Combined revenues among the industry’s Top 50 service centers jumped by more than 20 percent in 2005, on top of a 40 percent jump the previous year, reflecting industry consolidation along with demand and metals prices that have remained surprisingly strong.
MCN polled the industry’s largest players in July and August and ranked them based on total revenues from their last full fiscal year, calendar year 2005. The Top 50 ranged from $5.8 billion down to $165 million in annual sales. This compares to a high of $3.3 billion and a low of $149 million in last year’s survey, which confirms that the big are getting bigger.
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1.Ryerson Inc. - $5.80 billion
2. Reliance Steel & Aluminum Co. - $5.54 billion
3. Samuel, Son & Co. - $2.79 billion
4. ThyssenKrupp Materials NA - $2.35 billion
5. Russel Metals - $2.30 billion
6. O’Neal Steel - $1.95 billion
7. Macsteel Service Centers USA - $1.70 billion
7. Worthington Steel (tie) - $1.70 billion
9. Metals USA - $1.64 billion
10. McJunkin Corp. - $1.48 billion
MCN based its Top 50 rankings on each company’s reported revenues for the last completed fiscal year, 2005, but that methodology does not tell the whole story. Major mergers earlier this year changed the competitive dynamics of the marketplace considerably. The ranking above—which takes into account Reliance’s acquisition of EMJ and Yarde Metals, and O’Neal’s purchase of TW Metals—more accurately reflects today’s Top 10.
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In total, the Top 50 generated combined revenues of approximately $46.3 billion last year, nearly half of all sales by metals distributors in North America, according to rough industry estimates. This compares with $38.2 billion generated by the Top 50 in last year’s MCN survey. Service centers remain the largest single customer group for North American mills, buying, processing and reselling one-quarter or more of all the steel, aluminum, copper and brass produced each year.
Asked in last summer’s poll to forecast their full-year sales for 2005, the Top 50 forecast an aggregate total of $42.9 billion in revenues—which was conservative by more than 7 percent when compared with the actual $46.3 billion result.
Based on mid-year 2006 predictions by the leading service centers, MCN forecasts that aggregate revenues for the Top 50 will increase by at least a further 8 percent this year, topping the $50 billion mark for the first time.
While no doubt a significant part of the Top 50’s revenue growth is due to the unusually high prices for steel, aluminum and copper, some of that gain can be attributed to their growing market share as they continue to acquire other companies and win customers from smaller rivals.
The service center industry may be shrinking in terms of the number of players in the marketplace, but the Top 50 companies are expanding in terms of the facilities and labor they now command to meet customers’ needs. This year’s Top 50 report that they operate about 1,330 stocking locations totaling more than 116 million square feet of warehouse and processing space—up 16 percent in locations and 22 percent in square footage vs. last year. The Top 50 currently employ about 60,000 workers—up nearly 17 percent from the 50,000 reported in the previous year’s survey.
Once again, Chicago-based Ryerson Inc. remains on top of the Top 50 with $5.8 billion in 2005 revenues. Reliance Steel & Aluminum ranks No. 2 again with $3.367 billion. The gap between the two is actually much narrower today, however (see “Today’s Top 10”). Reliance’s acquisitions of Earle M. Jorgenson Co. and Yarde Metals earlier this year would bring its total revenues to about $5.544 billion, based on the sum of the three companies’ 2005 results.
Similarly, O’Neal Steel would move from ninth on the list up to sixth place with about $1.95 billion in sales if its acquisition of No. 32 TW Metals late last year and, more recently, its purchase of Timberline Steel were factored in.
Like last year, more than 20 deals have been announced so far in 2006, as industry prosperity continues to fuel mergers and acquisitions among service centers. Besides Reliance’s purchase of EMJ and Yarde, and O’Neal’s purchase of TW Metals, other recent transactions of note include: A.M. Castle & Co.’s acquisition of Transtar Metals; ThyssenKrupp’s purchase of Canada’s VPK Metal Inc. and The Hearn Group; Platinum Equity’s investment in the PNA Group (including Feralloy, Delta Steel and Infra-Metals); Steel Technologies purchase of Kasle Steel Corp.; and Macsteel’s acquisition of Alpha Steel, among others. MCN has tracked more than 225 mergers and acquisitions among service centers since 1996.
Top 10 Profiles
No. 1 Ryerson Inc., Chicago—Long-time market leader Ryerson Tull officially shortened its name to simply Ryerson on Jan. 1 in response to the company’s many acquisitions over the years, in particular its purchase last year of Integris Metals. Ryerson’s current operation is a melding of Joseph T. Ryerson, J.M. Tull Metals, J&F Steel and Integris.
Ryerson retained a slim lead over No. 2 rival Reliance Steel & Aluminum Co. based on 2005 revenues. Ryerson reported sales of $5.8 billion last year, up from $3.3 billion in 2004.
