. Bouchard has started and exited three public companies. Bouchard achieved his success by acquiring companies and assembling talent. He is replicating his successful model with Braidy.

In addition to Bouchard, the board of directors includes:

• Dr. Michael Porter — Harvard Professor, who literally wrote the book on strategy. If you know of Porter’s 5 Forces, this is the man behind it.
• Dr. Chris Schuh — Head of MIT’s Materials Science Department and co-founder of Veloxint
• John Preston — Previously ran MIT’s Incubator, which spun out businesses which went on to create Billions of dollars in market capitalization.
• Charles Price — CEO of Kentucky based Charah, Inc, a seasoned veteran of production.
• Ret General Norton Schwartz — 19th Chief of Staff of the United States Air Force.

The management team is rounded out by over twenty industry leaders who bring their expertise and networks to make Braidy Industries. Bouchard is known to invest in the right people, in his previous companies.

Political Support: Bouchard’s vast experience and network has taught him the value of political support for Braidy Industries. Despite Kentucky being the obvious choice for the mill, Bouchard developed a personal bond between himself and Kentucky’s governor Matt Bevin.

Bouchard convinced the Governor to expend his personal political capital in successfully leading the Kentucky legislature to unanimously approve the investment in Braidy. Beyond the investment, the Governor simultaneously pushed through last minute, right to work legislation to meet Bouchard’s business friendly criteria.

Locally, Braidy has already sponsored a professional tennis tournament in Ashland. Braidy has also collaborated with the community college next door to the mill, to create a two-year associate degree which will launch skilled workers right into the Braidy plant.

Braidy is committed to be a public leader in the revitalization of the community and recognizes investments in the community are valuable for business and have landed Braidy positive national attention for spurring US economic growth.
Proprietary Technology: Braidy Industries recent acquisition of MIT incubated Veloxint and Northwestern incubated Nanoal hold promise despite being short on details. Braidy has been coy with the actual technology and business application of each. Braidy claims divulging any substantive information would compromise the innovations of both yet to be commercialized technologies.

Veloxint is positioned to impact the internal, high temperature, high speed moving parts of an engine as well as a casual mention of 3D technologies.

Nanoal, while not commercialized is already joint venturing with at least two fortune 1,000 companies. While Braidy claims to be oversold in the first seven years of the plant, according to the SEC filings those commitments are non-binding.

Rating

Braidy Industries is worth betting on. Braidy Industries is not your typical startup. Braidy has gathered industry titans which you would expect to be CEO’s rather than leading departments.

The Braidy management team clearly understands how to navigate the political complexities of local, regional and national buy-in for the project. Braidy reports they are considering a 2019 NASDAQ listing, so there is a relatively fast exist strategy. This Crowdfunding is offering Braidy at $18/share, up from the previous offering in March 2018 of $10/share.

Is Braidy a sure thing? Nothing is a sure thing. There are some areas of concern, Braidy promoting the Mill location in South Shore on their home page, a site which they were forced to abandon a year ago, coziness with only Republican leaders currently in power, and attractiveness of US based Mills due to recent tariffs on imported Aluminum to name a few.

Bouchard has, financial and personal capital in Braidy. Bouchard appears to have a track record as a leader who knows how to gather the right experts, acquisitions and connections to be successful.

The downside on such an investment is minimized in comparison to other startups we cover due to the nature of having strong management, signficant capital backing and a business model already being set in motion.

However, returning 10X on a mid-market deal like Braidy valued at around $744M if the raise is succesful is also more challenging. But with the minimized downside and outstanding management team, we reiterate that we think this is a Top Deal and one worth having as part of your investment portfolio.