By Maureen Flanagan
Corrpro Companies, Inc. (AMEX:CO), is an international leader in providing corrosion control services and products based in Medina, Ohio. The company serves more than 8,000 customers around the world who rely on Corrpro to control or prevent corrosion of oil and gas pipelines, above and underground storage tanks, water systems, electric power equipment, transportation systems, bridges, power plants, marine vessels, and military facilities. Founded in 1984, Corrpro became a public company in 1993.
The company is now refinancing its debt obligations to position itself for a new wave of growth and opportunity. In a March 30, 2004 transaction, Wingate Partners purchased voting control of the company. To support the transaction, American Capital Strategies, Ltd. (Nasdaq: ACAS) provided $16 million of subordinated debt and preferred equity.
"Corrpro's comprehensive services have resulted in substantial long-term savings for a broad range of industries," said American Capital Principal Jeff MacDowell. "As the country's infrastructure ages and new federal pipeline regulations go into effect, Corrpro's products will be in increasing demand."
Corrosion is a major and growing cost to the U.S. economy, accounting for some $276 billion, or 3.1% of the 1998 U.S. GNP. Analysts estimate that one-third of this cost could be avoided through the use of currently available corrosion control practices including those provided by Corrpro.
Corrpro provides cathodic protection (CP) systems to control corrosion of its customers assets, which it engineers, constructs, monitors and maintains. Cathodic protection is an electrochemical process that transfers the corrosion reaction from a structure to an electrode, called an anode, by maintaining the protected metal's energy level, thus preventing corrosion on new structures and stopping the corrosion process on existing structures. Corrosion protection is typically installed and maintained for a fraction of the cost of replacing a structure and can be installed with new construction for 1% to 3% of a project's total cost.
The company offers a comprehensive range of CP services from initial feasibility testing to solution design, installation, maintenance and monitoring (including remote monitoring). Corrpro offers services to ensure the integrity of CP systems and performs close interval surveys on underground and offshore pipelines that can be enhanced with GPS coordinates, External Corrosion Direct Assessment (ECDA), internal corrosion monitoring programs and in-line cleaning and inspection. Its services also include pipe locating, rectifier inspections and trademarked specialty surveys.
Corrpro also offers coating services, a rapidly growing business which gives structures a longer life, reduces corrosion, improves aesthetics and lowers life-cycle costs. The company's newly patented CORRSPRAYTM product, used for corrosion protection on bridges and other concrete structures, is targeted for rapid growth. Corrpro solutions include technology protected by an array of U.S. and international patents and registered trademarks.
The company's broad customer base includes U.S. government agencies, municipal water and transportation departments and major oil and gas companies. Many of its largest customers are strategic alliance partners who have long-term agreements to purchase the company's products and services.
In the March 2004 refinancing, CapitalSource Finance LLC provided a revolving credit facility and senior financing alongside American Capital's $16 million investment. Wingate led the preferred equity investment in preferred equity with warrants to purchase 40% of the company's fully-diluted common equity and left in place 100% of the previously existing public common equity.
Corrpro joins American Capital's portfolio of more than 80 middle-market companies in a wide range of industries. For more information about American Capital's portfolio click here. Since 1997 American Capital has invested more than $2.7 billion in middle-market financings.
With expenditures in the markets served estimated at over $2 billion annually, Corrpro is well positioned for market opportunities. The company services many types of oil and gas structures such as marine production platforms, producing wells, gathering lines, and transmission and distribution pipelines. A major boost for the company is the Pipeline Safety Improvement Act of 2002, which created more stringent rules for hazardous liquids pipelines. Stricter rules have also been recently published for more thorough periodic testing of natural gas pipelines. Moreover, Corrpro is the leading North American provider of ECDA - a recognized technique for external gas pipeline inspection.
As a recognized leader in CP for water systems, Corrpro also has opportunities in the corrosion control of municipal water supplies. Treated drinking water is transported through 870,000 miles of municipal water pipes, which are subject to internal and external corrosion, resulting in pipe leaks and water main breaks that can be devastating to cities. Results of Corrpro's CP programs are impressive - the company has saved the water systems in Houston and Philadelphia, for example, significant sums of money.
Power generating plants, substations, distribution systems and transmission lines also represent continuing opportunities for the company's cathodic protection products. In addition, public transit systems that use direct current power sources require corrosion control systems. Corrpro is a market leader in this area as well and has been involved with almost all major rail transit agencies in North America. Corrosion is also a leading cause of the degradation of steel reinforced concrete bridges, parking garages, piers, and coastal balconies.
The company is ideally positioned to increase its business with the Department of Defense. The U.S. Navy has an extensive corrosion protection program to maintain the U.S. fleet, and coatings are the primary defense against corrosion on ships in addition to CP for protection of the underwater hull. Corrpro was recently awarded major long-term Navy contracts that will generate revenues for years to come.
The company also has international opportunities. Corrpro is currently performing corrosion protection services for the Abu Dhabi Oil Company for Onshore Operations (ADCO). This important contract may well lead to further opportunities in the Middle East.
As the market leader in corrosion control, Corrpro has a full pipeline of opportunities. Its CP and coatings services are ready to combat the costly effects of corrosion and deliver savings to companies and governments all over the world.
