February 6, 2013
On Wednesday, metals service center Reliance Steel & Aluminum (NYSE: RS ) announced that it has signed an agreement to acquire all outstanding shares of smaller rival Metals USA Holdings (NYSE: MUSA ) for $20.65 per share in cash. Factoring in Metal USA's cash and debt, the transaction is valued at $1.2 billion.
The purchase price represents a 13% premium over Metals USA's share price before disclosure of the buyout. Yet even so, at an enterprise value of 0.6 times Metals USA's $2 billion in 2012 revenue, the acquisition comes at a significant discount to Reliance's own enterprise value-to-sales ratio of 0.7. This may explain why Wall Street's reaction to the news was to bid up the share prices of both Metals USA (up 12.8% to $20.65 at close of trading) and Reliance Steel as well (up 8.6% to $70.25).
Reliance did note, however, that its offer contains a so-called "go shop" clause, permitting Metals USA to seek better offers elsewhere. Assuming it does not find a better price by March 8, the deal is expected to proceed and close in the second quarter of 2013.