2011 Executive of the Year
Macsteel Service Centers USA
In the wake of Klöckner & Co.’s recent acquisition of Macsteel Service Centers USA, which it is merging with Namasco, Michael Hoffman looks back on his long career as Macsteel’s leader and forward at the prospects for the combined company.
By Tim Triplett, Editor-in-Chief
With its founding parent based in South Africa, and its recent acquirer based in Germany, Macsteel Service Centers USA reflects the ongoing globalization of the steel industry. Likewise its dynamic chief executive, Michael Hoffman, is truly an international businessman who brought a global vision to a U.S. service center, making it one of the largest and most successful in the nation.
Each year, Metal Center News recognizes an individual whose career and business strategies represent a model for the rest of the industry. This year MCN is pleased to honor Michael Hoffman of Macsteel Service Centers USA, now deputy chairman of the Macsteel Group and vice chairman of Klöckner USA Holdings.
Hoffman, age 64, is a native of Cape Town, South Africa. A chartered accountant, he worked for a short period in the accounting and finance profession in the 1970s before joining Israel Aircraft Industries. He returned from Israel to South Africa in 1983 and joined Gulf Steel, a wholly owned subsidiary of the Macsteel Group. He was named managing director of Gulf Steel in 1984. In 1991, he became deputy chairman of the Macsteel Group and took over management of the company’s U.S. operations with responsibility for Macsteel’s global service center activities.
The company’s roots reach back to 1949 when the Samson family founded a trading operation known as Pan Africa Staalhandel. Son Eric Samson saw opportunity in steel distribution and set out on his own, founding Machanick Steel & Fencing, which later became Macsteel. Under Samson’s leadership, the company has expanded internationally with vast interests in steel trading, shipping and distribution. Today, Macsteel Holdings, based in Johannesburg, is one of the largest privately held enterprises in the world. Samson remains its owner and chairman, and a mentor to Hoffman, among others.
Macsteel began opening service centers in 1969. It expanded to the West Coast of the United States with the 1983 acquisition of Ferro Union, Torrance, Calif. Starting in 1995, Macsteel entered a joint venture with Usinor Sacilor’s U.S. distribution unit, Edgcomb Metals, and subsequently acquired Edgcomb entirely, expanding its presence on the East Coast and in the Midwest.
Switzerland’s Duferco sold Baldwin Steel Co., based in Laurence Harbor, N.J., to Macsteel in 2002, and Britain’s Corus Group sold Regal Steel Supply, Stockton, Calif., to Macsteel in 2003. In 2005, the company purchased Hokin-Katz, a service center in Los Angeles. Earlier this year, Macsteel acquired Steel Coil Services, Catoosa, Okla., from U.S. Steel Corp.
Over a 28-year period, 20 of them under Hoffman’s leadership, and with the backing of Macsteel Global, Macsteel Service Centers USA grew into a full-line distributor and processor of carbon steel, stainless steel, aluminum and specialty products of all types with 1,200 employees at 32 locations and annual revenues over $1.3 billion. The company was ranked No. 8 in the 2010 Metal Center News Top 50 ranking.
So it had to be an odd feeling to be on the other side of the transaction earlier this year when Macsteel opted to sell its U.S. operations to Germany’s Klöckner & Co. The merger of Macsteel USA and Klöckner’s Namasco subsidiary creates the nation’s third-largest full-line service center organization behind only Reliance Steel & Aluminum Co. and Ryerson.
Hoffman is no longer responsible for day-to-day operations of service centers in North America, since those are now run by Klöckner and Namasco. He continues to oversee service center operations for Macsteel’s holdings in other parts of the world, however, as deputy chairman of the Macsteel Group. He is also vice chairman of Klöckner USA Holdings and remains involved with the merger of the Macsteel and Namasco operations.
Macsteel’s decision to divest had nothing to do with economic conditions or the company’s financial health, Hoffman says. “It was not driven by the economy in any way. Ours is a very successful, stable, profit-producing business.”
Rather, it was driven by the desire to take the enterprise to the next level, to increase its product range and make it one of the market leaders. The owners of the privately held company also had “a desire to monetize assets,” he says.
