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Hannah outlines Reliance’s next steps

Keywords: Tags  Reliance Steel & Aluminum, Metals USA, David Hannah, acquisition, PNA Group, industry consolidation, economic recovery, metals demand Corinna Petry

CHICAGO — The growth of service center operator Reliance Steel & Aluminum Co. has been based largely on acquisitions, and its biggest purchase to date—that of former rival Metals USA Holding Corp.—creates a company that boasts slightly more than $10 billion in pro forma sales.

In an exclusive interview with AMM, chairman and chief executive officer David H. Hannah talked about the steps Reliance will take following the completion of the $1.24-billion deal and how it differs from the company’s $1.1-billion acquisition of PNA Group Holding Corp. in mid-2008.

A dozen senior Metals USA executives have arrived at Reliance’s headquarters in Los Angeles for a get-to-know-you dinner and a series of meetings during which Reliance will gather information that couldn’t be shared during due diligence, including pricing, and lay out its goals, Hannah said.

How much and how quickly the executives open up "depends on the personalities," Hannah said, noting how long the two companies were competitors. "But we will have a free and open discussion."

The executives will pass any key takeaways along to their regional and branch managers and employees.

"Our message to employees is to say we aren’t there to screw up their lives. The company is doing well and will be part of our organization. We are not changing the business or putting our own manager in place," Hannah said. "We’re not changing what they’re doing. What they do is good. We think we can help them do better, however."

Hannah addressed criticisms that Reliance is not considered a consolidator in the service center space—one that rationalizes facilities or divests assets—except in isolated cases. "There is not a lot of integration," he said. "The reason we don’t sell or close much is we are very detailed and diligent on the front end. When we buy, we know what we’re buying, and we won’t buy if we don’t like it."

As for how the Metals USA purchase stacks up against the PNA Group acquisition, it’s all in the timing, Hannah said. "There is a lot of difference despite the size similarity. The PNA timing just was awful," he said, referring to the global economic crisis immediately following the close of the acquisition. "But we were capable of doing that deal because we weren’t trying to turn around and sell it.

"There are cyclical and volatile market conditions. The (metals) market can go flat or down. Certainly with PNA it went down and more quickly than imaginable. It was not fun. But PNA is doing better and making money," he said. "The other thing that hurt bad (when acquiring PNA Group) was that pricing was cut in half, and (the company was) inventory-heavy."

By comparison, "the timing on the Metals USA transaction is that pricing is not at any peak level, more bouncing along a floor. So we don’t have same risk (of asset devaluation)."

Another difference is that the economy is at least partly through a recovery, however slowly it evolves, and demand for metal products has the "potential for meaningful improvement" over the next couple of years, Hannah said.

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