Reliance to Buy Apollo’s Metals USA for $766 Million

Reliance Steel & Aluminum Co., North America’s largest metals service-center company, agreed to acquire Metals USA Holdings Corp. for about $766 million to add 48 distribution centers across the country.

Reliance will pay $20.65 a share, the companies said today in a joint statement. That’s 13 percent more than Fort Lauderdale, Florida-based Metals USA’s closing price yesterday in New York. Investment funds affiliated with Apollo Global Management LLC own about 53 percent of Metals USA.

Metals USA gained 13 percent to $20.65 in New York and Reliance rose 8.6 percent to $70.25.

In its largest deal to date, Reliance is paying about eight times Metals USA’s earnings before interest, taxes, depreciation and amortization., That’s below the median of 8.6 for nine similar deals from the last eight years, according to data compiled by Bloomberg.

The premium Reliance paid reinforces Metals USA’s valuation in the marketplace, said William Frohnhoefer, an analyst at BTIG LLC in New York.

The deal “emphasizes the theme of gradual consolidation in North American metals distribution,” Frohnhoefer said in an e-mail. “With each successive cycle, there seems to be fewer players.”

Reliance operates more than 220 sites in the U.S. and other countries including Mexico and China that offer metals distribution and processing. Los Angeles-based Reliance’s Chairman and Chief Executive Officer David H. Hannah will continue as chairman and CEO of the enlarged company.

Deal Financing

The terms of the deal include a “go-shop” period that ends March 8. Reliance said it will fund the takeover with an existing $1.5 billion credit facility, plus funds from bank-credit and debt-capital markets.

Moelis & Co. is Reliance’s financial adviser and Davis Polk & Wardwell LLP is its legal adviser. Goldman Sachs Group Inc. is advising Metals USA and Wachtell, Lipton, Rosen & Katz is its legal adviser. Morgan Stanley gave a fairness opinion to Metals USA’s board of directors.

The value of the deal was calculated based on the 37.1 million Metals USA shares that are outstanding, according to data compiled by Bloomberg. Both companies said the deal has an enterprise value of about $1.2 billion.

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