To achieve that goal, management spent the last two years considering all the alternatives: mergers, acquisitions, a public stock offering or private equity funding. It was an inquiry from Klöckner in October 2010 that tipped the scale, Hoffman says. “They thought the combination of Macsteel and Klöckner would create a very powerful entity in the USA. When we examined their geographic spread and product strength, we came to the identical conclusion that this was a perfect fit.”
As big as Macsteel is on the global stage, Klöckner is even bigger. Klöckner is the largest producer-independent distributor of steel and nonferrous metal products in the European and North American markets combined, with about 250 locations in 15 countries. Klöckner agreed to pay about $900 million for Macsteel’s U.S. holdings, including $600 million in cash plus assumed debt.
The merger, effective May 1, corrects both companies’ weaknesses, Hoffman explains. Macsteel was strong in carbon flat-roll and pipe, but less so in structural steel and plate. Namasco just the opposite. “So from a product standpoint, this was the perfect marriage. There was very little overlap from a competitive point of view, but a substantial opportunity in combining and expanding efforts from a geographic point of view.”
Some mergers among companies based in different parts of the world suffer from cultural differences, but to call Klöckner German and Macsteel South African is to miss the point. Both companies are truly multinational. “Namasco is very much a USA company run by USA management, just like Macsteel. The Klöckner Group can hardly be described as German, since it has branches all over the globe. It is a German-owned company, but it is truly a multinational conglomerate, as is Macsteel. The cultural differences at an ownership level are not that great,” Hoffman says.
Far from being a disadvantage, having a global perspective has been invaluable to both companies. “As a result of our global spread, Macsteel Service Centers USA has always been well informed on trade developments. It gave us a leg up in our markets for all products,” Hoffman says. “Klöckner has a similar network that helped the Namasco group in the U.S.”
The combined company plans to unify its brand under the Klöckner name. “It’s a hard choice because we have two extremely well-known international brands,” Hoffman says. But Klöckner was the acquirer, they have more branches, and they are now a bigger multinational service center organization. “Klöckner is substantially larger in service centers than Macsteel, and therefore the logical choice is Klöckner,” he adds.
Future growth plans in North America will be based on careful assessments of three factors: geography, product coverage and processing capacity. “The primary objective of any company is adding wealth to its shareholders, and you will not do that by simply adding critical mass,” Hoffman says. “You need a cohesive, organized plan based on a strategic sense of what is going to add value.”
At present, the companies are busy integrating their operations, but future acquisitions are not out of the question, he says. “This deal gives us the national coverage we sought to achieve, but we are not going to say that’s it. On the contrary.”
Hoffman on Macsteel and Leadership
When Michael Hoffman took over the management of Macsteel Service Centers USA in 1991, its volume was less than 250,000 tons a year. Upon its recent sale to Klöckner, the company had a turnover of about 1.4 million tons—nearly a six-fold increase. “We are proud of that. I have been extremely fortunate and privileged to work with a great team of people,” Hoffman says, emphasizing that Macsteel’s success has been a joint effort, so much so that he is reluctant to single out any individuals for praise. “To mention one I would have to mention 21.”
He made an exception for his boss Eric Samson, the founder, chairman and owner of Macsteel Global, who has played such an intimate role in his personal advancement and success. “Eric Samson has always been a source of great inspiration and support, not only to me but to all Macsteel executives and personnel,” Hoffman says.
Macsteel Global is a private company, so Hoffman would not comment on its revenues. But with over 10,000 employees in almost every country in the world, “it’s huge,” he says. While it is true Macsteel’s parent had deep pockets, which was an advantage as the company sought growth, it always treated Macsteel USA as a separate and self-sustaining entity. “We were a USA company with USA management, a USA board, USA bankers and auditors and USA corporate governance. We were always a USA business,” Hoffman says.
Macsteel USA was hit hard by the economic downturn, he admits. “We lost money like everybody else, but less money,” Hoffman says. The company acted quickly to cut the fat—without damaging the muscle. That included some reduction in force, but no rationalization of facilities. “Macsteel did not close any facilities that would not have been closed anyway,” he says. “We went ahead with a normal realignment, and actually opened and expanded other facilities during that time.”
