Dresser-Rand IPOs, First Reserve Reaps The Benefits –

First Reserve Corp., a firm dedicated to the energy industry, recently went drilling for dollars and hit a gusher. The recent IPO of its portfolio company Dresser-Rand, (NYSE: DRC) an Olean, NY- based company raised $533 million. Of the total raised, First Reserve will receive a special dividend of $468.6 million after owning the company for less than one year.

Dresser-Rand manufacturers and services various oil and gas production equipment, such as centrifugal and reciprocating compressors or as they’re commonly known, drills. More than half Dresser’s revenues come from servicing and after-market parts with the remainder coming from manufactured equipment. Being that this is a great time to be in the energy industry, the company has seen EBITDA climb from $59 million in 2003 to $74 million in 2004.

By all accounts the IPO was a success. The number of shares was increased from 22.5 million to 27 million and it priced at $21-the high end of the original $19-$21 range. The stock closed at $22.80 the first day of trading and in the last week has traded in the $22.01 to $24.39 range giving the company a market capitalization of $1.8 billion. According to industry sources, the firm was given the option of doing the original deal at $22 per share or put out more shares at $21 per share. Based on trading levels, First Reserve, which still owns approximately 68% of Dresser-Rand, has seen the unrealized portion of its investment swell to $1.2 billion without the underwriters’ over-allotment option exercised. If the option is exercised First Reserve would reap another dividend of $78.4 million, however, if it’s not exercised the firm will still receive a dividend in the form of 4.05 million shares.

The firm first bought the company from parent Ingersoll-Rand in October 2004 for approximately $1.2 billion of which $430 million was equity, tapping funds IX and X. Like the natural resources it focuses on, the firm has spent a long time cultivating these types of deals. As reported by Buyouts, when First Reserve made the investment: “We’ve owned customers and worked with suppliers of Dresser-Rand. So with our existing knowledge of the company, we were able to complete our due diligence in an abbreviated time frame and with a higher degree of certainty. It’s like we were already on third base when the competition was getting to the plate,” said Mark McComiskey, a vice president at First Reserve.

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