Two L.A. dealmakers match wits in a metal-bender sale

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Two of L.A.’s most active corporate dealmakers were on opposite sides of the table in a transaction Tuesday. And even though the parties in every business deal like to say it’s ‘win-win,’ this one just may be.

Reliance Steel & Aluminum Co., which under CEO David Hannah has been masterful at acquiring dozens of companies in the metal-processing and distribution business since the mid-1990s, agreed to add another company in the business to its lineup: Atlanta-based PNA Group Holding.

L.A.-based Reliance is buying PNA from Platinum Equity, the Beverly Hills-based private equity firm that also has been a major wheeler and dealer of companies since the mid-1990s under CEO (and billionaire) Tom Gores.

Here’s how the deal lines up:

--Platinum will get about $300 million. (The total price tag is $1.1 billion, but most of that will go to pay off PNA’s debt.)

Platinum got PNA for a steal in 2006. Its total investment in the business: a mere $17.5 million. So the $300 million coming from Reliance is a spectacular return for Platinum.

But it gets better: Platinum levered PNA up, as private-equity shops often do, and took $181 million in cash out of the company in 2007, mostly in the form of dividends.

So as my colleague Andrea Chang calculates in her story on the deal here, Platinum in total is making more than 25 times its money on PNA.

--As for Reliance, Hannah said that the PNA deal would immediately add to the company’s earnings, despite the need to finance the purchase by raising $750 million via new debt and stock issuance. Shareholder dilution from any new shares issued will be offset by PNA’s earnings and by Reliance’s lower debt costs (compared with PNA), he said.

That’s what investors wanted to hear: They drove Reliance’s stock up $2.09 to a record close of $71.77 Tuesday.

Reliance has benefited from strong demand for processed steel, aluminum and other metals in markets such as non-residential construction, oil and gas, and aerospace, even as the housing market has crumbled. In the first quarter sales were up 3.6% from a year earlier; net income was off 3.8%.

If the economy gets worse and demand for steel and other metal products slumps, Reliance’s deal for PNA might not look so smart in the near term. And Platinum may look like it called the top of the market.

Still, Wall Street has learned to trust Hannah’s skill in adding companies to his nationwide roster of metal benders and distributors. Reliance’s sales soared from $961 million in 1997 to $7.3 billion last year. Profit in the same period jumped from $34 million to $408 million.

As for the company’s shares, they have rocketed 623% since the end of 1997 -- not nearly the trick that Platinum managed with PNA in two years, but rich by stock market standards.