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Stainless Steel
Thursday | 08 September, 2011 | 2:13 pm

A logical buy

By Nick Wright

Universal Stainless gains radial forge with purchase of Patriot Special Metals

September 2011 - In a move that adds the Western Hemisphere’s largest hydraulic radial forge to its services, Bridgeville, Pa.-based Universal Stainless & Alloy Products has acquired the assets of Patriot Special Metals, North Jackson, Ohio, a subsidiary of Patriot Forge Co., Brantford, Ontario. It’s a logical next step for Universal as investment in its operations combined with strategic marketing to industries—such as aerospace, power generation, and petrochemical—has helped the company focus on faster deliveries and expanding its product offering. The deal closed on August 18th.

“We’re strong believers that consolidation in the industry makes some sense,” says Dennis Oates, president and CEO at Universal Stainless. “That led us to look not just at our own facilities, where we’ve had record capital spending here over the last several years, but also what we could do partnering with someone outside of the company.”

Universal’s acquisition of Patriot, valued at $104.5 million plus another $25 million in equipment installation, includes the state-of-the-art radial forge, capable of handling large and long forged billets and bars in square, round and custom shapes up to 16 inches. That will allow Universal the ability to process higher value and higher margin products for power generation, general manufacturing and industrial tooling industries in addition to aerospace and petrochemical. The entire North Jackson facility is a 220,000-square-foot greenfield facility. 

An 18-ton vacuum induction furnace (VIM) facility, slated for an early 2012 startup, will complement the forge at North Jackson and enable Universal to produce high nickel alloy products. Two vacuum arc remelt furnaces (VAR) will be delivered in September and come online in the fourth quarter of 2011, on top of seven that Universal currently runs, Oates says. “We can see ourselves tapping our heads against capacity in those areas. So we needed some additional VAR capacity and there happens to be two that were already scheduled to go into North Jackson,” he says. Approximately 40 percent of Universal’s business came from the aerospace industry in the second quarter of 2011.

Universal is investing $6 million, separate from the Patriot acquisition, in an inert gas electro slag remelt furnace (ESR) at the North Jackson plant, geared toward producing a cleaner, higher-durability steel for power generation industry clients. The company currently has four ESR furnaces in operation.

“A lot of OEMs that we work with on the power-generation side, which would primarily be ESR applications, are constantly looking for ways to improve their turbines," explains Christopher Zimmer, vice president of sales and marketing at Universal Stainless. "So that they can offer the market a turbine with a longer life that has better efficiency and operates in more aggressive environments. The specialty steels that we’ll be producing from our new inert gas ESR unit are going to be a better quality than traditional ESR technology, giving our customers a competitive edge.”

Trending consolidation
Discussions began in October 2010 with Patriot, according to Oates. “We were lacking certain pieces of equipment and it just so happened that 80 miles away from our home plant was a brand-new facility going up” that had VIM, VAR and ESR capabilities, he says. Universal’s relatively small size has allowed it to move quickly on the acquisition and focus on serving its market more quickly. The North Jackson location will be Universal’s fourth, complementing it’s Titusville, Pa., facility and Dunkirk Specialty Steel in Dunkirk, N.Y.

The radial forge is expected to be up and running once loose ends are tied up with the commissioning process and when the forge is working up to specification. Nonetheless, timing for the acquisition couldn’t be better: a July press release indicated in the second quarter, the company posted $63.3 million in sales and achieved its highest operating margin since 2007. Its annualized sales sit between $235 million and $250 million, according to Oates.

Because the Patriot facility is new and not an ongoing, operating enterprise, the peripheral issues such as redundancies and overlaps of Universal and Patriot were avoided, which commonly arise in typical mergers. “The biggest challenge we’ve had here is making sure we’re making a good investment for our stockholders,” says Oates. “We’re confident also because our customers have been pushing us in this direction.” MM


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