CHICAGO — Reliance Steel & Aluminum Co. has become a powerhouse in the U.S. service center industry through its acquisitions, consistently ranking No. 1 as measured by revenue.
The Los Angeles-based company has bought 54 companies of varying sizes since it went public some 19 years ago. Yet the metals distribution market remains highly fragmented, with numerous $100-million to $200-million companies flying under the radar because they don’t belong to industry associations, Reliance chairman and chief executive officer David H. Hannah told AMM Feb. 6.
Reliance’s proposed $1.2-billion acquisition of Metals USA Holdings Corp., Fort Lauderdale, Fla., (amm.com, Feb. 7) would be the company’s largest ever, surpassing its $1.1-billion purchase of PNA Group Holding Corp. in 2008 (amm.com, Aug. 4, 2008) and its $984-million buy of Earle M. Jorgensen Co. in 2006 (amm.com, April 3, 2006), Hannah said. However, he noted that "the timing is better" in this case because Reliance and Metals USA are each poised for a recovery in the nonresidential construction market, which Hannah expects will pick up over the next year or so.
"With the PNA transaction, from a timing perspective, we were not as lucky. We closed it Aug. 1, 2008, and three months later everything fell off a cliff," Hannah said. The PNA assets were especially affected by the decline in build rates because it sells construction-related products. "So the fact that nonresidential has not recovered much since 2009 has postponed some of the benefits of acquiring PNA. It still has a positive impact to the company, but (its) performance has not reached what it’s capable of."
The latest purchase doesn’t alter Reliance’s acquisition strategy. While "there aren’t a lot of $2-billion companies in our space, we’ll continue to pursue larger transactions as they are available," he told investors during a Feb. 6 call. "But mostly we’ll be doing smaller deals."
It’s difficult to determine the true size of the U.S. service center market, Hannah noted. "Our industry is somewhat invisible, being made up of so many privately owned and operated companies," he said. "Unless they submit information on a membership roster or to a periodical that does a listing, the investment banks don’t know about them."
As an illustration, he noted that when traveling he often sees trucks hauling steel with unfamiliar company names. "They aren’t members of MSCI (Metals Service Center Institute) and fly under the radar," he said.
If Reliance holds a 4- to 5-percent share of the industry and Metals USA adds another 1 to 1.5 percent, that still indicates a very fragmented sector, Hannah said.
His ballpark estimate is that there are 25 companies realizing $500 million in annual sales and another 50 whose revenue range from $100 million to $500 million.
"If we become even 7 percent of (the) market, there are still plenty of opportunities. If we have to (buy) 10 companies of $200 million in revenues each, we’ll do that," he told investors. "It wears our people out because it’s more work, but we’ve done eight in one year like that."
Click here to see a timeline of acquisitions by Reliance and Metals USA.