Above: Acquisitions will often provide greater or more detailed intelligence on certain end-user markets that aren’t readily available within the existing sales network.
A review of investment decisions among producers, processors and distributors reveals canny strategies
January 2017 - Streamlining supply chains, being able to offer greater variety or improved products and services, reaching into new territories, strengthening brands. All of these are laudable and necessary goals for any industrial firm that wants to face the future with all the right tools to compete in a global economy. And, of course, being able to purchase companies or invest in plant and equipment is necessary to grow value for shareholders or private owners.
We have tallied who’s buying whom and who is putting down roots and adding capabilities on their way to becoming bigger and more diverse.
Let’s start with Nucor Corp., one of the most active consolidators of the past couple decades. The Charlotte, North Carolina-based operator of scrapyards, melt shops, rolling mills and fabrication shops spent $900 million just in the fourth quarter to buy three major tubing manufacturers: Independence Tube, based in Chicago; Southland Tube, Birmingham; and Republic Conduit, Louisville.
The first two companies produce hollow structural sections (HSS) consumed in structural and mechanical applications, including commercial construction, infrastructure, and agricultural and construction equipment. Independence Tube has the second-highest market share in HSS, while Southland holds the third-largest market share, according to Nucor. Republic Conduit produces various types of tubing used to protect and route electrical wiring in nonresidential structures, and for the power and industrial sectors.
John Ferriola, chairman, CEO and president, told investors that Nucor views the first two acquisitions as a “channel to market” for its sheet mills and sees HSS “as a great opportunity to leverage [its] capabilities and strengths while also adding to our portfolio of products and services.”
Nucor has done similar deals in the past, says Chuck Bradford, president of Bradford Research, New York, citing its $605 million purchase of Skyline Steel, a large manufacturer of piling, in 2012.
“The idea is to go downstream. It has become more common to take more control over sales and the customer base. It remains to be seen whether it works over the long term,” Bradford says. “You run the risk of alienating other customers—will they still buy steel from you if they think you are favoring [the captive competitor]?”
Christopher Plummer, managing director of Metal Strategies Inc., a West Chester, Pennsylvania, consultancy, says that Nucor’s acquisitions of Southland and Independence “gives more intelligence on the markets they serve, helps with competitor assessment and [provides a] more front-end view of their own end markets. Generally, mills lack this sort of detail,” he says.
Plummer agrees there is a risk of putting off other customers by acquiring their peers but “that is not the way Nucor operates. They want [subsidiaries] to operate successfully on their own. More important, companies that acquire must be careful the net result is increased profitability, including resisting the temptation to cannibalize profits of the acquired company.”
Going forward, Plummer believes that many metal producers will seek to control “more of the value chain from start to finish. There is a lot of synergy and benefit by having a tight, low-cost quality system throughout your supply chain.”
Ampco-Pittsburgh Corp., a maker of forged and cast rolls for the metals industry, completed two deals last year. It spent roughly $74 million on assets of Sweden’s Åkers AB. With manufacturing facilities located in Europe, North America and China, Åkers positions Ampco-Pittsburgh’s Union Electric Steel subsidiary “to offer a complete product offering to better serve customers in every region of the world,” says CEO John Stanik, who forecast a doubling of sales.
The Carnegie, Pennsylvania-based company also bought ASW Steel Inc., a specialty steel producer in Welland, Ontario, which gives it the ability to make “additional chemistries to expand our reach in the open-die forging market,” says Stanik.
Steel Dynamics Inc., Fort Wayne, Indiana, spent $114 million on Vulcan Threaded Products Inc., Pelham, Alabama, in order to pursue “higher-margin downstream business opportunities that [consume] our steel products in their manufacturing processes,” SDI President and CEO Mark D. Millett says. A longtime customer, Vulcan will “pull through volume from SDI bar mills when other end use markets are weak,” increasing the mills’ capacity utilization.
In an effort to position itself in the U.S. market, Kyoei Steel America LLC, a Japanese holding company, will purchase BD Vinton LLC in Vinton, Texas, which rolls rebar and forges grinding balls from carbon steel bar, for $52 million.
We counted 10 other North American mergers last year involving large, midsize and small producers, distributors and processors (see “Steel Deals,” above right).
“All these companies are trying to add value and stages in the supply chain,” Plummer says. “I fully expect other steelmakers to strongly consider similar acquisitions [in HSS production]. You often have competitors following suit, like when all the [minimills] bought scrapyards.”
Modern Metals tracked 11 companies that last year expended significant sums, or announced sizable investments, to spur organic growth. We’ll highlight a few, in no particular order.
Samuel, Son & Co. really went to town in 2016. During the grand opening of a new 100,000-square-foot processing center for automotive grade materials, in Columbia, Tennessee, Samuel announced it would double the size of the plant to add a second blanking line and an 84-inch-wide slitter.
“This [$62 million] investment clearly signals Samuel will be a first mover into the advanced high-strength metals and aluminum business in the U.S.,” Samuel President and CEO Bill Chisholm said when announcing the expansion.
Samuel built the center to provide customers with a one-stop processing solution which will see product railed to the facility, slit, lubricated, and blanked all at one location—representing cost savings, improved quality control and improved freight and logistics.
Tom McGrogan, head of Samuel Automotive, says the company “is poised to become a major player in this changing market.”
Samuel opened a 70,000-square-foot service center in Denver that offers bar sawing, plasma burning and plate beveling; and expanded into a larger facility in Nova Scotia because it outgrew an existing space.
Nippon Steel & Sumitomo Metal Corp., Japan’s largest steel producer, will open a $50 million, 150,000-square-foot facility to process cold heading steel wire used for fastener applications by the automotive parts industry. The plan is to ship 39,000 metric tons a year, starting in the spring of 2018.
“High-quality wire is essential to producing nuts, bolts and other fasteners used in cars and trucks to ensure the highest levels of safety,” says Hideoki Kimura, president of the new wire company.
Another Asian conglomerate, Korea’s POSCO, is building a $19 million, 136,000-square-foot plant along the Ohio River in Jeffersonville, Indiana. It, too, will process wire rod for making automotive grade nuts, bolts and shafts. The impetus for this factory is to locate closer to U.S. customers, the company’s finance director said. “[This] central location is ideal as we look to tackle the U.S. automotive market.”
According to Plummer, the U.S. is seeing a lot of investment in automotive grade steel products. Regarding Japanese and Korean investment, “it’s the same story going on since the 1980s where steelmakers follow their domestic automakers and appliance makers into countries where the customer sets up shop. There is a tremendous amount of investment in the last five to 10 years with automotive forging, stampers, etc., to make body panels, parts, components and, now, fasteners.”
Foreign customers, he says, trust their existing homegrown suppliers to cater to them, whether with inventory, “superlative delivery [or] flawless quality,” he says, and enough critical mass in a foreign market draws them across oceans.
For a list of expansion projects, please see “Greenfield Projects,” left. MM