While monthly factors might continue to fluctuate and
force a variety of strategies and approaches during 2012,
overall market conditions continue to make merger and
acquisition (M&A) activity attractive for the service
A steadily improving economy, the easing of credit and
renewed strength in the energy and transportation sectors are
expected to contribute to an environment that will favor more
M&As this year and for the foreseeable future, service
center executives said. Furthermore, U.S. companies could begin
to follow a European-style model in which mills adopt a
strategy of acquiring service centers.
Those messages came though especially loud and clear
during the Metals Service Center Institute (MSCI) Carbon
Products Conference in Carlsbad, Calif., in February. The
global carbon steel sector is expected to undergo another wave
of consolidation as players of all sizes find themselves with
more cash on hand and a desire to drive out fragmentation,
industry leaders said.
Although M&A activity slowed to a trickle in many
segments of the steel sector due to the recent economic crisis,
opportunities are on the rise once again, particularly as steel
players look to lock in raw material supplies or expand their
margins with a push downstream, executives said.
Service center acquisitions have been on the rise in
North America over the past couple of years, with more than 20
U.S. and Canadian centers bought each year, according to an
AMM analysis. Some of the usual players were active in
both 2010 and 2011, including MRC Global Inc., formerly known
as McJunkin Red Man Holding Corp., Metals USA Inc., Namasco
Corp., Reliance Steel & Aluminum Co., Ryerson Inc., Samuel,
Son & Co. and Worthington Industries Inc. A number of last
years transactions were bigger and potentially more
influential than those made in 2010, contributing to the belief
that such activity will continue.
I think the tendency to consolidate further is
likely to continue in the U.S., said Michael H. Hoffman,
vice chairman of Klöckner USA Holdings Inc., which made a
number of key buys last year, such as distributors Macsteel
Service Centers USA Inc., Newport Beach, Calif., and
Brazils Frefer Group.
We . . . would be interested in further
consolidation and we continue to look at acquisitions, and most
of the larger service center groups in the United States to a
larger or smaller extent will continue to do the same, he
told attendees at the MSCI conference. Generally
speaking, based on geography and product, we are likely to see
increased (consolidation) activity as 2012, 2013, 2014 develop,
and theres no question that will be helped by a steadily
James D. Hoffman, senior vice president at Los
Angeles-based Reliance Steel & Aluminum, agreed that
M&A opportunities in the steel sector are picking up speed.
Were going to continue to do what we do. There are
some good companies out there that are becoming available. We
think its healthy; we think its good for the
industry, he said.
Reliance has logged its own wave of buys, including
Continental Alloys & Services Inc., Houston, in August, and
the company is eyeing a number of possibilities. Without
giving away too many secrets, when you talk about growth inside
of Reliance we dont have a strategy that says were
going to buy X amount of companies. (But) if theres a
good company out there thats available, well take a
look and see how it goes, he said.
Smaller players also are mulling growth plans, as well
as fending off interested bidders themselves.
Klein Steel (Service Inc.) is certainly still
receiving calls from brokers. Well continue to do our
part to make sure the industry is fragmented, John
Batiste, president and chief executive officer of the
Rochester, N.Y., company, quipped during an executive
roundtable. But we are looking to do the sameon a
smaller scale, of course, he said, noting that even for a
more regional player the opportunities to grow are expanding.
Certainly, companies are worth more today than they were
back in late 2008. Multiples are changing. Its probably a
decent time for that kind of activity to go
On the mill side, most M&As have been aimed at
locking in inputs, like Nucor Corp.s 2008 acquisition of
scrap supplier David J. Joseph Co. and AK Steel Corp.s
recent iron ore and metallurgical coal announcements. But
steelmakers next acquisitions might reflect a push into
distribution, Klöckners Hoffman predicted. I
think the producers will begin to play a bigger role in
consolidation, he said, citing the European
model of mills acquiring service centers. (That
model) is likely to find more credibility in the United States
than it has in the past.