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 dont belong
to industry associations, Reliance chairman and chief executive
officer David H. Hannah told AMM Feb. 6.
$1.2-billion acquisition of Metals USA Holdings Corp., Fort
Lauderdale, Fla., (
amm.com, Feb. 7) would be the companys
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 its capable of."
The latest purchase doesnt
alter Reliances acquisition strategy. While "there
arent a lot of $2-billion companies in our space,
well continue to pursue larger transactions as they are
available," he told investors during a Feb. 6 call. "But mostly
well be doing smaller deals."
Its 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 dont know about
As an illustration, he noted
that when traveling he often sees trucks hauling steel with
unfamiliar company names. "They arent members of MSCI
(Metals Service Center Institute) and fly under the radar," he
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,
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
"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,
well do that," he told investors. "It wears our people
out because its more work, but weve done eight in
one year like that."
Click here to see a timeline of acquisitions by
Reliance and Metals USA.