Coming off one of the metals industry’s most profitable years ever, it’s no surprise that merger and acquisition activity is heating up among service centers. But is the time right to cash it in?

The number of metal distribution and processing companies up for sale has increased significantly this year, industry executives report.

“The industry has done better in the past year, and owners must guess this is a good time to sell,” says Neil Novich at Ryerson Tull. Ryerson is still busy integrating Integris, which it acquired in January, and has shown little interest in most other offers so far. But, Novich says, “we expect [industry] consolidation to continue, and more rapidly than in the last few years.”

In fact, asserts Dave Hannah at Reliance Steel & Aluminum, “the acquisition scene is more active now than we’ve ever seen it, even going back to the crazy times of the late 1990s.” That’s quite a statement, coming from a company that was in the thick of the roll-up race, making more than 20 acquisitions itself since 1996.

The record revenues of 2004, in contrast to the series of tough years previous, are triggering a desire in many owner-operators to cash in their investment. After all, notes Hannah, “it’s hard to predict when the next 2004 will come.”

For some of the industry’s old war-horses, retirement is looking like a smarter alternative to reinvesting last year’s windfall back into the business. “Some are just tired and don’t want to fight the battles of a ‘normal’ steel market anymore,” says Mike Siegal at Olympic Steel.

The service center industry’s recent record returns have also caught the eye of financial buyers from outside the industry. With interest rates still relatively low, and capital readily accessible, “there is no shortage of investment bankers who are in the market today encouraging people [to deal],” he adds.

Owners of small and midsize service centers have to wonder about their long-term prospects as independent operators in a market where the large chains are gaining increasing power on the buy and sell sides.

“Lots of service centers just want to be part of this particular consolidation,” Siegal says. “They don’t see themselves surviving without attaching [to a larger company].”

Nevertheless, Bud Siegel at Russel Metals questions whether this is the right time to sell out, noting that current valuations “are relatively rich.” Sellers may have unrealistic expectations about what their companies are worth, coming off such an unusually successful 12-18 months.

According to the latest Metal Center News tally, about 18 service center properties have changed hands so far during 2005. That compares to just 14 deals announced in 2004, when most everyone was making money and glad to be in business.

Interestingly, the most recent peak in service center sellouts was in 2001 and 2002—while the economy and the steel market struggled–—when more than 25 deals were announced each year.

Makes one wonder how many of those who sold out a few years ago now regret missing the party when steel prices and profits went through the roof. And how many are glad they hung in there. With solid prospects for steel in the next few years, perhaps there’s a lesson in those feelings for owners straddling the fence today.