Snowball

About the offering

For years, hundreds of millions of Americans have taken the comfort inside their home for granted. But in the face of increasing extreme weather conditions – from wildfires and droughts to heatwaves and cold snaps – we’re all beginning to wake up to a sobering reality. When it really counts, will the most critical appliances in your home – like heating, air conditioning, ventilation, and refrigeration (HVACR) – turn on and work efficiently? That’s why it’s no surprise to see record spending in the $657 billion home services industry as homeowners become increasingly interested in energy efficiency and indoor air quality. And thanks to the $7.1 trillion pandemic housing boom, the home equity gains alone could fuel roughly 12 years of spending at the current size of the total addressable market. But for investors seeking to capitalize on this trend, there’s one major problem: Who will install and service these HVACR systems? The answer could be the millions of people looking for stable jobs with long-term upside in the “green” economy. Today’s presentation is dedicated to the economic potential behind the $100 billion heating, ventilation, air conditioning, and refrigeration (HVACR) + mechanical, electrical, and plumbing (MEP) market… The hundreds of thousands of jobs that could be created for people who need them most… And how millions of homes in America could become an energy-efficient “smart home”… all at net-zero cost! With $8.1m In Forecasted ‘23 EBITDA, Snowball Is Seeking $5M To Acquire Existing Targets In M&A Pipeline Snowball Industries, Inc. was formed in September 2020 as a joint venture between two holding companies that placed emphasis on buying high-quality, long-term businesses and holding them for long periods of time. The company is active in both commercial and residential HVAC and plumbing in order to diversify revenue from multiple channels and types of business. Since inception, the company has gone from a standing stop to $8.1m in forecasted 2023 EBITDA with only $6M of equity capital raised. How did they achieve this growth? By pursuing a classic “Buy, Then Build” private equity strategy 3-Year Forecast of Business Operations, Organic Growth Only: The financial projections have not been prepared based on certified public accounting standards and have not been reviewed by an independent accountant. The above financial projections are based on assumptions made by management regarding future events. There is no assurance that actual events will correspond with these assumptions. Assuming an 8x to 10x multiple of its $8.1m FY'23 EBITDA forecast, if Snowball were publicy traded in today's market, management believes the company could be valued between $64.6m - $80.8m. [Note: this is management’s assessment and has not been tested. The company’s shares are currently private, do not trade on an open exchange, and there is no guarantee of their actual value.] With additional equity capital to pursue additional growth through acquisitions, the company believes it could grow into a $1bn+ enterprise. Here’s why: Management Believes The $100 Billion HVACR + MEP Market Is Going Through A Period Of Consolidation. In 2002, management consulting firm AT Kearney published their book “Winning the Merger Endgame: A Playbook for Profiting From Industry Consolidation”. According to their market model – The Consolidation-Endgame Curve (or “Endgame Curve”) – once an industry forms, it will likely move through four stages of consolidation: Opening, Scale, Focus, and Balance & Alliance. Once a new industry forms or is deregulated, it will move through four stages of consolidation or disappear. Source: The Strategic Project Manager By appropriately identifying the stage, understanding the defining traits and behavior of our stage, we can better understand – and potentially predict – market behavior and trends. Stage 1: Opening – There is little or no market concentration and the first consolidators may appear. Newly deregulated, start-up, and spin-off sub industries occupy this space Stage 2: Scale – Size begins to matter. Major players begin to emerge and tend to take the lead in consolidation. Concentration rates can be as high as 45%. Stage 3: Focus – Successful players extend their core businesses, exchange or eliminate secondary units, and continue to aggressively outgrow the competition Stage 4: Balance & Alliance – A few players tend to dominate industries, with consolidation rates as high as 90% among the top three companies. Large companies may form alliances with other giants because growth at this stage is more challenging. As a reference point to fragmentation, in 2021, the largest privately held HVAC/mechanical contractor in the U.S. was Service Logic. With an estimated $200 million in revenue, the company holds a mere 0.20% of the $100 billion HVACR and MEP market. Source: Uplift Partners With regards to the Endgame Curve’s model, the clear lack of dominance by the top quartile of companies suggests a huge opportunity to consolidate the industry. The top 10 service companies barely control 5% of the overall market. However, home services sectors – like HVAC + MEP – may be resistant to consolidation due to a variety of factors (i.e. the relatively low startup costs and barriers to entry) Not surprisingly, over the past several years, we’ve seen hundreds of private equity firms enter