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Metals sector could see M&A ramp up: KeyBanc

Keywords: Tags  KeyBanc Capital Markets, Eric Klenz, M&A, mergers and acquisitions, TimkenSteel, Severstal North America, Nippon Steel and Sumitomo Metal, Alcoa Firth Rixson

CHICAGO — The next year could see increased merger-and-acquisition activity in the metals sector as markets improve, according to one analyst.

But M&A will likely focus on nonferrous, specialty metals and downstream metals consumers and processors rather than on carbon steel producers, Eric Klenz, director of Cleveland-based KeyBanc Capital Markets Inc.’s metals and mining practice, told AMM in an exclusive interview.

"Things are picking up now, and I think there are some things under way that could get done in the next 12 months," Klenz said, with deals likely to range from several hundred million dollars to as much as $1 billion.

Pittsburgh-based Alcoa Inc.’s acquisition of U.K. aerospace components manufacturer Firth Rixson Ltd. for $2.85 billion (, June 26) is a prime example of the type of deal to expect, Klenz said.

"We’re working on a transaction where one of our clients is buying a producer of very-high-precision metal components, a lot of which goes into transportation," Klenz said. "Both (are) big users of metal and downstream."

Klenz did not name the parties involved in that deal but cited another specialty steelmaker, Canton, Ohio-based TimkenSteel Corp., as a potential buyer and target for acquisition following its spinoff from Timken Co., also based in Canton (, July 1).

TimkenSteel, for example, could consider expanding its already strong portfolio of seamless tubular and special bar quality (SBQ) products by adding downstream energy applications as well, Klenz said. "Now that they are separate from Timken Co., they are certainly somebody that can go out and make acquisitions in downhole products."

But at the same time, TimkenSteel will continue to be discussed as a target, given the company’s size, Klenz said. "I don’t think TimkenSteel is interested in a transaction, but I can certainly acknowledge that there has been a lot of talk of them as a target, and I can understand why because of the attractiveness of the business."

TimkenSteel had a market capitalization of $2 billion as of the close of trading July 7.

TimkenSteel is "always" evaluating opportunities to expand its products and offers but does not anticipate any downstream acquisitions, a company spokeswoman told AMM via e-mail July 7. The company also thinks it will generate enough profit and cash flow to remain independent, she said.

On the carbon steel side, there aren’t likely to be any big deals except for Dearborn, Mich.-based Severstal North America Inc., Klenz said, because the steel market in general has been hurt by overcapacity, particularly from China.

If Severstal NA is sold, the integrated Dearborn facility and mini-mill operation in Columbus, Miss., could be sold separately if doing so would bring the most value to Moscow-based parent company OAO Severstal, Klenz noted.

OAO Severstal did not immediately respond to a request for comment July 7.

Four bidders have already been suggested for the facility (, May 27), but a fifth company might also be in the running: Japan’s Nippon Steel & Sumitomo Metal Corp., Klenz said. "You could see Nippon, too, particularly for automotive-related assets, which obviously Dearborn and to some degree Mississippi fits the bill."

Nippon Steel & Sumitomo Metal did not immediately respond to a request for comment July 7.

Overall interest in M&A is picking up because business confidence and demand is likely to improve in the remainder of 2014 and also because private equity groups and other metal companies have strong balance sheets and access to cheap financing, Klenz said.

"The buyers have always been there. It’s a matter of having the sellers," he said. "The sellers, particularly when they are entrepreneurial sellers, have a view of what the valuation is for their business, and they want to go out and pursue a sale at the most advantageous time. And the perception has been that the last couple of years haven’t been."

That perception could be changing, Klenz said.

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