When Steve Higley finalized the business and financial plans for American Bright Bar, an innovative steel processing business he’s launching in January 2000, he intended to target big banks such as Citicorp and Bank Boston — financial institutions he’d done business with during his years as an officer for LTV Steel and, later, Republic Engineered Steels.
But first, he agreed to meet with the Orville branch of The Savings Bank and Trust Company, which had learned of his interest in doing business in Wayne County.
It was during that meeting (which Higley confides he considered a dry run before talking to the large financial institutions) that Higley’s plans for financing — and his preconceived ideas about small banks and government agencies — began to change.
“I thought regional banks might be the most interested. But The Savings Bank put some ideas on the table that fit where we wanted to go with this business,” Higley says, referring to the business and financial plans he co-authored with John Sears, who will serve as American Bright Bar’s vice president of finance.
Higley says that Jim Kleinfelter, senior vice president at The Savings Bank, pointed out that the scope of his business, located in Wayne County between Massillon and Wooster, would appeal to the U.S. Department of Agriculture’s Business and Industry Development division.
“The USDA’s rural development area is kind of a country cousin of HUD, to assist economic development in rural areas where the population is less than 25,000,” Kleinfelter says, noting that the USDA program is not available in most of Summit and Stark counties. “They’re particularly interested in manufacturing since that tends to create the best-paying jobs and the best tax base.”
Kleinfelter asked Higley if he could arrange another meeting, this time with Orville’s key business leaders, representatives from the USDA, the Small Business Administration, the Ohio Department of Development and the owner of the property Higley was considering for purchase.
“I was surprised and intrigued, because the bank treated us as if we were General Motors,” Higley says. “They assembled this team of people and said, ‘We think you have a great business plan, we think your start-up can be done on a very large scale and we want to make that happen.’”
Higley says the city expressed the position that its future is in strong, diversified businesses, and the USDA articulated its intent to promote entrepreneurial efforts for rural growth.
Kleinfelter says he was particularly impressed with Higley and Sears.
“They put together the most thorough and professional business plan I’ve ever seen, and based on their knowledge of the industry, and the talent and capital Steve put together, I knew they were an excellent candidate.”
Higley was able to acquire a Business and Industry Development Guarantee, in which the USDA provided a substantial guarantee for The Savings Bank, and The Small Business Administration provided a portion of a revolving line of credit. As for encumbrances tied into the transaction, Higley says they are no greater than those involved in a conventional loan.
“The USDA tried to structure an approach that fits with conventional banking. For example, my business plan had to hold up to critical analysis of both the USDA and The Savings Bank. I had letters of support from four key customers and two major suppliers I’ve worked with over the years,” Higley says. “In terms of debt to equity ratios and financial parameters, other financial benchmarks were really no different than conventional loans.”
It did take some time to work with all the agencies, Higley admits. Still, the process came together in about six months, in part because of his propensity to meet deadlines and exceed expectations.
“He and John Sears did an excellent job in working their way through the maze of red tape,” says John Finnucan, a managing partner at the Akron/Canton accounting firm of Bruner Cox LLP, to which Higley turned for financial expertise.
Part of the transaction’s success was in the fact that finding investors was no problem, Higley says, revealing that he was able to raise “a substantial amount of money.”
“When I made it public that I was starting this business, several people called and wanted to invest. We offered a fair return on their investment and we did it without involving an investment banker, which is always an expensive proposition,” he says. “We did a private placement, which leads to a fine capital structure and puts us in a position to compete.”
Finnucan says Bruner Cox helped structure a strategy to acquire the interest of investors, afford a greater return to compensate investors for the transaction’s intrinsic risks, and protect the company so that, when stock is redeemed, all the equity is not stripped out.
“We made an S Corp. selection so the redemption price would be less than the accumulated retained earnings. That has some disadvantages to the investors, but the cash payout should be so substantial that it compensates them for that,” Finnucan says.
The Ohio Department of Development counseled Higley in job creation, tax credits and training. Higley says American Bright Bar will provide jobs for 35 people and its specialty will be cold finished bars (steel bars), a product that will be enhanced because of Higley’s chosen production process.
“We first take the raw material and mechanically clean, or shot-blast, it. The bar is conveyed, lubricated and drawn through carbide dyes. It’s a big operation with a 300-horsepower motor and imparts value added characteristics for close tolerance, machining, cutting and drilling,” he explains.
The bar is then sheared to length, restraightened, packaged and shipped.
Most comparable steel-processing facilities produce the product on a batch basis, but American Bright Bar’s continuous process production line will do in a half-hour what it takes days for other companies to accomplish, Higley explains.
The company’s 45,000-square-foot building is currently under construction and production is set to begin in January. Joining Higley and Sears in the venture will be Gary Lenhart as vice president of operations. Among the three of them, they share about a century of experience in the steel industry — another element that appealed to the agencies backing them.
“This is a bold move, because at this point we have no revenue stream and we’re off and running. But we’ve had tremendous support from all directions and we’re confident we’re going to have a solid business,” Higley assures.
“I know the market, the industry and manufacturing trends and I didn’t take this step without talking to potential customers, making sure we’ll have a strong niche in the market place.”
How to reach: The Savings Bank and Trust Company in Orville, (800) 475-8961; Bruner Cox LLP, (330) 497-2000