Service Centers
Tuesday | 01 August, 2006 | 3:42 am

A systematic achievement

By Lauren Duensing

Becoming one of the top-ten largest metal service centers in North America with sales in excess of $1.7 billion last year doesn't happen by accident--and it doesn't happen overnight. Macsteel Service Centers USA Inc., Newport Beach, Calif., draws on years of experience when developing the operating strategies that form the groundwork of the company's growth.

The company was born when its parent company, South African-based Macsteel Holdings, acquired a major U.S.-headquartered group, Ferro Union, in 1983 and Associated Metals and Minerals Corp. in 1985. Today it is focused on building its portfolio so it can "be a premier service center among the leaders in the United States," says Michael Hoffman, president and CEO. In order to achieve that, Hoffman notes that the company must provide fair opportunities to all its employees, provide the best possible return to its stakeholders and run an ethical, fair and dynamic business. In addition, the company must "examine the various opportunities that present themselves," he says, and "recognize that as business is a very changing and dynamic environment, we have to be flexible in amending our stance from time to time to accommodate that dynamism."

Building a market leader
In addition to being one of the top North American service centers, Macsteel Service Centers USA wants to continue to be a market leader in the products it sells. "That's the objective," says Hoffman. The company's well-planned strategy of growth by acquisition allows it to ensure that it remains at the top of the list. In 1995 it acquired Usinor's Edgcomb Metals service center group at which time, Ferro Union and Edgcomb became part of the umbrella of Macsteel Service Centers USA. In 2001, it acquired the assets of Bellesteel, and in 2002, it acquired Baldwin Steel from Duferco. In 2003, it completed the acquisition of structural-steel-specialist Regal Steel Supply from Corus. At present, the company has 32 locations throughout North America and processes and distributes carbon, stainless, aluminum and specialty metals, in addition to a full range of flat-rolled, plate, tubing, pipe, bar and structural, steel building products, and coated and prepainted metals.

There are a number of market factors that Macsteel Service Centers USA considers before deciding to acquire a company. "It's a very established acquisition modus operandi that we employ," says Hoffman. "We're really experienced at it by now, and it's a tried-and-tested formula that has worked."

First, the company evaluates whether the acquisition will add to its critical mass in terms of becoming a market leader in a product range or geographical area," Hoffman notes. The company then looks to see if the acquisition will allow it to expand into a geographic area where it could use more exposure. Next, it determines if the acquisition will add to its critical mass in terms of products. In addition, Hoffman says, "Will it provide rationalization opportunity? Will it add to our machinery and equipment utilization? Is it profitable or will it become profitable and will it assist us in reaching our expected financial goals?"

When it comes to integrating these companies into the Macsteel Service Centers USA family, "we always maintain the commercial integrity of the management team and personnel in any acquisition," says Hoffman. "We attempt to streamline as far as possible all the back-office activities. In terms of our preamble to acquisition, we have already identified those areas in which we can add value, and we place a high priority in adding value to those areas. We make every effort to make every acquisition in the Macsteel Service Centers USA family seamless for the company and the personnel that we acquire."

Name recognition creates strong presence
As a result of its acquisition strategy the company was becoming more fragmented, and this was causing confusion among its customers. "We had so many different brands out there that customers were losing sight of our national identity and our resources," says Hoffman. So, on Jan. 1, 2004, the company combined all of its operating entities under one name.

"First we did a lot of research, and it was a process to move toward one name," Hoffman notes. "We had a number of established brand names that were well known in their individual areas. It was a process of advertising, public relations information and making the customers aware of the change."

The company took great care to ensure the change went off without a hitch. "We foresaw the obvious problems that arise when organizations change their name," says Hoffman. "We spent a good six months dealing with those areas. For example, managing a smooth transition for our employees. Our human resources department spent a great deal of time, effort and communication to make sure that people understood that it would not have an impact on them and their careers." The company also made sure that its suppliers, customers and transporters knew what the future held. "We spent a lot of time, effort and money making sure that everybody was comfortable with the move," Hoffman says.

