CHICAGO Reliance Steel
& Aluminum Co. has consistently tried to grow the
value-added, high-margin component of its business. Now
its doing so with its acquisition choices, but its
paying more in the process.
Earlier this month, for example,
Reliance bought Houston-based National Specialty Alloys LLC
(NSA), a multibranch processor and distributor of stainless and
nickel alloy bars and shapes, Reliance chairman and chief
executive officer David H. Hannah said during a conference
call. NSA sells to energy, aerospace, utility and other
Reliance last August also
acquired Spring, Texas-based Continental Alloys & Services
Inc., which distributes steel and alloy pipe, tube and bar, and
makes custom well-completion tools.
During the first quarter, Los
Angeles-based Reliance saw its average selling price increase
"partially due to a shift in our product mix," according to
executive vice president and chief financial officer Karla
Lewis, who cited Continental Alloys sales as a
"There are more acquisition
opportunities out there. Were busier this year looking at
opportunities," Hannah said. "We expect that will continue and
perhaps even accelerate as business gets better."
Reliance leaders frequently
learn about "companies we didnt know existed that (earn)
$100 million or $200 million in revenue," he said. "You just
have to maintain relationships and be in the right place when
those owners want to talk."
Reliances entry into the
energy market helped it widen its pool of candidates, Hannah
said. "When we acquired Continental Alloys, it put us in front
of a group of companies that dont necessarily view
themselves as service centers (but) as being involved in the
pipe and tube and oil services business," he added.
"NSA was one that didnt
really run around in service center circles, but because of our
Continental acquisition we popped up on somebodys radar
there," Hannah said. "So the pool of industries in which we are
recognized has expanded. Thats been a benefit for us and
will continue to be."
Because the growth trend for the
energy market is upward, "we have paid, and most likely will
pay at the higher end of a normalized range of multiples than
we typically paid in the past," he said. "Not many pure service
centers are at a six times Ebitda (earnings before interest,
taxes, depreciation and amortization), but some of these
energy-related companies were at six or maybe just slightly
Commonly, "you could look at
revenues of a typical service center, and equity purchase price
was 40 to 50 percent of that. For these higher-value-add
companies, (however), their returns could easily be 50 to 60
percent higher," Hannah said.