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Based in Baton Rouge, Louisiana, Edgen Group (proposed EDG) scheduled a $225 million IPO with a market capitalization of $353 million at a price range mid-point of $15 for Friday, April 27, 2012. [S-1] Manager, Joint Managers: Jefferies; Morgan Stanley; Citigroup.

EDG is one of eight IPOs are scheduled for the week of April 23th. (Full IPO calendar here).

SUMMARY
Distributor to the energy market, cobbled together by private equity sponsored acquisitions, EDG plans on selling 62% of the company on the IPO - that's a bad sign.

The profit margin for the March 2012 quarter is estimated to be 0.8%, very thin. According to some industry observers, the future price of natural gas is below the full costs of exploration and production. In addition, new federal regulations may add additional costs to fracking, thereby negatively impacting new fracking activity. EDG cites the growth of fracking as a key growth driver for its business.

Plus, the organization structure is convoluted. IPOdesktop doesn't like complicated organizational structures. See the organization structure here. S-1, page 12.

BUSINESS
EDG is a leading global distributor of specialty products to the energy sector, including highly engineered steel pipe, valves, quenched and tempered and high yield heavy plate, and related components.

EDG primarily serve customers that operate in the upstream midstream and downstream end-markets for oil and natural gas.

  • "Upstream' means conventional and unconventional exploration, drilling and production of oil and natural gas in both onshore and offshore environments.
  • "Midstream" means gathering, processing, fractionation, transportation and storage of oil and natural gas.
  • "Downstream: means refining and petrochemical applications.

EDG's service platform consists of a worldwide network of over 25 distribution facilities and over 35 sales offices operating in 15 countries on 5 continents. EDG sources and distributes from a global network of more than 800 suppliers steel components. EDG serves a diversified customer base of over 2,000 customers.

ACQUISITION HISTORY
Between 2005 and 2009, EDG executed five acquisitions for a total consideration of approximately $360.0 million. These acquisitions, coupled with the consolidation of the B&L business (see below) which will occur in connection with the Reorganization, have facilitated the growth of Edgen Group from predecessor sales of $322.3 million for the year ended 2005 to pro forma sales of $1.7 billion for the year ended December 31, 2011.

Complicated Organizational Structure
Edgen Group was incorporated in December 2011 in Delaware. See the complicated EDG organization structure here.

Bourland & Leverich Holdings LLC (B&L) and Subsidiary
After this IPO and as a result of the Reorganization, EDG will own 100% of the equity interests of B&L Supply, and will consolidate the results of operations of B&L's business with EDG's own for accounting purposes

B&L was profitable in 2011 and contributed about half of the EDG's profoma sales. For the year ended December 31, 2011, B&L's income from operations was $46.0 million

Bourland & Leverich
For the year ended December 31, 2011, B&L's sales were $763.7 million. Sales in the year ended December 31, 2011 were the result of a high level of onshore drilling activity in the U.S., particularly in unconventional oil and natural gas resource developments.

However…according to some industry observers, the future price of natural gas is below the full costs of exploration and production. In addition, new federal regulations may add additional costs to fracking, thereby negatively impacting new fracking activity.

If so, then the demand for EDG's distribution services may not be as great as the SEC filing might have IPOdesktop believe.

BACKLOG
Sales backlog at December 31, 2011 is comprised primarily of sales orders related to (1) the construction of offshore high performance multi-purpose platform, or jack-up, oil rigs; (2) natural gas gathering and storage systems; and (3) offshore exploration and production. Sales backlog also includes orders related to offshore renewable energy projects, refinery upgrades and turnarounds and civil infrastructure projects.

PRIVATE EQUITY SPONSORED
57% owned by Jefferies Capital Partners pre-IPO

USE OF PROCEEDS
EDG expects to net $206 million from its IPO. Proceeds are allocated to repay debt.

"We do not currently intend to use the proceeds from this offering to expand our business operations."
S-1, page 15

Source: IPO Preview: Edgen Group