From the Editor
By Tim Triplett, Editor-in-Chief
Industry May Be Consolidating,
But Keep the Trend in Perspective
To say that the service center industry is consolidating is to suggest that it is getting smaller. Certainly hundreds of service centers have changed ownership in the past few decades, and undoubtedly such mergers have resulted in some rationalization of facilities. But there have also been untold expansions and startups at the same time. Economy aside, the industry remains robust and dynamic. Is consolidation a misnomer?
“We get this question a lot: Are you really consolidating if you acquire a company like EMJ with 40 locations, and today they have those 40 and 10 more?” says Dave Hannah, chairman and CEO of Reliance Steel & Aluminum Co. in Los Angeles.
The way he describes the term consolidation, it’s less about the number of facilities and more about the number of decision makers. “Consolidation is the discipline that comes from having fewer owners out there, and fewer players to muddy up the market. Companies like Reliance can bring new products, more inventory and greater processing capability to a market and make it operate more efficiently. Bringing added value to customers is good for the marketplace overall and makes for a healthier industry,” he says.
Lonnie Terry, president and CEO of the North American Steel Alliance, has witnessed the consolidation of the industry from the vantage point of both service center executive and head of the industry’s largest buying cooperative. NASA gives small and midsize service centers collective buying power that helps them compete with larger rivals. Over the years, mergers involving NASA members have caused companies to leave the group, but there are always others looking to join, he says. “Every time we talk about consolidation, we think the number of competitors is going to diminish, but it just hasn’t. The number of people who fit into our model has not changed in the last 15 years,” he says.
Everyone agrees the service center industry remains highly fragmented. The Top 50 service center companies, ranked in this issue, still account for less than 40 percent of a total market estimated at $120 billion to $130 billion. Small, independent entrepreneurs still command the majority of the metals distribution business.
Here’s some simple math to put service center M&A in perspective. It’s primarily the larger companies that are driving the trend. Let’s say they account for half of all the deals. Even if every company in the Top 50 made one acquisition every year, in a market with an estimated 2,000 to 3,000 competitors, “consolidation” theoretically could go on for another 25 years.