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Service Centers
Wednesday | 30 April, 2014 | 1:08 pm

75 years of selling steel

By Lauren Duensing

Above: The management team at Reliance consists of (front row, from left) Donna M. Newton, vice president-benefits; Karla R. Lewis, executive vice president and chief financial officer; chairman and CEO David H. Hannah; president and chief operating officer Gregg J. Mollins; Silva Yeghyayan, vice president-tax; and Brenda S. Miyamoto, vice president, corporate initiatives; (second row, from left) James D. Hoffman, senior vice president-operations; William A. Smith II, vice president, general counsel and corporate secretary; Donald J. Prebola, vice president-human resources; William K. Sales Jr., senior vice president-operations; chief information officer Susan Borchers; Sheldon U. Tenenbaum, senior vice president-supplier development; Stephen P. Koch, senior vice president-operations; and John A. Shatkus, vice president-internal audit.

Now the largest service center operator in North America, Reliance Steel & Aluminum Co. has stayed true to its roots, focused on keeping business simple

April 2014 - “We’ve come a long way,” says Reliance Steel & Aluminum Co.’s chairman and CEO David Hannah. Although it’s become a giant in the metals industry, as it celebrates 75 years in business this year, Reliance hasn’t forgotten its roots. 

Reliance’s entry into the service center business was “really just by accident,” Hannah says. The founder, Tom Neilan, owned another company in Los Angeles called N.J. Thomas and Co., which was an oil well supply company as well as a real estate holding company. “[Neilan] lent some money to a friend who worked for a steel company in northern California called Pacific States Steel, and the guy couldn’t pay him back, so he sent him some steel rebar. Neilan took the rebar, had it fabricated, sold it and made some money.”

Neilan continued to buy rebar and, eventually, other steel products and the company was incorporated as Reliance Steel Products Co. in 1939. It was built on job-shop business because, besides aerospace and shipbuilding, there were no big industries on the West Coast. 

The company still relies on those customers today. “We tend to focus on smaller orders,” Hannah says. “In 2013, about 40 percent of our orders were customers calling us today and wanting their metal tomorrow. Our average order size was $1,660,” he continues, “That’s a lot of orders to get up to $9.2 billion in revenue.”

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Ready, set, grow

Reliance is known for growth through acquisition. But in the 1950s, the company was on the other side of the table. Before he passed away in 1957, Neilan was in discussions with another company to sell Reliance. Upon his death, the deal was put on hold and his nephew William Gimbel, who began his career in Reliance’s warehouse, became president. “He, along with the other officers and board members of Reliance, decided they weren’t going to pursue selling the company,” Hannah says. 

“Just like many of the companies that we have acquired and a lot of companies that still exist in the industry today, we had large family ownership,” he continues. “We were fortunate that our founding family wanted to continue to grow the company as opposed to selling it and getting the cash or monetizing their investment,” Hannah says. 

Gimbel’s engineering background fed his interest in processing and handling metal, in addition to warehousing it. At that time, Reliance’s acquisitions consisted of “smaller, mostly troubled companies” that executives believed they could fix either by merging it into another location or by helping it financially, Hannah says. “That kind of set the tone for how the company was going to grow. We weren’t afraid of reaching out and making an acquisition. Bill also was interested in getting involved in other products, so he built greenfield operations as a way of expanding the company. He’d identify an area or a product group, and rather than bury that product in one of the existing operations, he’d buy a building or if he couldn’t find a building, he’d build [one] and start marketing that product in the new operation.”

When Hannah came on board in 1981,  revenues were below $200 million and Reliance had fewer than 20 locations. “I was the first CFO the company ever had,” he says. “It was growing and Bill wanted to continue to grow. He wanted somebody to come in and oversee the finance and accounting part of the business.”

To ensure it would be able to reach its full potential, the management team decided to take Reliance public in September 1994. “Doing the IPO was a very big deal,” Hannah says. “It’s probably the largest thing that we’ve done from an importance standpoint and certainly set the foundation for what we could achieve going forward.”

The cyclical nature of the service center business makes it risky to finance growth with debt. “If you get caught with too much debt in a downturn, it can cause some real problems for a company. It can put you out of business. So we felt [the IPO] was a good way to secure some financial footing in our strategy to grow the company,” he says.

“It also created an opportunity for family members to sell their stock [if] they wanted to,” he says. Without public shareholders, “the burden really falls on the company to buy those family members out.”

