Mergers and acquisitions activity is rising as U.S. metal service centers respond to volatile market conditions, according to the Metals Insider, an industry report released by Brown Gibbons Lang & Company (BGL).
U.S. metals distributors are navigating a challenging operating environment, incited by growing complexity in the regulatory landscape which is fueling uncertainty in supply and demand. With volatility in focus, service centers are keeping tight controls on working capital and expenses to preserve margins.
There is movement toward consolidation with larger players pressured to improve profitability and expand product lines and geography. Consolidation will create more stable supply/demand dynamics, potentially reducing volatility in pricing. The highly fragmented and localized metal marketplace will be conducive to acquisitive growth, with market conditions likely to drive more sale activity:
BGL advised Central Steel & Wire (CSW) in its sale to Ryerson, which marked Ryerson’s largest acquisition in over a decade. The buy accelerates its stated goal to grow market share to 6 percent over the next three years. CSW added approximately $600 million in annual revenues and 1 percent in incremental market share. The purchase of Fanello Industries expands Ryerson’s value-added fabrication services in the Southeast, in line with the strategy to grow its value-added mix to 15 percent of revenues—more than double the level in 2010.
Reliance Steel & Aluminum has made value-added processing an area of strategic growth, with M&A a key component of its capital spending plans. Metal fabricators KMS and DuBose are among the company’s recent acquisitions in this expansion effort. In 2018, nearly half of all Reliance’s orders included value-added processing.
Strategic buyers have demonstrated a proven appetite for the right complementary acquisitions, with the need for growth keeping M&A multiples strong for healthy companies. As global economies and end-markets continue to expand, valuation trends will remain positive.
BGL’s Metals & Metals Processing Group served as the advisor to Central Steel & Wire in its sale to Ryerson. The team is currently working with a number of service centers at all stages to support their capital markets needs.