Reliance Steel & Aluminum Co (RS.N) forged a $766 million deal to buy Metals USA Holdings Corp (MUSA.N), boosting its market share in the fragmented but high-margin business of cutting and customizing metals.
More than 7,000 companies vie for a share of the $204 billion U.S. metals services industry, which processes metals for the aerospace, energy and construction industries, according to a report by industry research firm IBIS World.
The acquisition of Metals USA will add 48 facilities to Reliance's existing network of 220, taking Reliance's share in the market to up to 8 percent from about 6 percent, said Davenport & Co analyst Timothy Hayes.
"This deal gives Reliance a new product market," said Jefferies analyst Luke Folta. "Metals USA has a whole lot of business in heavy plates that goes into military applications, which has high margins."
Private equity firm Apollo Global Management LLC (APO.N) owns about 53 percent of Metals USA, which went public in April 2010 at an initial offer price of $21.00. The $20.65 offer from Reliance is almost 2 percent below the IPO price.
The cash offer is 13 percent more than Metals USA's Tuesday close of $18.30 on the New York stock Exchange. The company had 37.1 million shares outstanding as of November 1.
Reliance shares were up more than 9 percent at $70.77 in early trade, while Metals USA was trading just below the offer price at $20.55. Apollo shares were up 3 percent at $22.67.
The acquisition of Metals USA for an enterprise value of $1.2 billion is the biggest for Reliance, which has bought about 54 companies since its market debut in 1994, Reliance said on Wednesday.
Reliance's diverse customer base has largely insulated the company from the global recession, helping it report bigger-than-expected quarterly profits for the past two years.
"Metals USA is an excellent fit and nicely complements Reliance's existing customer base, product mix and geographic footprint," said Reliance Chief Executive David Hannah, who will lead the combined company.
The company will have total assets of more than $6.5 billion and annual sales of over $10 billion after the deal closes, likely in the second quarter. Metals USA had assets of $1 billion and sales of $2 billion as of December 31.
Reliance said the deal was expected to immediately add to its earnings.
Metals USA can seek alternative acquisition proposals through March 8, but analysts said a rival offer was unlikely.
"There aren't many service centers that have the size and financial ability to go higher than Reliance's offer," said Davenport's Hayes.
Moelis & Company LLC was Reliance's financial adviser, while Davis Polk & Wardwell LLP was legal adviser. Goldman Sachs & Co. advised Metals USA, and Wachtell, Lipton, Rosen & Katz was legal adviser.
(Reporting by Swetha Gopinath; Editing by Saumyadeb Chakrabarty)
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