into this typically recession-resistant sector to combine smaller companies into a larger conglomerate (i.e., a roll up). What’s driving this consolidation? Not only is the recession-resistant nature of HVACR and MEP servicing companies attractive to investors in search of cash flow… From a demand perspective, there appears to be a clear – and growing – demand from residential homeowners for “Smart Home” devices, in pursuit of: Energy Efficiency and Electrification: The growing interest in ESG values and “Net Zero'' goals have become a primary driver of retrofit and upgrade demand in the HVACR equipment sector as consumers and building owners demonstrate a strong preference for sustainable systems. Retrofit and upgrade demand is expected to continue to rise as environmental regulations become more stringent. Indoor Air Quality (IAQ): The COVID-19 pandemic brought renewed awareness and interest in the need to filter and purify the air we breathe. HVAC equipment providers are responding to this shift in demand with greater IAQ transparency. However, management believes the largest structural change in demand stems from the “Net Zero” initiatives in America and around the world. Today, residential and commercial buildings account for over 70% of all U.S. electricity consumption, and at least one-third of U.S. economy-wide emissions. As we attempt to shift toward a decarbonized world, this means substantially everything will move towards electrification. In turn, this will put tremendous stress on the existing power grid, which is already being pushed to its limits amidst record-breaking heat waves and water shortages. While renewable energy sources are likely going to play an increasingly important factor in this global energy transition, it may be equally – if not more – important to reduce energy consumption and otherwise improve energy efficiency. That’s why one of the key components of the Smart Grid transition is something called “Grid-Interactive Efficient Buildings”; energy efficient buildings with smart technologies – like Smart Meters and Smart Appliances – that automatically optimize energy usage to reduce costs for owners. Management believes that several key supply-side barriers preventing mass adoption for Smart Home technologies have been removed, potentially setting the stage for increased consumer adoption and industry consolidation. A Possible Path To $1 Billion In Market Cap (And IPO Timeline) With the Endgame Curve in mind, management believes their “Buy, Then Build” strategy may likely benefit from becoming a publicly traded company. Not only could being public potentially provide the company with better access to capital, it may also drive shareholder value as publicly traded companies are typically valued at a higher multiple than private companies. However, before the company is ready for life in the public markets, management believes it needs to hit a key corporate milestone: $30M in EBITDA. At today's public market comps of ~10x-15x EBITDA, $30m in EBITDA would value the company at ~$300m - $450m. In order to reach a $1bn valuation, the company would need to continue growing in the public markets to the $75-$100m EBITDA range. With that goal in mind, management is seeking $5 million in equity capital to complete three M&A transactions, and to continue driving organic growth in its existing portfolio companies. Management intends on acquiring four to six new companies per year, in years 2023 and 2024, to accelerate EBITDA growth in an effort to achieve its goal of $30m EBITDA prior to an IPO. For this reason, in addition to this round of fundraising, management will likely seek to raise an additional $20m - $30m to continue growing the company before considering a public listing. All information in this image should be considered hypothetical. There is no guarantee the company will complete an IPO or otherwise deliver positive returns. Any investment should be considered high-risk and speculative in nature. This means investors may see a liquidity event in 18-36 months following the close of this round – assuming management hits corporate milestones on time and within budget, is successful in raising its next rounds of Pre-IPO financing, and market conditions are favorable. This additional fundraising may present a risk and will likely dilute the value of shares for investors coming into this early round of fundraising — however, later investors will likely have to come in at a higher and less advantageous price and the overall growth of the company and its share price may overcome the dilutive effects (at least that is the goal). While anyone who qualifies under the Regulation Crowdfunding rules and restrictions is welcome to invest in this round as a passive investor, management is motivated to develop a retail shareholder base that can help: Drive brand awareness. Generate greater awareness of Snowball and its portfolio companies which may provide increased adoption rates in the marketplace. Potentially create increased liquidity for shareholders in the event of a public offering The Great American Green Housing Boom For years, hundreds of millions of Americans have taken the comfort inside their home for granted. But in the face of increasing extreme weather conditions – from wildfires and droughts to heatwaves and cold snaps – we’re all beginning to wake up to a sobering reality. When it