First Reserve Gets Dibs On Dresser-Rand –

Upstream and down, the energy space is one that’s got wind in its sails these days, and energy-committed private equity firm First Reserve Capital Corp. is enjoying the ride. Late last month, the Greenwich, Conn.-based buyout shop completed its roughly $1.2 billion acquisition of Dresser-Rand Co., a supplier of energy infrastructure supplies, from its publicly traded parent Ingersoll-Rand Co. Ltd. (NYSE: IR).

Headquartered in Olean, N.Y., Dresser-Rand develops, sells and services centrifugal and reciprocating compressors, steam and gas turbines and control systems. Energy conversion technologies developed by the company are used for oil and natural gas production, refining and processing; chemical and petrochemical processing; and industrial power and energy recovery. With plants in Brazil, China, France, Germany, India, Norway, and the U.S., the business employs approximately 4,500 people and provides its services to the international energy industry.

In 2000, Ingersoll-Rand bought Halliburton’s 51% stake in its joint venture with Dresser-Rand for $555 million, with the intention of divesting it “as soon as practical” in order to accelerate productivity in its core businesses, the company said in a statement. At the time, Dresser-Rand had revenue of $1.2 billion.

In 2003, more than half of Dresser-Rand’s approximated $1.3 billion of revenue was related to its after-market parts and services business. According to published industry reports, about 40% of the worldwide energy-services market is controlled by Dresser-Rand and approximately 53% of the company’s revenue is from sales abroad.

For First Reserve, which has been solely dedicated to the energy sector for 25 years, the acquisition of Dresser-Rand was slick and quick, taking four-months in total. “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. We were ready to sign when the competition was still learning the business. 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.

“In most of the transactions we’re involved in, we’re able to act more like a strategic buyer than a private equity firm because energy deals are all we do,” added First Reserve Managing Director Tom Denison.

McComiskey said the most substantial growth potential for Dresser-Rand lies in increasing service offerings, new technologies and further penetration in its existing customer base for its after-market parts and services business.

And as crude prices continue to bubble upward and break record highs, oil companies may find that now is a good time to dig new wells and build new pipelines; activities that Dresser-Rand supplies the infrastructure for. “We try not to base our investment decisions on cyclical trends because you cannot always count on them to add value to a company,” McComiskey said. “However, given the current state of the energy market, this does look like it’s a good time for energy infrastructure deals.”

To finance the deal, Citigroup, Morgan Stanley and UBS provided a debt tranche including a $300 million revolver, a $420 million bond offering and a $395 million Term B loan.

First Reserve tapped First Reserve Funds IX and X for its $430 million equity investment in Dresser-Rand. For First Reserve Fund X, a $2.3 billion vehicle, its $260 million stake in the Dresser-Rand represents the fund’s first investment since its final closing in the first quarter of this year. For Fund IX, which held a final close in 2001 with $1.37 billion, its $170 million stake in the company represents its last investment in a platform company. The depleted fund’s remaining capital will be put to use for tack-on acquisitions for its portfolio companies.