IPO Watch: Private Equity Takes 2 Public

Two Texas companies that are owned by private-equity groups and sell in part to the military are going public. Both companies, Metals USA Holdings and Vought Aircraft Holdings, filed for initial public offerings in mid-May with the Securities and Exchange Commission. The firms are benefiting from development in India and China and from the weak dollar, as emerging markets require more steel goods and airplanes.

Analysts say the companies' success overseas may help them dodge the economic slowdown at home and enable them to pay down debt.

Houston-based Metals USA sells steel, aluminum, and metal components to companies in the defense, aerospace, marine, oil and gas, and commercial construction industries. It filed to go public once before, in May 2006, but withdrew the proposal without explanation in October of last year. Its sales were $489 million in the first quarter of 2008, up from $463 million a year earlier. The company is listed as one of the Fortune 1,000 largest corporations. Metals USA plans to raise $200 million through the IPO. The private-equity firm Apollo Management, which owns Metals USA, also filed an IPO for another of its companies, Verson Paper, in May.

Morningstar equity analyst Min Ye questions whether Metals USA's profitability is "sustainable." She notes that Metals USA has "a lot of exposure to domestic auto and appliance making," businesses that both are struggling against overseas competition. The company has $783 million in liabilities. But Ye said Metals USA could take advantage of the "fragmented" steel sector, in which she sees "a lot of acquisition opportunity." Metals USA did not return messages seeking comment.

Vought Aircraft, 90 percent owned by the private-equity firm Carlyle Group, manufactures aerostructures (including fuselages, wings, and doors) for commercial, military, and business jets and other aircraft. Company subsidiaries include VAC Industries, Vought Commercial Aircraft Corp., and Contour Aerospace Corp. Vought recently won a $1 billion contract to build wings for Cessna, which will be delivered in 2011. Vought had sales of $1.6 billion last year, an increase of 4.8 percent from 2006. A company representative could not comment during the IPO "quiet period."

Foreign companies "lining up for deliveries" could spur Vought sales, Morningstar equity analyst Marissa Thompson says. Vought supplies parts for the Airbus 380, the largest passenger plane, and the Global Hawk unmanned aerial vehicle, used by the military for surveillance and reconnaissance. Even though the company is doing well, Thompson says, it's still highly leveraged, with $2.2 billion in liabilities. "I'm not so sure that shareholders will reap gains," Thompson says, because of the company's debt. "Shareholders don't want to be bailing out the debt holders."

Metals USA plans to list its shares on the New York Stock Exchange under the symbol MUX, and Vought Aircraft would have the symbol VTC.