Earlier this year, Ryerson divested its oil and gas tubular alloy and bar business to Energy Alloys of Houston. Though profitable, Ryerson determined that the oilfield assets were not a good strategic fit. Besides the sale of its oil and gas business, Ryerson has been quiet on the deal-making front in 2006, though company officials say they continue to look for acquisition opportunities with the combination of product mix, geography and price.
No. 2 Reliance Steel & Aluminum Co., Los Angeles—While Reliance ranks second once again in MCN’s Top 50 based on last year’s sales, it appears to be within a few hundred million of overtaking the industry leader. Reliance reported revenues of $3.367 billion for fiscal 2005, up from 2004’s $2.943 billion. Factoring in the earning power of its Earle M. Jorgensen and Yarde Metals acquisitions, its sales this year could easily top $5.5 billion.
In April, Reliance completed a $984 million merger with fellow Southern California company, EMJ, which is ranked No. 6 in this year’s Top 50 with nearly $1.8 billion in revenues. The transaction adds 39 facilities in the United States and Canada to Reliance’s existing network, and significantly increases the company’s geographic, product and customer diversification. EMJ’s locations give Reliance a stronger foothold in the Midwest and entrance into the New England and Canadian markets.
In August, Reliance completed the acquisition of Yarde Metals Inc., Southington, Conn., the 30th largest company in MCN’s 2005 Top 50. Yarde specializes in the processing and distribution of stainless steel and aluminum plate, rod and bar products, with a half-dozen locations in the Northeast, Southeast and Midwest. Yarde’s sales for the fiscal year ended June 30 were approximately $385 million.
Other moves also have contributed to Reliance’s strong performance. The company purchased the remaining 49.5 percent of its American Steel LLC subsidiary from American Industries Inc. in January. In March, its Precision Strip Inc. subsidiary acquired Flat Rock Metal Processing LLC, a Flat Rock, Mich., toll processor. Reliance also recently purchased a 75,000-square-foot facility in Birmingham, Ala., doubling the space for its Phoenix Metals’ Birmingham operation.
No. 3 Samuel, Son & Co. Ltd, Mississauga, Ont.—Family-owned Samuel, Son & Co.—No. 5 in last year’s ranking—reported 2005 revenues of $2.675 billion, up from $1.83 billion the previous year.
Earlier this year, Samuel, Son & Co. purchased Form-Tech, Temperance, Mich., whose carbon flat-rolled steel business was combined with Samuel Midwest, now operating from a 350,000-square-foot facility in Detroit.
With more than 80 facilities strategically located throughout Canada and the United States, Samuel is a major distributor and processor of carbon steel, stainless steel, aluminum and aerospace alloys. Stressing revenues from value-added processing, Samuel, Son offers: cut-to-length and multi-blanking, coil-to-sheet tension leveling, slitting, edging, shearing, first-stage configured blanking, pickling, cold-rolling, annealing, plasma and oxy-fuel plate burning, water-jet and laser cutting, bar and extrusion sawing and aluminum plate sawing.
The company also operates a manufacturing division, Samuel Manu-Tech, whose revenues are not included here.
No. 4 ThyssenKrupp Materials NA Inc., Southfield, Mich.—ThyssenKrupp Mate-rials’ North American operation reported 2005 revenues of $2.35 billion, up from $2.2 billion the previous year, ranking the company fourth once again.
The Germany-based conglomerate distributes a broad portfolio including aluminum, copper, brass, specialty metals, carbon steel and plastics from over 80 locations across North America.
ThyssenKrupp’s Copper and Brass Sales division has been among the most active acquirers of the past few years. In March, it purchased VPK Metal Inc.’s operations in Canada, including Peckover’s, Vimetal Peckover, Roy Metals Sales Inc., Vifab and O.M.I. In April, it acquired C-S Metals Service Inc., Baltimore, a distributor of nonferrous metals with a primary focus on aluminum plate, sheet and extrusions.
No. 5 Russel Metals Inc., Mississauga, Ont.—Russel Metals reported 2005 revenues totaling about $2.30 billion, up from $2.12 billion in 2004. Russel has been fairly quiet on the acquisition front since its purchase of Leroux Steel in 2003.
Russel conducts its distribution business in three segments: metals service centers, energy tubular products and steel distribution. The service center segment processes and distributes metal products to approximately 18,000 end-users through a network of 58 Canadian and four U.S. locations. The energy tubular business distributes pipe, tube, valves and fittings chiefly to the energy sector in western Canada and the United States from five Canadian and two U.S. locations.
Russel is one of the few metals distributors to operate a significant international trading operation in conjunction with service centers. Its steel distribution unit imports products into Canada and the United States for both steel mill and metals distribution customers.
