There is no steel distribution business quite like the one operated by the Douglass family.
In 2018, the family-run LexCentral Steel celebrated its 50th anniversary. The business, founded
in Bedford Park, Ill., as Lexington Steel, has since grown to include facilities in Los Angeles and Houston. The companies specialize in flat-rolled steel processing and distribution.
But that’s just part of the story. Because the Douglass family, which includes LexCentral CEO Robert Douglass and sons William and Paul, is also involved in Union Partners, the Chicago-based holding company that has become one of the fastest-growing enterprises in the steel distribution sector.
LexHoldings Corp. and Union Partners operate out of a single office in Oak Brook, Ill. The companies share some operations, such as human resources and information technology, while continuing to operate separately in other facets of the business. It sounds like a tricky balance, but LexCentral President William Douglass seems unfazed by the unique nature of the operation.
“We’re not consolidating companies, but we do have some back office stuff like HR that we consolidated this year. That makes my job easier. I don’t want to worry about finding the next inside sales guy,” he explains.
The next stage in merging those back-office operations is bringing all of the affiliates’ insurance programs under one umbrella. But given the varying policy end points, it’s going to take more time than it did with HR.
On the other hand, the companies remain distinct when it comes to operations. They’re not selling off each other’s capacities. And while Lex will use the toll processing capabilities of some of UP’s holding companies, it is treated as any other customer, rather than a preferred sibling.
“Chicago Steel is a toll processor, and I use them, but there’s got to be a wall there. We can’t take over a line,” he says.
Additionally, there’s not much overlap in markets for any of the enterprises in either company, so there’s very little sales competition. “Some companies that did a lot of acquisitions in the past, they had sales guys undercutting one another. We try not to overlap. We may do acquire another service center that does what Lexington does, but only in another part of the country that gives us more depth,” William Douglass says.
One benefit of the growth of the entire enterprise comes in purchasing. “It’s helped us a steel buyer, there’s no question about it. If you’re a mill, we’re almost to the point where we can buy nearly anything you can make. We’ve always had good mill relationships, but this has done nothing but help it,” he says.
An example of the value of that increased buying power comes when the company finds a seller looking to offload a large quantity of steel. For instance, in the past if he heard of a boat of steel with 10,000 tons, Douglass would have to find other steel buyers to go in with him on a purchase. With the spread of the company, he no longer has to do that. “You can take positions a lot quicker.”
Still, the halves of the operation are growing in much different ways.
Over the past year, Union Partners has probably been the most active player in service center mergers and acquisitions, picking up a variety of companies serving different niches. In 2018, the company acquired electrical steel specialist Lamination Specialties Corp., Canadian service center and toll processor Maksteel and Xcel Steel’s pickling operations in Detroit.
But the company’s biggest splash to date was the mid-2018 purchase of Contractors Steel, annually one of the largest distributors in North America with five Midwestern locations. The Livonia, Mich.-based company, formerly operated by 2015 Service Center Executive of the Year Don Simon, is a full-line carbon steel service center.
Recently, Union Partners appointed industry veteran Steve Letnich to serve as CEO of Contractors Steel. “There are tremendous growth opportunities that lie ahead for the company. Steve’s reputation, proven track record, and experience in the industry positions Contractors and their customers to capitalize on these opportunities and realize even more success in the future,” says Chris Sekella, EVP-U.S. Operations for Union Partners.
Though Letnich is an outside hire, the decision to put the organization in his hands is consistent with the company philosophy of allowing local management of the individual operations it acquires.
Union Partners, co-founded by Paul Douglass and Chris Hutter, was ideal for this kind of expansion. “We created a holding company because that’s the best way to grow. You can bring in different investors at different times, depending on what you’re trying to do,” William Douglass says.
“It’s been a good situation all the way around. They continue to be active. There is always stuff in the pipeline. Some deals take years to do and others happen quickly,” he adds.
In contrast, LexCentral is pursuing more internal growth efforts. The company is poised to significantly upgrade its equipment portfolio. Company executives have spent the past year in discussions with various slitter manufacturers, weighing their options for one of the company’s largest equipment upgrades to date.
Currently, LexCentral can slit material up to 3/16 inches. The plan is to expand up to expand up to 1/4-inch material. The slitter will offer shape correction as well.
“The other side of it is just to bring a massive amount of efficiencies,” Douglass says. “The idea is to get in and out of jobs. The days of putting five or six coils on a set-up and running it are over. Everything is on and off. It’s changed the nature of processing. How do you get in and out of jobs quicker? That’s really the ball game.”
Further equipment investments will likely follow, including a complementary slitter and a move into multiblanking.
The Douglass family purchased Lexington Steel from the founding Maroscia family in 1990, with Robert Douglass assuming the leadership along with his sons and Tim McFarland. The company expanded to Southern California with LexWest in 2000. Paul Douglass serves as president of LexWest and COO of the LexGroup.
Later, the company grew again, this time to the Houston market with the creation of LexSouth Steel.
Beyond steel, the company also invested in transportation. In 2008, LexCentral created Douglas Logistics, a trucking company to serve the company’s needs. “That’s turned into a major advantage for us. We deliver our own steel and have control of our own trucks. Because of the trucking company, we’ve truly been able to be JIT,” William Douglass says.
Transportation has also been a driver in keeping LexCentral rooted in Chicago. “A lot of our competitors have moved to Indiana, because Illinois is not the most business-friendly. But the 80-94 corridor is a major impediment to serving customers. Being on this side of that bottleneck, I get an extra shipment per day.”
All of that goes back to the idea that the distribution market, and its customers, have changed.
“If we can turn steel into a time-sensitive market, we win. And this place is built for that,” William Douglass says.