Platinum Turns Steel To Gold

Los Angeles-based LBO firm Platinum Equity stands to forge a strong profit from its recently struck $1.1 billion deal to sell steel concern PNA Group Holding Corp. to strategic acquirer Reliance Steel & Aluminum Co.

Platinum Equity, led by Tom Gores, paid $365 million in May 2006 to carve PNA Group out of German shipper TUI AG. At the time, PNA Group generated about $1.2 billion in annual revenue. Through a combination of three add-on acquisitions and a series of operational improvements, the buyout firm boosted annual revenue to $1.6 billion in 2007.

Thanks to this growth, the firm paid itself nearly $170 million in dividends during its two-year holding period, according to a regulatory filing. Platinum Equity’s investment in PNA Group was “very successful,” according to the shop, which declined to provide a specific return multiple.

The buyout firm filed last year to take PNA Group public. Platinum Equity sought $200 million in the offering, according to the most recent registration statement, filed in May. A sale to a strategic acquirer presented a more appealing, and immediate, method of cashing out of the business, however.

PNA Group operates 23 steel service centers throughout the United States, as well as five joint ventures that operate a total of seven service centers in the United States and Mexico. The company processes and distributes primarily carbon steel plate, bar, structural and flat-rolled products.

Reliance Steel (NYSE: RS) said it expects to finance the deal, including the replacement of PNA Group’s existing debt, through a combination of borrowings under Reliance Steel’s existing credit facility and by raising about $750 million through the issuance of a combination of new debt and equity securities. The transaction is expected to close by mid-August.

True to its name, Platinum Equity is a frequent player in the metals market. In December 2005, it bought ESM Group, which provides a variety of products to steel manufacturers; the firm sold the company two years later to a strategic acquirer. And in October 2007, Platinum Equity emerged from a crowded field to take private metals processor Ryerson Inc. for a little more than $1 billion.

(Reuters News Service contributed to this report.)