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Service Centers
Tuesday | 22 September, 2009 | 5:12 am

Restructuring Ryerson

By Abbe Miller

September 2009 - When it comes to corporate acquisitions, the common misconception is that the acquired party needed saving. From the perspective of an outsider, it’s sometimes assumed that the company was pennies away from the red, hours away from closed doors and hopelessly unable to turn the situation right side up.

Contrary to popular belief, the opposite might be the norm. And that happened to be the case with the transaction between Platinum Equity LLC, Beverly Hills, Calif., a private firm focused on mitigating complex M&A transactions, and Ryerson Inc., Chicago, one of the nation’s largest metals service center conglomerates.

"At the time of acquisition, Ryerson was similar to many of the businesses Platinum acquires--stable, recurring revenue stream; strong relationships with long-standing customers; a substantial asset base; and with a scalable business model that allows you to react quickly to changes in market conditions," says Rob Archambault, a partner at Platinum Equity. "And most importantly, Ryerson was a company that we believed could benefit enormously from Platinum’s experience improving fundamental business operations."

The purchase of Ryerson was effective in October 2007, and the role that Platinum has played since hasn’t been typical of an average acquiring entity. The relationship and level of interaction that Platinum has with Ryerson is unique. Instead of getting involved with day-to-day operations, Platinum is poised to set and carry out corporate strategies for the benefit of Ryerson’s growth.

"We’re operators, not financial engineers," says Archambault. "We don’t simply buy businesses and hope they perform well. We create value by rolling up our sleeves and getting to work. We knew when we acquired the company that Ryerson had a lot of potential, but we also knew it would take a lot of hard work to unlock it. In partnership with Ryerson’s management team, that’s what we’ve set out to do."

First on the agenda
Considering the size of the company and the number of locations under the Ryerson umbrella, taking a close look at the corporate structure was first on the order of business. Once the overall assessment was made, it was apparent that the centralized structure wasn’t offering enough decision-making power at the local levels.

"There was a point in time in which we did operate on somewhat of a decentralized basis," says Stephen Makarewicz, CEO of Ryerson. "There was a time when the company had a Western region, a North region and a South region, but about eight years ago or so, management decided to centralize almost all of the functions in Chicago. Backroom functions, such as accounting and IT, however, weren’t really an issue, but myself and Platinum, which was nice enough to ask our opinions, both had strong feelings toward a decentralized structure."

  Giving the responsibility back to the individual branches was imperative. Evaluations followed at each of Ryerson’s 100 locations.

"First, this is very much a local business in a lot of ways," says Makarewicz. "Our operations aren’t franchises. We don’t do the same thing in every location. We sell different products, source from different suppliers and we have different mixes of customers. Trying to run all of that out of Chicago was problematic. I would often hear complaints from people on the West Coast, saying that they weren’t getting the attention that they deserved. The smaller service centers felt that they weren’t being treated the same as the big service centers. Being decentralized helps to make decisions that make the most sense for the individual regions."

People power
Giving the power back to the people, so to speak, was one of Platinum’s first priorities.

  "While conducting diligence, we quickly realized that Ryerson was operating a terribly inefficient, centralized distribution network," says Archambault. "They’d get product in, store it in Chicago, then about half of that product would ship back out to service centers as far away as California. That old, centralized structure wasted a lot of time and money, which wasn’t good for the company or its customers. There were also no clear lines of communication or accountability. The field didn’t feel empowered to make decisions, while corporate never fully understood what was needed in the field."

Makarewicz says the restructuring of the company resulted in more than just a streamlined organization. It resulted in cost savings. And, going back to the idea of misconceptions, one would think that a centralized structure would be much more effective, but in the case of the Chicago headquarters, there were scores of people analyzing the inventory and replenishment needs of each location from hundreds of miles away. What took a lot of people in Chicago to accomplish, would take a lot less when handled at the local level. Those entrenched in the operations on a daily basis can obviously make faster decisions than those sitting behind their corporate desks. Makarewicz was thrilled Platinum was focused on the company’s restructuring.

"It’s important to remember that Ryerson is an older company that has evolved over many, many years," says Archambault. "Sometimes older companies take certain things for granted and continue doing things just because that’s the way they’ve always been done. One of the great benefits of coming in as a private investor is that we give people license to question old assumptions and stop doing things that don’t make sense anymore."

Ultimately, the best-case scenario for the people in Chicago would be taking care of pressing corporate matters, as opposed to manning phones that are ringing off the hook from each and every branch. Therefore, an ancillary goal of decentralizing is to push harder to put both accountability and responsibility down to the general manager at the service center level.

"Over time, the best thing is to hire people who are entrepreneurial, understand their market and are accountable for results," says Makarewicz. "On average, our service centers are in the $100 million range. That’s a big business. If someone is running that size of business, you need to have someone strong enough to make the right decisions regarding staffing, product inventory and what customers to focus on."

Essentially, what Platinum has given Ryerson is a more intimate relationship with its customers. Their needs are now addressed by those who have a personal tie to them.

"Our approach can be liberating for managers," says Archambault. "We’re demanding and have high expectations, but one of the keys to our success is empowering executives to run their businesses and giving them the tools they need to succeed.

"Within three weeks after acquiring the company, we promoted six individuals to the position of regional president, and we worked with them on building out their regions," he continues. "Each of these new regional presidents brought forth a terrific new energy based on finally having control of their own territory. They all felt this change was long overdue and took to their new roles with great enthusiasm."

Without Platinum’s sense of urgency, Ryerson might not be where it is today. And its individual branches might not be functioning with the efficiency they now have.

"We are pleased with the progress Ryerson has made and the position the company is in today," says Archambault. "Ryerson is doing a tremendous job managing costs and remaining intensely focused on customer service while at the same time exploring opportunities for growth and expansion." MM

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