The company is not yet in an aggressive hiring mode. Like so many others, it has learned to do more with less, he says. “In the process of examining our health critically, we became more innovative about the way we do things. The service center industry overall has become more focused on being low-cost value-adders,” he notes.
Under Hoffman’s guidance, Macsteel has cultivated unusually close ties with key suppliers. “We have always devoted ourselves to intimate relationships with our suppliers. We have a selected number of core steel suppliers with whom we have almost partnership type arrangements, arrangements which are tried and tested over many years, built on mutual respect and understanding. They know they can depend on our support and we can count on theirs.”
Hoffman points to several other aspects of the management philosophy that have contributed greatly to his company’s success. They include a culture of togetherness. An atmosphere that encourages innovative thinking and promotes active discussion, even dissent, at every level. And a flexible reward system based on profitability. “When a company does well, everyone who works for it should do well, too,” Hoffman says.
Despite Macsteel’s large size, Hoffman has always been a hands-on manager. He gives his people decision-making authority and opportunity, but always shares the accountability. “No one who works for me will ever be left with the sense they are being blamed for an act that was less than perfect. It would have been our act, and I would share that responsibility, no matter what,” Hoffman says.
Hoffman has had the chance to observe service center consolidation from the inside, as both a buyer and seller, and from the outside as chairman of the Metals Service Center Institute for 2011-12. He also has a world view of the trend, which he considers positive. “We are still a highly fragmented industry, and I don’t expect that will change in the near future. That provides opportunities for further consolidation as regional players either go away or become bigger, and opportunities for national chains to seek regional dominance by acquiring those players,” he says.
Surprisingly, he considers economic conditions to be of secondary importance. “Generally speaking, in my experience, it’s bad times that create opportunities. The bad times are the best times to examine the possibilities to acquire businesses and merge them.”
In European countries, the industry is much more concentrated. Metals distribution tends to be dominated by just a handful of major groups, most of them affiliated with a major producer. Klöckner, he notes, is the exception to that rule as an independent service center chain with facilities all over Europe.
Many service centers in the United States have been family owned for generations and that is not about to change, Hoffman says. “The business is part of the family psyche. Whether or not it is super efficient or super profitable is actually of secondary importance to many of these people, whose children and grandchildren work in the family business. It’s a way of life and they are not going to give it up.”
Such family loyalty and entrepreneurship is one of the factors that makes this country great, but will keep the service center industry fragmented for a long time to come, he adds.
Macsteel Service Centers USA
888 San Clemente Dr., Suite 250
Newport Beach, CA 92660
2010 Revenues: $1.3 billion, 1.2 million tons
Klöckner (former Namasco HQ)
500 Colonial Center Parkway, Suite 500
Roswell, GA 30076
Phone: (678) 259-8800
Est. 2011 Revenues: $3.0 billion, 3.0 million tons
As the 15th recipient of MCN’s Service Center Executive of the Year Award, Michael Hoffman joins an illustrious group of past honorees:
n Michael Siegal, Olympic Steel, Bedford Heights, Ohio
n David Hannah, Reliance Steel & Aluminum Co., Los Angeles
n Norm Gottschalk Jr., Marmon/Keystone Corp., Butler, Pa.
n Al Glick, Alro Steel Corp., Jackson, Mich.
n Sandy Nelson, Earle M. Jorgensen Co., Lynwood, Calif.
n Arnold Tenenbaum, Chatham Steel Corp., Savannah, Ga.
n Bud Siegel, Russel Metals Inc., Mississauga, Ont.
n Dave Lerman, Steel Warehouse Co., South Bend, Ind.
n Bill Jones, O’Neal Steel, Birmingham, Ala.
n Don McNeeley, Chicago Tube & Iron Company, Romeoville, Ill.
n Wayne Bassett, Samuel, Son & Co. Ltd., Mississauga, Ont.
n Gary Stein, Triple S Steel, Houston
n Mike Petersen, Petersen Aluminum Co., Elk Grove Village, Ill.
n Richard Robinson, Norfolk Iron & Metal, Norfolk, Neb.