In the 20 years since the IPO, day-to-day operations haven’t changed much. “When Bill Gimbel was talking to me about coming on board, one of the things I really liked about Reliance was that Bill ran the company like a real business, not like his company or his family’s company,” Hannah recalls. “I thought it was being run better than a lot of public companies that I worked on when I was on the audit side of the public accounting profession.”

The decision to go public “has not hindered our growth and it has not hindered our decision making regarding what’s in the long-term best interest of the company,” he notes. “We don’t run it for next quarter or this year. We’re doing things that we believe are best for the company long-term.”

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Bigger deals

After the IPO, Reliance started to move beyond the West Coast and began looking to acquire larger, more successful companies, rather than smaller, troubled companies. Its first major acquisition as a public company was Siskin Steel & Supply Co. in 1996. 

“That was our first venture east of the Mississippi,” Hannah says. “It really put Reliance’s name in front of a lot of people who didn’t know us or didn’t know that we were interested in being on the other side of the country. It really opened up opportunities because we now were being contacted by business owners on the East Coast, Midwest and Southeast, asking if we were interested in looking at their business because they were interested in selling.”

Reliance followed up the Siskin deal with the acquisitions of Phoenix Metals, Chatham Steel and Liebovich Brothers, “which were the anchors of our growth on the other side of the States,” Hannah says.

The deals continued to get bigger with the acquisition of the Earle M. Jorgensen Co. in 2006. At the time, Reliance had revenues of approximately $4 billion. EMJ’s sales were about half that size. “[EMJ] was our first very large transaction,” Hannah says. “They were the first public company we ever acquired, and they also were [dealing] in products we didn’t carry. EMJ is really a specialty long products company.”

EMJ illustrated that there are a lot of different paths to success. “We look at the culture of the companies we acquire and the way they have done business and we embrace it and help them refine it, but we don’t change it,” Hannah says. “We’ve got a lot of different cultures within the company and as long as we can take that and live together and learn from each other, we don’t need to change each other.

“[EMJ] transformed our business to a great extent,” he continues. “Their business is much more centralized, especially from a buying perspective. It needs to be because of the types of products they are in. They also moved metal around within the company differently than we do at Reliance.”

The April 2013 acquisition of Metals USA Holding Corp. was the largest purchase in company history. The deal added 48 service centers throughout the United States to Reliance’s portfolio. Unlike the EMJ acquisition, Metals USA bought, sold and processed many of the same products as Reliance. Blending the two companies has “really given us the opportunity to determine the best way to buy and manage our metals in certain areas at certain levels,” Hannah says. “We got to know the Metals USA management teams during our due diligence process. We really liked them and we really liked how they went about their business. And they have embraced our other businesses in the neighborhoods where they operate and our other businesses have embraced them.”

Keep it simple

Reliance has acquired 56 companies since 1994, and during Hannah’s 33-year tenure, he’s learned a lot about people: “How to work with different people, how to motivate different people. ... Over the years, we’ve seen a lot of things that come across our desk where the numbers are pretty impressive and you go out to look at the companies and meet the people, and sometimes you can get a little disappointed. Those are transactions that we won’t do. The people who are currently running the business are most likely going to continue to run the business. If we don’t feel good about them, then we don’t have a bunch of people hanging around Reliance with nothing to do that we can all of a sudden throw out there.” 

In addition, there’s an education to be had in the field. “You don’t learn how to do deals in school; it’s something that you have to learn hands-on,” he notes. “One of the main reasons I think our acquisitions have been successful overall is we continue to do the work here internally. We don’t hire independent people (like investment bankers and consultants) to go out and perform due diligence for us.”

It would be easy to step away from a modest beginning once reaching the lofty peak of the largest service center in North America, but throughout it all, Reliance has tried to be humble and “maintain the humility that has been with the company a long time,” Hannah says. “We’re out there trying to do the best we can. And we always believe that we can do better.

“We’ve really tried to keep it simple,” he continues. “What we do is not rocket science stuff. It’s not a complicated business. That’s not to say it’s easy because it’s not easy, but it’s certainly not complicated. We’re not trying to make it any more difficult than it needs to be.”

The employees who have grown with Reliance and been a part of the company’s big milestones sometimes have to pinch themselves, Hannah says. “I’m really proud of what we’ve been able to accomplish over the years. I’m very fortunate to be the CEO of this place—that’s for sure. It’s been a lot of fun. All of us here have been very fortunate to work with good people that have given us opportunities and reinforced our ethics and the way we do business. We enjoy being together.” MM

 

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