All these efforts have paid off. The reception has been overwhelmingly positive. "It has been of substantial benefit," says Hoffman. "Most importantly, it removes the confusion in our customers' and suppliers' minds as to what we were and who we were."

The company also continued with its acquisition strategy. It immediately added to its family after the name change with the acquisition of Hokin-Katz in February 2004. In addition, Alpha Steel and Alpha Processing Inc. joined in late 2005. It also recently began construction on a new, 73,000-square-foot, $10-million metals manufacturing and distribution facility in Tucson, Ariz.

Global roots
As part of a large international organization, Macsteel Service Centers USA has a leg up on the competition when it comes to adapting to global business. "This is not such a big learning curve for us as it may be for others," Hoffman says. He notes that the steel industry, in a general sense, is quickly becoming substantially more global. "World economies are expanding rapidly, and there is an increase in the worldwide demand for steel and steel products.

"Consolidation has been led by the producers, and there have been some substantial acquisitions of companies in recent months that will add a great deal to the rationalization process among producers." And if that weren't enough, the "continuing escalation in raw material prices and the competition among developing countries and manufacturing industries for those materials is being felt substantially in the steel arena. That is not likely to reduce in the short term," Hoffman says. "So we see continued bidding for scarce resources for a substantial period of time that is going to keep input prices high for producers and will add interest to the rationalization process."

Macsteel Service Centers USA will continue to rely on its strategy for the long term, which will allow it to remain a strong player in the service center industry. "We are always looking at acquisitions, we are always evaluating greenfield, we are always looking at our geographical spread and we are always looking at our critical mass by product," Hoffman says.

As it continues to grow, the company plans to stick with its strategies but be flexible enough to adjust to the changing economy. "I can't say that there is anything out there that would change [our plans]," Hoffman notes. "There are certainly things out there that can ameliorate our position. This is such a dynamic time in business history and U.S. history and the history of the steel business. A lot of that dynamism comes from the huge growth that is taking place in the Pacific Rim, India and Eastern Europe. In addition, some of the mature economies like Western Europe and the United States are experiencing positive growth. I can't say that we will be substantially moved from our chosen path. That is unlikely to happen. But the degree of urgency with which we approach certain aspects of that development could alter depending on conditions." And success flourishes in an environment with some degree of flexibility. Hoffman notes that sometimes market conditions are difficult and cause the company to alter its plan of action, which isn't always negative. Often, an altered path has created opportunities for the company. "We've taken those opportunities that come our way," Hoffman says. "I won't say that it has always been a completely smooth path." He adds, "I don't think that we'd like that a lot--it would be too boring." MM

A brief history of Macsteel Service Centers USA
1958: Eric Samson founds Macsteel Holdings, a steel merchant dealing exclusively in wholesale activities.
1962: Samson moves the company into steel trading and enters the export market in the mid-1970s.
1983-1985: Macsteel Holdings acquires Ferro Union and Associated Metals and Minerals Corp., forming the basis of Macsteel Service Centers USA.
1995: Macsteel Service Centers USA acquires Usinor's Edgcomb Metals service center group.
2001: The company acquires the assets of Bellesteel.
2002: Macsteel Service Centers USA acquires Baldwin Steel from Duferco.
2003: The company completes the acquisitions of structural steel specialist Regal Steel Supply from Corus, in addition to acquiring California Steel and Tube.
January 2004: All of the operating entities merge under the Macsteel Service Centers USA name.
February 2004: Macsteel Service Centers USA purchases established flat-roll processor Hokin-Katz.
2005: Alpha Steel and Alpha Processing Inc. become the newest members of the Macsteel Service Centers USA family.
2006:The company breaks ground on a $10-million metals manufacturing and distribution facility in Tucson, Ariz.

By Lauren Duensing, from the August 2006 issue of Modern Metals.
















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