No. 6 Earle M. Jorgensen Co., Lynwood, Calif.—EMJ’s revenues of $1.792 billion move it up from the No. 8 spot in last year’s ranking with $1.475 billion in sales. EMJ was acquired by Reliance earlier this year (see No. 2 above). It continues to operate with relative independence under the leadership of R. Neil McCaffery, EMJ president and chief operating officer. While EMJ will disappear from next year’s Top 50, as its results will be reported by Reliance, it will remain a formidable competitor in the marketplace.
EMJ operates 39 service and processing centers and inventories more than 25,000 different bar, tubing, plate and various other metal products. Complementing the product mix of its new owner, it specializes in cold-finished carbon and alloy bars, mechanical tubing, stainless bars and shapes, aluminum bars, shapes and tubes, and hot-rolled carbon and alloy bars.
No. 7 (tie) Macsteel Service Centers USA, Newport Beach, Calif.—Macsteel USA, a division of South Africa’s Macsteel Holdings, retains its spot in the ranking with $1.7 billion in 2005 revenues, up from $1.5 billion the previous year.
The company operates a network of 32 locations, which include the former Edgcomb Metals, Regal Steel, Baldwin Steel, Ferro Union, Hokin Katz and Alpha Steel, all of which now go to market as Macsteel Service Centers USA.
Most recently, Macsteel began construction of a new 73,400-square-foot, $10 million processing and distribution center in Tucson, Ariz., to be opened later this year.
Macsteel processes and distributes carbon, stainless, aluminum and specialty metals in flat-roll, plate, tubing, pipe, bar and structural form. It also supplies steel building products and coated and prepainted metals.
No. 7 (tie) Worthington Steel Co., Columbus, Ohio—Moving up two spots from last year’s ranking, Worthington reported revenues from its steel processing and distribution business of about $1.7 billion in 2005, up from $1.3 billion the previous year.
Worthington Steel, a division of Worthington Industries, is a processor of flat-rolled steel with 10 facilities across the United States. Its value-added service offerings include acrylic coating, cleaning, cold-rolling, configured blanking, cutting to length, dry lubricating, edging, galvannealing, hot-dipped galvanizing, hydrogen annealing, pickling, slitting temper rolling and tension leveling.
Most recently, Worthington acquired Precision Specialty Metals Inc., a processor of stainless steel in Los Angeles.
No. 9 Metals USA Inc., Houston—Ranked No. 8 last year with $1.51 billion in 2004 revenues, Metals USA comes in at No. 9 this year with a $1.639 billion total for 2005.
Created through an aggressive series of roll-ups in the mid-1990s, Metals USA stumbled during the recession, but has successfully navigated a bankruptcy reorganization and refocused the company over the past few years. Now owned by investment group Apollo Management LP, Metals USA provides a wide range of products and services in the heavy carbon steel, flat-rolled steel, specialty metals and building products markets.
Most recently, Metals USA completed the acquisition of Port City Metal Services Inc. in Tulsa, Okla., which becomes part of the Metals USA Plates and Shapes Group. Port City is a value-added processor of steel plate. In May, the company acquired Dura-Loc Roofing Systems Ltd. of Toronto, which manufactures and distributes stone coated metal roofing products to the eastern half of North America.
No. 10 O’Neal Steel, Birmingham, Ala.—Privately held O’Neal Steel broke into the Top 10 last year and has continued to grow, reporting $1.6 billion in 2005 revenues, up from $1.3 billion the previous year. Its late-2005 acquisition of TW Metals, ranked No. 32 this year, makes O’Neal an even larger, stronger competitor with 69 locations nationwide. TW Metals will disappear from next year’s Top 50, as its results will be reported by O’Neal.
O’Neal has been one of the more prolific acquirers of the past few years, also purchasing Metalwest, Aerodyne Alloys, Leeco Steel and, most recently, Timberline Steel. In recognition of his leadership and his company’s growth, O’Neal President and CEO Bill Jones was recognized as MCN’s Service Center Executive of the Year last year.
Is bigger better?
Service centers have been consolidating for the past decade, with merger and acquisition activity cycling up and down with the economy. Given the industry’s strong sales of the past few years, the current accelerated consolidation could continue through 2006 and into 2007, if the economy doesn’t slow too drastically.
Some analysts predict the market will eventually be dominated by perhaps 10 companies, each with $5 billion to $10 billion in annual sales. Such consolidation will give them better bargaining power with mills and large OEMs, as well as the wherewithal to meet customers’ growing service and quality demands.
Most agree there will always be a home for small service centers filling geographic or specialized product niches, however. It is important to remember that bigger is not necessarily better, points out analyst Brett Levy of Jefferies & Co. “A service center is about service, not size,” he notes
Methodology
To rank the Top 50, Metal Center News conducted a fax survey in July and August of the magazine’s largest subscribers. Nonrespondents were contacted by telephone. Where available, secondary sources were used to verify information. In most cases, figures from privately held companies are presented without independent confirmation. Companies are ranked based on total revenues for 2005, the last completed fiscal year.