matters most, will the critical appliances in your home – heating, air conditioning, ventilation, and refrigeration (HVACR) – turn on? And perhaps more importantly, as energy prices rise, will you be able to afford to turn them on? The answer to all these problems could potentially be hidden… The Potential $100 Billion “Smart Building” Opportunity Over the past 20+ years, the U.S. government has invested billions of dollars in transforming our aging energy infrastructure into a more adaptable, efficient, reliable, and responsive national electrical network called the ​“Smart Grid.” Why? Because today, residential and commercial buildings account for over 70% of all U.S. electricity consumption, and at least one-third of U.S. economy-wide emissions. While this complex problem doesn’t have a simple solution, one of the key components of the Smart Grid transition is something called “Grid-Interactive Efficient Buildings” (GEB); energy efficient buildings with smart technologies – like Smart Meters and Smart Appliances – that automatically optimize energy usage to reduce cost for owners. The U.S. Department of Energy’s Building Technologies Office (BTO) envisions a future in which buildings operate dynamically with the grid to make electricity more affordable and integrate distributed energy resources while meeting the needs of building occupants. Source: US DOE According to the Department of Energy’s National Roadmap for Grid-Interactive Efficient Buildings… “Over the next two decades, national adoption of GEBs could be worth between $100–200 billion in U.S. electric power system cost savings.” Given such an enormous, untapped opportunity, the Department of Energy is announcing a national goal for GEBs: To triple the energy efficiency and demand flexibility of the buildings sector by 2030 relative to 2020 levels. In doing so, GEBs may play a key role in promoting greater affordability, resilience, environmental performance, and reliability across the U.S. electric power system… All of which could translate to higher quality living conditions – at more affordable prices – for American citizens. However, technical and market barriers at each point in the GEB value chain are impeding these benefits from being realized. For entrepreneurs – and investors – who are willing to provide the capital, labor, and leadership needed to remove these barriers and make this transition, the economic opportunity could be enormous thanks to… A Generational Change In Homeownership Driving The $657 Billion American Home Services Industry Since 2020, Angi, Inc – a website that provides lead generation and reviews for home services providers, formerly known as Angie’s List – has published their annual survey called “The Economy of Everything Home.” According to their latest report, 2022 has become a transitional year for the home service market. The total addressable market (TAM) grew from $506B in 2019 to a new high of $657B – roughly the same size as the GDP of Sweden. What’s driving the growth? While COVID-19, the increase in remote work, and the continual appreciation of home values have served as a catalyst… Inevitably, continued growth in the TAM is rooted in the simple function of supply and demand: the current inventory of homes and the people who want them. While every individual is different, as a generational cohort, they tend to move through predictable “spending waves” based on the stage of life they are entering. Consider that in the next 10 years… 43.5 million people will turn 30: 30 is commonly associated with the earlier forms of family formation and the beginning of early career growth. 45.2 million people will turn 40: 40 is commonly associated with peak earning power and trading up homes for more space. 28.9 million people will turn 80: according to the Joint Center for Housing Studies of Harvard University, baby boomers are expected to account for 56% of all residential remodeling spending by 2025, up from 31% in 2005. As people age, they transition from Early Home Buying (Dark Red), Peak First Time Home Buyers (Red), Moving Up Market (Blue), Settled and Remodeling (Green) and Home Downsizing (Grey) Source: Angi But where are all these people going to live? In America today, single-family homes continue to be the most popular form of housing in America – a total of 93.5 million single-family homes. Source: Angi However, the simple fact that nearly 40% of America’s housing stock was built before the 1970s means there’s plenty of “fixing up” to do. While new home construction gets a lot of attention – The U.S. housing market is 3.8 million single-family homes short of what is needed to meet the country’s demand – it would take 109 years to completely rebuild and replace the entire national housing stock of 141 million housing units. That means current and future homeowners of existing housing stock will likely be the ones responsible for making homes “greener” and “smarter.” In turn, this creates remarkable stability in the home services market compared to new construction. Demand for home services and home construction were equal at the height of the 2000s housing boom; roughly 6 million full-time employees each. However, the demand for new home construction labor plummeted following the great recession, dropping by 2/3rds. Source: Angi Thanks to the recent run-up in home values, the home services market could witness another