CHICAGO Flack Steel Ltd. and GlobeNet Metals LLC will merge to create a steel sales organization with annual revenue in excess of $200 million and volume of about 275,000 tons a year.
The merged entity will own no brick and mortar, and will hedge purchases to protect the sell side. Flack Steel will remain headquartered in Cleveland but retain GlobeNets Scottsdale, Ariz., office and its president, Ben Bucci. The deal is expected to close in early November.
Flack Steel, founded in 2010 by Jeremy Flack, distributes hot-rolled, cold-rolled, galvanized and painted sheet, and provides customers with proprietary derivatives product solutions. GlobeNet, started in 2000, sells similar products throughout the western and southeastern United States and Mexico, Bucci told AMM.
Like Flack Steel, GlobeNet owns no physical assets, and uses third parties to process steel, which is stocked at those outside processors. "Its great, because no one calls you at two in the morning to say a machine broke down," Bucci said.
Flack said there will be little overlap in vendors or customers. "We will use their supply base to assist us in growing business with our customers and prospects, and they will do the same using our supply base," he said.
"There is a whole lot of unlocked potential here," Flack said. "The opportunity lies in filling the gaps between the two, not consolidating." The Scottsdale operation is self-supporting, and its crucial that GlobeNet remains "close to their markets."
About 25 percent of GlobeNets sales are in Mexico. The company developed a relationship with automotive suppliers, particularly U.S. stampers that moved to Mexico, Bucci said, so GlobeNet is experienced at negotiating the intricacies of exporting steel to Mexico. It also sells steel into the oil patch, tank, shelving and rack manufacturing, and building products markets.
Bucci tested Flack Steels hedging activities for nine months before agreeing to the merger. "It works," he said.
This means GlobeNet can purchase material ahead of customer orders and be safe. "Even with just 20,000 tons of inventory, you can get killed (if prices slump)," Bucci said. Hedging means "protection for ourselves and the customers." The steel industry is slow to change, but Bucci believes the hedging model will help sellers and buyers ride out volatility.
Flack Steel has already dispatched a team to conduct "deep-level evaluations" of the IT and communication systems, vendors and customers, resources and the sales team, Flack said, and to develop and share best practices.
The terms of the deal were not disclosed.