million tons a year more than three times the next largest producer. Mittal has promised to sell Dofasco to Germany’s ThyssenKrupp AG if it acquires Arcelor, though Arcelor is trying to prevent that from happening by moving Dofasco shares into a separate trust. (ThyssenKrupp was the losing bidder for Dofasco last year.) Mittal’s girth is the result of more than 12 acquisitions, including International Steel Group Inc. in 2005.
Fewer steel companies are producing more steel. Analysts predict that will continue to be the case. Steel mill consolidation is likely to be good for price volatility, and in turn, business, Baines says. Global players have substantial business in the U.S. and are unlikely to flood the market with low-cost imports.
Market Forces
Despite the current boom, the start of the 21st century was a bust for steel service centers just as it was for other distribution sectors. Excess capacity from 1995 or so to 2003 in combination with low demand weakened prices. Steel service centers and producers competed by dropping their prices; things got so bad for steel service centers that many filed for bankruptcy.
Bayou Steel, Birmingham Steel, National Steel, Bethlehem Steel, Laclede Steel and Metals USA represent only a small number of service centers and producers that went bankrupt. At least nine parts of Metals USA, a steel service center, were bought up from 2002-2003 by players like Russel Metals Inc. ($2.6 billion in annual sales) and Reliance. A private investment firm took Metals USA private at the end of last year.
But the metals industries have bounced back. Since 2003, demand has risen. Prices continue to climb. To mitigate some of those price hikes, metals producers began imposing surcharges, increasing prices and constraining supply. This helped counter global economic factors such as increased demand from China and the decrease of imports to the U.S.
Price increases have led to some tension between service centers, mills, and their customers. Metals service centers typically pass on the increases to their manufacturing customers. Even so, the industry is booming. It’s a good time for distributors of any size looking to grow through acquisition or exit.
Reliance Steel & Aluminum Co.
Revenues (with acquisitions): $5 billion +
Select Acquisitions
2006 Earle M. Jorgenson Co. ($1.3B in sales), Flat Rock Metal Processing Co., Everest Metals;
2005 Chapel Steel Corp. ($273M in sales);
2003 Precision Strip Inc.;
2002 Olympic Steel Co., Central Plains Steel Co., Pacific Metals Co., American Steel LLC, and Metals USA assets Specialty Metals Northwest Inc. and Plates & Shapes Northcentral Inc.
Esmark
Revenues (with acquisitions): $700 million +
Select Acquisitions
2006 Premier Resource Group, Century Steel LLC;
2005 Miami Valley Steel Services Inc. ($150M in sales), North American Steel LLC, U.S. Metals & Supply, TriWestern Metals Co.;
2004 Sun Steel Co., Electric Coated Technologies
Ryerson Inc.
face=Arial size=1>2005 Revenues: $5.8 billion
Select Acquisitions
2005 Integris Metals ($2B in sales);
2004 J& F Steel
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The metals industry has bounced back from its lows five years ago. Prices have jumped, boosting bottom lines and fueling a surge in M& A activity. The latest: Reliance Steel and Aluminum’s $934 million purchase of Earle M. Jorgensen Company, which will take it to more than $5 billion in annual revenues. Here’s how the new landscape in metals distribution is shaping up.
Consolidation in metals distribution has ramped up of late, with a few big players taking on major acquisitions. Chief among them was Reliance Steel and Aluminum with its $934 million purchase this month of Earle M. Jorgensen Company.
The number of metals service center locations in North America has been cut nearly in half to 3,500 in the past 20 years those are operated by about 1,300 companies, according to Purchasing magazine’s annual survey. Another estimate puts the number closer to 5,000, still a significant decrease.
Membership in one trade organization, the Metals Service Center Institute, declined 70 percent from 1996 to 2005. Declining association memberships are often indicators of consolidation.
The service center industry which inventories, distributes and processes metals for customers is highly fragmented, like most industrial sectors. Competition remains intense at local and regional levels. Still, driven by a period of strong sales fueled by high prices, metals service centers seem to be consolidating at a faster pace than many other distribution sectors.
Reliance and EMJ
Reliance Steel and Aluminum Co., Los Angeles, CA, has purchased more than 30 companies since its IPO in 1994. The company’s Web site describes it as the “acquirer of choice.” It recently closed on its biggest acquisition yet, Earle M. Jorgensen Company, Lynwood, CA. EMJ had more than $1.3 billion in sales last year.
With the purchase of EMJ, Reliance will have more than $5 billion in sales in the coming year. EMJ itself is the product of a 1990 merger between Jorgensen Steel and Aluminum and Kilsby-Roberts.