decade of stability. The $7.1 Trillion Surprise: How Rising Home Values Could Drive A Decade Of Spending In Home Services The largest influence on the overall home services market is homeownership itself, as homeowners spend more than twice as much as renters on improvement projects. Thanks to the COVID-19 pandemic, we’ve seen not only a shift in home buying and moving, but in the ways people are using their living spaces. The national homeownership rate dropped to a half-century low – 62.9% – following the Great Recession but has since recovered to 65.4% as households scrambled to make home purchases during the recent low-interest rate periods of 2016. Source: Angi This recent jump in homeownership caused home prices to rise, creating an interesting dynamic across the industry. Higher prices have not only pushed new buyers down the quality chain into “fixer-upper” homes… it’s provided existing homeowners with an important source of capital – home equity – to finance projects. In total, homeowner home equity has reached the unprecedented level of $27.7 trillion, gaining $7.1 trillion over the 2 years of the pandemic. This means the typical household gained $80,000 in home equity wealth over the last two years, and the pandemic home equity gains could fuel roughly 12 years of spending at the current size of the total addressable market. Additionally, rising interest rates have created another tailwind for the home services market. Higher rates anchor people into their existing homes and disincentivize moving (which in turn boosts remodeling). However, rising interest rates – along with deteriorating conditions in the real estate markets – may have a negative impact on home values and therefore reduce this source of equity financing. But what types of projects are homeowners interested in? Demand For Smart Home Appliances Is Increasing Over the past few years, we’ve seen two major changes in home services demand: Energy Efficiency and Electrification: The growing interest in ESG values and “Net Zero” goals have become a primary driver of retrofit and upgrade demand in the HVACR equipment sector as consumers and building owners demonstrate a strong preference for sustainable systems. Retrofit and upgrade demand is expected to continue to rise as environmental regulations become more stringent. Indoor Air Quality (IAQ): The COVID-19 pandemic brought renewed awareness and interest in the need to filter and purify the air we breathe. HVAC equipment providers are responding to this shift in demand with greater IAQ transparency. In many ways, this demand has been most easily satisfied with the new supply of “Internet of Things” (IoT) enabled devices, which we will describe collectively as Smart Home Devices and Appliances (SHDA). Not only can these “smart” upgrades potentially save money on energy bills, they may also provide a boost to the value of the home by as much as 5%. According to Angi’s State of Home Spending 2021, “Installing Smart Home Devices” made up 27.1% of all completed projects – a 41% change from 2020. Today, it’s estimated more than 14 million homes in the U.S. use “smart home” or "smart technology" devices and products—and that number is only expected to go up. Source: Angi However, to truly satisfy the demand – cost savings, energy efficiency, and improved air quality – it requires tackling three major home components: weatherization, electrification, and renewable energy. When it comes to weatherization, just like a leaky bucket doesn’t hold water very well, a leaky home doesn’t maintain internal climate very well. While it’s certainly more fun to put in a new kitchen than it is to seal air leaks in fenestrations (i.e., windows, doors, and skylights), install better insulation, or even replace the roof… A “Building Envelope” – defined as the continuous thermal and pressure barrier that surrounds the structure – is a key defense against the outdoors. Not only does the envelope need to provide a thermal barrier, it also needs to provide an air barrier. Depending on where you live, outdoor air quality can range from consistently fresh and clean to smoggy, stinky, or saturated with seasonal allergens. While outdoor air quality is an obvious factor impacting IAQ, the conditions of HVAC equipment, air filters, and any potential presence of mold inside the ductwork can also negatively impact IAQ. This is why electrified HVACR and water heating systems are critical to satisfying this growing consumer demand. However, these systems also represent the largest electrical load in every home – approximately 73% of the total load in residential buildings – and are often critical during extreme weather conditions and emergency situations. Source: US Department of Energy Interestingly enough, in all major markets today, people are typically buying air conditioners whose average efficiencies are less than half of what is available. That’s why HVACR equipment companies that offer eco-friendly systems are already benefiting from heightened demand for sustainable products, particularly if they provide cost-savings benefits. According to David Regnery, Chair & Chief Executive Officer, Trane Technologies: “Energy efficiency, decarbonization, and sustainability megatrends continue to intensify and create record levels of demand for our innovative products and services.”