CHICAGO The growth of service center operator Reliance Steel & Aluminum Co. has been based largely on acquisitions, and its biggest purchase to datethat 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 companys $1.1-billion acquisition of PNA Group Holding Corp. in mid-2008.
A dozen senior Metals USA executives have arrived at Reliances headquarters in Los Angeles for a get-to-know-you dinner and a series of meetings during which Reliance will gather information that couldnt 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 arent 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. "Were not changing what theyre 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 spaceone that rationalizes facilities or divests assetsexcept in isolated cases. "There is not a lot of integration," he said. "The reason we dont sell or close much is we are very detailed and diligent on the front end. When we buy, we know what were buying, and we wont buy if we dont like it."
As for how the Metals USA purchase stacks up against the PNA Group acquisition, its 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 werent 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 dont 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.