2020 PREVIEW: US M&A activity to mirror 2019

This year could look similar to 2019 on the merger and acquisitions front in the United States steel industry, with long products likely to be busier than flat products, according to analysts.

“People will get to doing deals [in 2020] much like [last] year - very selectively and where the strategic fit is right and they can bring some synergies to the table. I think that’s what is really going to drive deals. People want to continue to show growth,” Vince Pappalardo, managing director of investment bank Brown Gibbons Lang & Company, told Fastmarkets late in 2019.
More clarity on the political and trade front could boost the number of deals.
“I think things will pick up again as we get a better idea on where we expect the election to go and where the tariffs are expected to go,” Pappalardo added. “There’s a little bit of a hindrance on what the landscape is going to look like [this] year, so it’s a little trickier to predict [this] year’s activity. I believe it will be a strong M&A market.”
An increasing shift to electric-arc furnace (EAF) steelmaking should be another feature of 2020.
“What we’ve seen by way of consolidation is a clear embodiment of the material shift in the steelmaking operating footprint placed to take shape over the next five years, specifically consolidating the blast furnace footprint and more EAF production capacity that is poised to come online in the early part of this upcoming decade," Tyler Kenyon, vice president equity research analyst covering the metals and mining sector at Cowen & Co, said.
U.S. Steel (USS) plans to idle indefinitely “a significant portion” of its Great Lakes Works near Detroit, it said on December 19; Canadian steelmaker Stelco intends to take down its Lake Erie blast furnace in April 2020 for a full reline, it said on December 17.
“Everyone is trying to reposition themselves. It appears to be consolidation, for sure, but I think it’s just industry repositioning as the respective players respond to the investments that are being made,” KeyBanc analyst Philip Gibbs told Fastmarkets.
While there were two major buys in the long products sector in 2019 - Nucor acquiring Century Tube and Liberty Steel buying Johnstown Wire Technologies - smaller companies also made acquisitions to bolster their capabilities and expand into new markets.
“There could be some more consolidation on the long products side but I don’t sense that there will be a whole lot more M&A activity on the sheet side,” Kenyon said.
Listed below are 10 major steel mergers and acquisitions that were announced last year alongside some possibilities for 2020. They include consolidation on the integrated mills side and integrated steelmakers investing in EAF assets as well as service centers and steel mills moving further downstream via value-added businesses.
AK Steel merges with Cleveland Cliffs
The companies announced a $1.1 billion all-stock merger on December 3 that is set to close in the first half of 2020. Iron ore miner Cleveland Cliffs will own steel mills for the first time in its 172-year history. There are also plans to produce pig iron at the closed Ashland Works facility in Kentucky.
“We see the deal creating a more viable and competitive steelmaking enterprise, preserving LT pellet offtake for [Cliffs] and potentially tightening North American merchant pellet supply,” Cowen analyst Tyler Kenyon said in a research note.
USS seals the deal on Big River Steel
In October 2019, USS completed a $700 million deal for a 49.9% stake in Arkansas mini-mill Big River Steel. USS retains a call option to acquire the remaining 50.1% within the next four years.
According to USS president and chief executive officer David Burritt, the company intends to fully acquire Big River Steel within the next four years.
Olympic Steel acquisitions
Olympic Steel kicked off 2019 with acquiring assets of Ohio-based McCullough Industries, which specializes in branded self-dumping hoppers made of carbon and stainless steel, used for construction, food service and landscaping industries. In August, Olympic Steel acquired certain assets related to the manufacture of the EZ-Dumper hydraulic dump inserts, which are sold through a network of 100 dealers across the US and Canada. 
Nucor buys Century Tube and TrueCore
In April 2019, Nucor acquired the assets of Century Tube, a privately held maker of welded mechanical tubing for the automotive industry. Century Tube is a 280,000-square-foot mill on 33 acres in Madison, Indiana, that produces carbon steel tubing for auto applications along other mechanical and structural tubing.
Nucor Tubular Products will invest $27.2 million to increase production and finishing at its welded mill in Alabama. More recently, the company snapped up South Carolina-based insulated metal panel manufacturing company TrueCore for an undisclosed sum.
Liberty Steel acquires Johnstown Wire Tech 
In June 2019, Liberty Steel USA acquired the largest North American producer of value-added carbon and alloy wire, Johnstown Wire Technologies. Also in the company’s effort to capture a larger portion of the wire rod market in the US, it appointed Tim Dillon as senior vice president of sales and marketing. Dillon has specialized in long products and held positions with US Steel, GS Industries and Georgetown Steel.
Most recently, Liberty Steel is slated to buy Bayou Steel for $28 million - it was named the preferred buyer at an auction held on December 18 to purchase the Louisiana-based mill and its assets. Still, it is not clear whether Liberty will restart the mill. Bayou Steel's filed for chapter 11 bankruptcy in early October and its operations include an 800,000-tpy meltshop at its Louisiana facility and a rolling mill in Harriman, Tennessee, which produces steel beams, merchant bar, reinforcing bar and other structural steel products.
Russel Metals acquires City Pipe
Ontario-based Russel Metals acquired all outstanding shares of City Pipe & Supply for $160 million in August last year. This deal was part of efforts to expand sales of pipe, valves and fittings in the oil and gas regions in the US. City Pipe is based in Texas and operates in the Permian, Eagle Ford, Granite Wash, Barnett and Haynesville basins. In 2018, City Pipe & Supply moved into a larger warehouse and pipe yard at its Permian home base. The expanded facility enabled the company to make a bigger push into the upstream pipe market.
O’Neal Industries acquires tube maker
Alabama-based O'Neal Industries bought G&L Manufacturing, gaining two facilities that produce small-diameter welded tubing made of stainless steel, nickel alloys and titanium. G&L is headquartered in Tennessee and runs a second facility in Colorado. In 2017, O'Neal merged four affiliates to form a new division called United Performance Metals, whose inventory includes stainless steel, nickel alloys, cobalt alloys, titanium, aluminium and alloy steel.
Triple-S Permian Basin plans
In September, Triple-S gained ground in the Permian Basin of West Texas via the acquisition of assets of Shamrock Steel, the largest distributor of structural steel in the Permian where oil and gas production has accelerated. Most recently, the company announced its acquisition of Bushwick Metals to expand its footprint in the Northeast.
Merfish to acquire United Pipe & Steel
In efforts to form the largest master distributor of standard pipe in the US, Merfish Pipe Holdings acquired United Pipe & Steel in February last year. Merfish will add United Pipe’s 12 distribution centers in Massachusetts, Pennsylvania, Ohio, Indiana, Illinois, North Carolina, Texas, Kansas, Alabama, Florida and California to its footprint of five distribution locations. Gerald Merfish called the merger “synergistic” and United Pipe & Steel CEO Greg Leidner said the larger entity “will continue to develop ways to enhance the supply chain for our suppliers and customers.”
Alro Steel expansion plans
In February, Alro Steel purchased certain assets of metals distributor Riverfront Steel, including its 115,000-square-foot facility with all the inventory and equipment in the Ohio location. The company also began construction on a 195,000-square-foot facility in Wisconsin, with a completion date scheduled for early 2020, the company said. Alro acquired a 108,000-square-foot site, said to be a former Central Steel & Wire facility, near Milwaukee. In September, the company also announced it would expand its St. Louis facility by adding 54,180 square feet of space along with a new plasma cutting machine, new bay and additional racking to allow for expanded inventories of plate, sheet, alloys, stainless and more.

Elizabeth Ramanand

elizabeth.ramanand@fastmarkets.com

Published

Elizabeth Ramanand

January 07, 2020

12:45 GMT

New York