. How The Inflation Reduction Act Could Drive Smart Home Devices And Appliances (SHDA) Adoption Higher For the majority of consumers, the upfront cost is the #1 factor when considering home improvements. After upfront costs, the next consideration is how quickly those costs can be recouped, and then generate “profit” in the form of savings (i.e., the “payback period”). While we’ve had a variety of financial incentive programs over the past decade, sometimes the short duration of things like rebates and tax credits has created uncertainty from a financing perspective. However, with the introduction of the Inflation Reduction Act (“The Act”), many of these uncertainties have largely been removed. The Act renamed the existing IRC Section 25C nonbusiness energy property tax credit the “Energy Efficient Home Improvement Credit.” This credit now covers up to 30% of the cost of energy upgrades, with a cap of $1,200 per year, beginning in 2023. Previously, this tax credit was only available to homeowners one time. The Act makes the credit an annual incentive, meaning homeowners could claim the credit every year from today through Dec 31, 2032. The Act also offers up to $14,000 in rebates and tax credits for people to make their homes more energy-efficient; including installing high-efficiency heating, cooling, and water-heating equipment such as fuel-conserving furnaces, boilers, and wood stoves. But the largest credits and rebates – up to $8,000 – are available for heat pumps; a high-efficiency system that heats and cools your home in place of a furnace (or boiler) and an air conditioner, with prices ranging from $4,000 - $7,000. With regard to removing barriers from the value chain, the Inflation Reduction Act sends a clear signal to the market regarding policy. From a technology standpoint, while there’s still room for improvement, we already have plenty of commercially viable products that meet today’s energy efficiency standards and qualify for a variety of reimbursement schemes. Not to mention, regular preventative maintenance of the HVAC systems – along with smart devices that report levels of pollutants and allergens – is a key to improving IAQ. The final key to the “Smart Home” puzzle is inevitably the ability to produce and store renewable energy on-site (known as “distributed energy resources” or “DER”). However, in order for many homeowners to benefit from DER technology – like solar panels with battery storage – it often requires upgrading the electrical system in the home. Not surprisingly, all three of these categories – weatherization, electrification, and renewable energy – are jobs most homeowners do not want to do themselves. This creates a significant opportunity for home services businesses. However, despite the growing demand, there’s been a significant barrier to the adoption of these energy-efficient Smart Home Devices and Appliances (SDHA): Financing. New building technologies in development may revolutionize how we heat, cool, and control our homes and buildings, facilitating optimal energy efficiency with affordable, seamless load control and demand flexibility (DF). Source: US Department of Energy From a demand standpoint, as the cost of energy continues to climb, adding “Smart” technology is becoming more about cost savings than it is about convenience. But the most important bottleneck that needs to be removed in order to realize this opportunity? Enough labor to install this technology into existing homes. The Problem Today: An Aging Labor Force According to Angi, there are 6.1 million people working in part or in full on providing home services – equal to roughly half the number of people just working in the construction industry – and roughly 19.2 million people with the skill sets needed to provide some sort of home services work. Source: Angi However, despite the boom in consumer demand – and a clear opportunity for a meaningful career, high pay, and high levels of entrepreneurship in the trades – the industry has struggled with recruiting younger workers as existing labor ages out. This has created four major problems for home services businesses today: Slowing growth Less time for family and time off Turning down jobs, and... Decreasing revenue. This in turn is resulting in 68% of companies struggling to hire skilled workers, with a third of them (33%) saying they could not find employees to fill open positions. Why is this happening? One commonly accepted theory is the multi-decade push to send children to college in pursuit of “white collar” careers, creating a stigma around “blue collar” work for many younger workers. Ironically, for a sizable portion of the labor market – including the ~40% of all college graduates who work in a job that doesn’t require a college degree – switching to a career in the skilled trades could mean a considerable pay bump. Looking at a topline analysis comparing a few well-known trades – like plumbers, electricians, and general contractors – average annual earnings are 22%, 29%, and 53% higher than that of the general population. Perhaps more ironic? In the trades, job satisfaction and meaning in work – something of increasing importance during COVID-19 and the “Great Resignation,” especially for younger workers – is one of the highest of any industry in America today. Over 80% of tradespeople list their job satisfaction as either very satisfied or somewhat satisfied.

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