“The transaction is not one that’s driven by synergies, and none of our transactions typically are. Their business is different; their products are different to a great extent,” Reliance CEO David Hannah told investors shortly after the merger was announced.
Reliance’s main offerings include galvanized, hot-rolled and cold-finished steel, stainless steel, aluminum, brass, copper, titanium and alloy steel. Many of its service centers offer specialty metals services. EMJ’s expertise is in metal bar, tubular and plate products.
Reliance plans to stay on the acquisition trail as part of its growth strategy.
Esmark
Reliance’s mix-and-match acquisition strategy is different than that of Esmark, a newcomer to the steel services sector. A holding company for a group of steel service companies, Esmark has so far zeroed in on cold-rolled and flat-coated steel in the Midwest.
Brothers James and Craig Bouchard along with Mars Industries CEO Sheffield Wolk created Esmark in late 2003 as a holding group for the steel assets of Bouchard Group. The company has rapidly grown to nine companies and from $4 million in annual revenues to $700 million. The group has no intention of slowing down. Esmark is acquisition-minded and aims to become a billion-dollar business.
Many of the distributors it buys are family-owned. The first company it purchased was a turnaround. Esmark bought Electric Coated Technologies, East Chicago, IN, out of bankruptcy and made it profitable within a year. Other purchases, most in the Chicago area, include Sun Steel Co., Century Steel LLC, TriWestern Metals Co., U.S. Metals & Supply (St. Louis), and Miami Valley Steel Services Inc., the largest of the bunch with $150 million in annual sales and one of the larger independent distributors of flat-rolled steel in the U.S.
Esmark serves a variety of end-markets: construction, agricultural equipment, HVAC and metal building among them. The automotive and appliance sectors are the only end-markets the company has so far avoided.
The Bouchards have a long history in steel. James Bouchard has been in the steel business for more than 20 years. He most recently served as vice president of Pittsburgh-based U.S. Steel Corp.’s unit in the Slovak Republic up until 2002. Brother Craig has a long history in domestic and international finance with a specialization in mergers and acquisitions.
Other Deals
Top steel service center Ryerson Inc., Chicago, IL., acquired $2 billion Integris Metals for $660 million (including debt) from Alcoa Inc. and BHP Billiton in early 2005. Integris sells aluminum and stainless steel products.
In 2004, Ryerson purchased carbon flat-rolled distributor and processor J& F Steel from Arcelor for about $55 million.
Family-owned O’Neal Steel Inc., Birmingham, AL, with more than $1.2 billion in annual sales, announced at the end of last year it would buy TW Metals, Exton, PA, with $326 million in annual revenues. TW Metals itself is the product of a January 1998 merger between Tubesales Inc. (specialty alloy tubing and long products) and Williams & Company Inc. (carbon plate and similar commodity products).
“It’s a fascinating time in the metals business,” says Peter Baines, corporate vice president of communications and corporate affairs at Samuel, Son & Co. Ltd. Samuel, Son & Co. is one of the few large private metals service centers with $2.6 billion in sales in 2005. Baines sold his company, Bainesteel Inc., to Samuel, Son & Co. about 13 years ago. He has been in the metals business for close to 30 years.
Samuel, Son & Co. hasn’t made an acquisition since 2003, when it bought Sennett Steel of Detroit. Baines says his company, based in Ontario, Canada, is concentrating on expanding organically in the U.S. He thinks the company can grab customers who are left “without a choice” after mergers like the pending EMJ and Reliance grouping. “That opens up opportunities,” he says. Samuel, Son & Co. also has started partnering with processing companies to service new markets.
Metals service centers have just recently started to develop value-add capabilities, Baines says. Customers are demanding shorter lead times on orders as well to fight the cyclical ups and downs of pricing. When you’re bigger, Baines says, it’s easier to meet this demand. In addition, bigger players have grown more concerned with profit margins after the downturn of 2000-2003 threw many service centers into bankruptcy. Financial discipline has become a priority.
Still, there is a place for smaller distributors in this turbulence, Baines notes. They sell on service or expertise and handle smaller orders bigger companies are less willing to take on. Middle-market distributors, more than any other group, are being squeezed by the recent surge in consolidation activity.
Steel Mill Consolidation
Steel mill consolidation clearly is driving some of the consolidation among metals service centers. Steel producers are consistently grabbing headlines these days.
Top steel producer Mittal Steel made the biggest move lately with a $27 billion hostile bid for Luxembourg-based Arcelor, which recently won a bid for Canada-based Dofasco. If Mittal is successful, the combined company would produce nearly 130
