Two-step Shale-Inland Deal Moves it Further into Energy Sector


By Jo Isenberg-O’Loughlin

NEW YORK — Shale-Inland LLC announced a pair of actions Monday that will put it on firmer footing in the energy sector. The moves by the Chicago-based company, established a year-and-a-half ago to capitalize on what its founders saw as a coming “renaissance” in North American manufacturing, will culminate in combining its metal and protective film distribution, stamping and fabrication assets with HD Supply Inc.’s industrial pipe, valves and fittings (IPVF) business, collectively one of the country’s largest master and industrial distributors of stainless steel, chrome, nickel and nickel alloys, aluminum and carbon steel pipe, plate, bar, coil, sheet, valves, flanges and fittings.

In a two-step maneuver, Shale-Inland said it has executed a definitive agreement under which it will be acquired by Shale-Inland Holdings LLC, an affiliate of investment companies TowerBrook Capital Partners LP and Stephens Group LLC. The terms of the transaction, which is expected to close by the end of this month, were not disclosed.

Once that transaction is finalized, plans call for Shale-Inland’s family of assets to be joined by the companies comprising HD Supply’s IPVF business, including Southwest Stainless & Alloy, J&J Alloys, Sunbelt Supply Co. and Metals Inc. IPVF’s parent company also has entered into a definitive agreement to sell the unit to Shale-Inland Holdings LLC in a transaction also expected to close by the end of March.

Although the value of the dual-action deal was not disclosed, a Jan. 29 overview posted on the HD Supply (HD being for former owner Home Depot) website listed annual sales for the IPVF business at $700 million in 2011, or some 9 percent of HD Supply’s total sales of $7.72 billion last year. Home Depot finalized the $8.5-billion sale of its wholesale distribution business to a group of private equity interests—Bain Capital, Carlyle Group and Clayton, Dubilier & Rice LLC—in August 2007.

The planned combination of Shale-Inland with IPVF marks the third push via acquisition by a metals distributor into the energy patch. And Craig T. Bouchard, founder and chief executive officer of Shale-Inland, is quick to point out why.

“The refining and petrochemical industries are in the early uptick of the business cycle,” Bouchard told AMM in an interview. “There will be plenty of construction, as well as maintenance spending, over the next 10 years. With this acquisition, Shale-Inland now has a very attractive market share in transportation, food processing, appliance and energy. That’s a good place to be as we enter the next upcycle.”

For all the profits promised by the energy patch, Bouchard said the real key to the deal was the people behind IPVF. “Acquiring the management team of Mike Stanwood, Jeff Legrand, Larry Field, Bill Talley, Lee Land and Rob Broyles was critical to the transaction,” he said. “They have a combined 200 years of experience and have fought together through several business cycles.”

The figures support his assessment. “IPVF has had a positive Ebitda (earnings before interest, taxes, depreciation and amortization) every month for the past 37 years,” Bouchard said. “This is an unheard-of achievement in steel. Without question, this is the top management team in their industry.”

Another key attraction was IPVF’s large customer base and diversification into what Bouchard called “attractive” industry segments. “At Shale-Inland, we are in distribution. To us, the customer is everything. Discovering the opportunity to acquire 39 facilities in 17 states, serving 6,500 customers around the world was like walking down the alley behind my grandmother’s house and finding a 10-carat diamond in a pile of leaves,” he said.

In addition, the deal offers opportunities to cross-sell an expanded portfolio of products, processes and value-added services. “We will now be in a position to cross-sell PVF, Main Steel (Polishing Co. Inc.), Metals Inc. and 3M Technology (Inc.),” Bouchard said.

Shale-Inland acquired Main Steel—a Tinton Falls, N.J.-based toll processor of stainless steel and aluminum, and more recently a supplier of stainless, aluminum and carbon flat-rolled steel—just over a year ago. In mid-December last year, it announced the formation of Shale-3M, a subsidiary rooted in a five-year commercialization agreement signed with 3M Co. and keyed to advance the development of protective and decorative films in the global primary metals and metals fabrication market.

Finally, Bouchard is counting on the synergy between Main Steel and Metals Inc. to power growth and deliver profits. “Main Steel and Metals Inc. are each industry leaders in product quality and customer service,” he told AMM. “Combining sheet and plate and cross-selling with PVF through our 175 outside sales reps is likely to double the size of our service center revenues over the next several years.”