Based in Schaumburg, Ill., Global Brass and Copper Holdings (BRSS) scheduled a $150 million IPO with a market capitalization of $338 million at a price range midpoint of $16 for Thursday, May 23, 2013.
Five other new IPOs are scheduled for IPOs for this week. The full IPO calendar is here.
- S-1 filed May 13, 2013
- Manager, Joint Managers: Goldman, Morgan Stanley
- Co Managers: William Blair, KeyBanc
BRSS is in very prosaic business, copper and brass products. It's the product of a leveraged buyout where the private equity owner has stripped as much cash as possible from the balance sheet by borrowing and paying dividends. Sales for the March 2013 quarter were $445 million and BRSS earned $11 million, or 2.6% of revenue. However, earnings for all of 2012 were only $13 million on sales of $1.65 billion.
annualizing March quarter
Global Brass and Copper Holdings
Global Brass and Copper Holdings' IPO market capitalization is only 20% of sales, a low percentage. But its price-to-book value is -9.2, which means it's overleveraged in spades. Price to earnings seems reasonable at 7.7 based on annualizing the March quarter. However, the $11 million in profits in the March 2013 quarter almost equals the $13 million earned in 2012. So it's unclear what the true rate of profitability for BRSS is, and that creates questions.
BRSS lacks forward visibility in earnings, and that creates uncertainty. Also, the large amount of debt creates risk in the event interest rates rise over time. Plus, 100% of the proceeds are going to selling shareholders. And selling 45% on the IPO is a sign of weakness. Avoid the BRSS IPO.
BRSS is a holding company with no operations of its own. To put the above conclusions in context, the following is reorganized, edited, and summarized from the full S-1 referenced earlier:
BRSS is a leading, value-added converter, fabricator, distributor and processor of specialized copper and brass products in North America. BRSS engages in metal melting and casting, rolling, drawing, extruding and stamping to fabricate finished and semi-finished alloy products from processed scrap, copper cathode and other refined metals. Products include a wide range of sheet, strip, foil, rod, tube and fabricated metal component products sold under the Olin Brass, Chase Brass and A.J. Oster brand names.
BRSS products are used in a variety of applications across diversified end markets, including the building and housing, munitions, automotive, transportation, coinage, electronics/electrical components, industrial machinery and equipment and general consumer end markets. BRSS accesses these end markets through direct mill sales, a captive distribution network and third-party distributors.
Customers and Manufacturing
BRSS services over 1,700 customers in 28 countries across five continents, and employs 1,900 people and operate 11 manufacturing facilities and distribution centers across the United States, Puerto Rico, and Mexico to service North American customers. Through an 80% owned joint venture in China and a 50/50 joint venture in Japan, together with sales offices in China and Singapore, BRSS supplies products in China and throughout Asia.
- Olin Brass: Aurubis and PMX Industries, Inc. (manufacturing of copper and copper-alloys in the form of strip, sheet and plate)
- Chase Brass: Mueller Industries, Inc. (manufacturing of brass rod)
- A.J. Oster: ThyssenKrupp Materials NA, Copper and Brass Sales Division (distribution and processing of copper, brass, stainless and aluminum products); and Wieland Metals, Inc. (re-roll mill and service center for copper and copper-alloy strip)
BRFSS currently intends to pay a dividend in the fourth quarter for the third quarter, of $.0375 per share, which is an annualized rate of less than 1% at the price range midpoint of $16.
Halkos Holdings, LLC: 100%
Potential Payments upon Termination of Employment without Cause or for Good Reason
John Walke: $1.6 million
Robert Micchelli: $873,333
John Wasz: $875,000
Daniel Becker: $520,808
Devin Denner: $603,667
Note: An independent board of directors probably wouldn't approve.
Use of Proceeds
100% to selling shareholder.
Disclaimer: This BRSS IPO report is based on a reading and analysis of BRSS's S-1A filing, which can be found here, and a separate, independent analysis by IPOdesktop.com. There are no unattributed direct quotes in this article.