McJunkin Red Man Corp. Files for Public Offering

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August 21, 2008

McJunkin Red Man Corp. Files for Public Offering

By Lindsay Young

McJunkin Red Man has registered with the SEC for an initial public offering of its common stock for $750 million. The company will be listed under the symbol "MRC."

McJunkin Corp. and Red Man Tool and Supply merged in late 2007. At the time, Goldman Sachs owned a majority share of McJunkin.

McJunkin Red Man is a distributor of industrial and oilfield pipe, valve and fittings in North America, operating 250 locations in the U.S., Canada, Nigeria and Puerto Rico. The company has a significant presence in the oil and gas, chemical and petrochemical, refining processes, power company, manufacturing and mining industries. According to the SEC filing, the company said it generates about 90% of its sales from the energy industry.

In the SEC filing, McJunkin Red Man said it has benefited in recent years from growth trends within the energy industry including high levels of expansion and maintenance capital expenditures by customers. "This growth in spending has been driven by several factors, including underinvestment in North American energy infrastructure, production and capacity constraints and anticipated strength in the oil, natural gas, refined products and petrochemical markets. While current prices for oil and natural gas are high relative to historical levels, we believe that investment in the energy sector by our customers would continue at prices well below current levels," according to the filing.

More than 50% of the company's pro forma sales in 2007 were attributable to multi-year maintenance, repair and operations (MRO) contracts. For the 12 months ended Dec. 31, 2007, on a pro forma basis, the company reported sales of $3.9 billion, adjusted EBITDA of $370.4 million and profit of $150.8 million.

During the 12 months ended Dec. 31, 2007, on a pro forma basis, 46% of the company's sales were attributed to upstream activities, 22% to midstream activities and 32% to downstream and other processing activities which include the refining, chemical and other industrial and energy end markets.

Plans for Growth

The SEC filing provided some insight into the distributor's historically closely-held growth plans. It said it wants to become the largest global distributor of PVF and related products to the energy and industrial sectors. The strategy is to increase organic market share and expand into new geographies and end markets, further penetrating the Canadian Oil Sands and downstream sector, pursuing selective strategic acquisitions and investments, increasing recurring revenue through integrated supply, MRO and project contracts, and increasing operational efficiency.

The distributor says it plans to continue expanding within North America but that "attractive opportunities" exist to expand internationally. The distributor currently has just one branch outside North America. It is looking particularly in West Africa, the Middle East, Europe and South America. The distributor also sees opportunities in new end markets, including pulp and paper, food and beverage and other general industrial market, in addition to other energy end markets.

McJunkin Red Man also sees "attractive growth areas" in Canada. Improvements in mining and in-situ technology are driving investment in the area, according to the SEC filing, as well as what it says is the second largest recoverable crude oil reserve in the world behind Saudi Arabia. The distributor has made recent inventory and facility investments in Canada, including a new 60,000-square-foot distribution center near Edmonton, and has opened additional locations in Western Canada. The company says there are opportunities to expand in the industrial MRO market in Canada.

The distributor says the industry remains "highly fragmented" and that a "significant number" of small and larger acquisition opportunities exist for McJunkin Red Man.

Click here to view the filing.

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