First Reserve Corp., a $4.7 billion private-equity company focused on the energy industry, has selected Citigroup, Morgan Stanley and UBS to lead bank debt and high-yield bonds for its $1.2 billion acquisition of Dresser Rand Co. from Ingersoll Rand Co. Thomas Denison, managing director of First Reserve, said the sponsors are using about $435 million of equity and will borrow the rest with bank debt required to back up letters of credit issuance and a high-yield offering. Denison said there has been no decision yet on what the split will be and the orders of the banks.
First Reserve was able to buy Dresser Rand, which produces compressors and turbines and also provides aftermarket services to the energy industry, within two months of approaching the company. Denison explained that the firm is more like a strategic buyer with its knowledge of the business and has the benefit of not worrying about anti-trust issues. This knowledge of the business and the energy markets enabled the firm to step right up and get Ingersoll comfortable with their bid. "We approached Ingersoll two months ago. This has moved extraordinarily quickly," he said. "We were familiar and were generally aware of the compressor business."
He said First Reserve bypassed the investment banks for financial advice. "We went directly to the company and worked with them. We do that best," he said. First Reserve does not use advisors generally. "The last thing we want to do is participate in big auctions," he added.
"It's a good time to acquire this business because energy infrastructure worldwide needs spending," Denison explained. He added that the business is very strong because they have the world's largest installed base. "It's not as tied as closely to the commodity business as people may think, because revenue comes from servicing and spare parts of the world's largest installed base." He also explained that there is further growth in the business, with more firms buying the equipment, the legacy side of the business increases.