Reliance Steel & Aluminum Co. (RS:US), the largest U.S. metals-servicing center company, said it was looking to increase the size of its acquisitions to $500 million or more to expand its business in North America.
Reliance has an $800 million revolving credit line that can be used to fund acquisitions, which may bring an additional $2 billion of revenue, David Hannah, chief executive officer of the Los Angeles-based company, said in a telephone interview yesterday. Acquisitions have accounted for 85 percent of the company’s growth since it went public in 1994, he said.
“It’s more meaningful to our operations and our numbers if we can add 20 cents or 50 cents to earnings per share, as opposed to something that adds 2 or 3 cents,” Hannah said.
The company made six (RS:US)deals this year that will collectively bring in around $200 million in revenue, Hannah said. It will continue to buy smaller companies of $50 million to $200 million in revenue, as they comprise a large part of the industry, he said.
Reliance made two deals of around $1 billion each in 2006 and 2008, according to data compiled by Bloomberg.
Metals-servicing centers process and distribute metals. Reliance’s largest market is non-residential construction, which hasn’t recovered since the financial crisis four years ago, Hannah said. Other markets such as the auto, aerospace and energy industries are seeing growing volumes and spurred 400 new hires this year, Hannah said.
Hannah declined to say what Reliance’s next acquisitions targets were.
“Reliance has shown an ability in the past to consolidate the distribution space and to remove costs and improve inventory returns at those acquisitions,” Arun Viswanathan, an analyst at Longbow Research in New York, said in a phone interview yesterday.
A.M. Castle & Co. (CAS:US), a metals-processing company with revenue of $1.13 billion last year, could be a good fit for Reliance, Viswanathan said
“A.M. Castle with its aerospace mix would make sense for them,” Viswanathan said. “If you talk to Reliance about them, they know everything, so they’re probably looking at that one.”
Reliance had $120.6 million of cash and cash equivalents at the end of September, the company said in its third-quarter earnings statement.
The biggest challenge this year for metals-service centers was volatile steel prices, Hannah said.
“You just don’t see long periods of time anymore where prices continually go up and down,” he said.
Steel imports rose in the U.S. as other large economies like Europe and China falter in comparison, Hannah said, which hurt mill suppliers and devalued inventories in the service-center industry.
Reliance rose 0.3 percent to $54.93 at the close in New York. The shares (RS:US) have gained 13 percent this year.
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