Reliance Steel & Aluminum Co.: Forging New Business Paths

Acquisitions help propel metals producer to record year in 2007.

Done right, acquisitions can help a company better position itself for growing or changing markets. That's been the thinking for quite some time at Reliance Steel & Aluminum Co., one of IndustryWeek's Top 50 Manufacturers for 2007. Last year the Los Angeles-based company made a whopping five acquisitions in different sectors of the metals production industry, topped off by a sixth earlier this month.

Of course, acquisitions also can be somewhat risky endeavors. But for Reliance the risks seem to be paying off pretty well. The company reported a record $408 million net income for the 2007 fiscal year, up 15% from 2006. According to the last annual report, both the five acquisitions completed during 2007 and the results from two additional acquisitions in 2006 contributed to the record numbers.

"We are very pleased to report our record results for 2007, especially in light of the volatile market conditions throughout the year," Reliance chairman and CEO David Hannah said in a statement. "Gross profit management was our most difficult task and we handled it well, finishing the year down only slightly from the 2006 level. For the 2007 year, both our volume and average prices were up compared to 2006, driven mostly by our 2006 and 2007 acquisitions."

Reliance started its buying streak with two successful acquisitions back in 2006, but kept going strong in 2007 adding Encore Group Ltd. (despite deciding to sell off its coils business in January), Crest Steel Corp., and Industrial Metals and Surplus Inc. as new subsidiaries early in the year.

Wood Dale, Ill.-based Clayton Metals Inc. followed last July, providing Reliance with new expertise in processing and distribution of aluminum, stainless steel and red metal flat-rolled products, custom extrusions and aluminum circles. Hannah said the addition of Clayton Metals provided "further diversification of the business that brings new products and customers in important geographic areas."

In order to help expand its European presence, Reliance also acquired England-based Metalweb plc in October 2007 to operate as a subsidiary. Established in 2001, Metalweb specializes in the processing and distribution of primarily aluminum products for nonstructural aerospace components and general engineering parts used in high-end industrial applications.

Most recently, Reliance announced on April 1 (no, it wasn't a prank) that it had made its first acquisition of 2008: Bristol, Conn.-based Dynamic Metals International LLC, a specialty metal distributor that posted revenues of approximately $11 million in 2007. As part of the deal, Dynamic will operate as a subsidiary of Service Steel Aerospace Corp., another Reliance subsidiary headquartered in Tacoma, Wash.

While Reliance's acquisitions have certainly garnered much of the attention, the company hasn't lost focus of its existing subsidiaries such as Valex Corp., in which the company holds a 97% stake. The company recently opened a new 24,000-square-foot facility in China to produce ultra high purity tubes, fittings and valves for the semiconductor, LCD and solar industries.

Reliance Steel & Aluminum Co.
At A Glance


Reliance Steel & Aluminum Co.
Los Angeles, Calif.
Primary Industry: Primary Metals
Number of Employees: 8,600
2006 In Review
Revenue: $5.75 billion
Profit Margin: 6.17%
Sales Turnover: 1.59
Inventory Turnover: 6.55
Revenue Growth: 70.54%
Return On Assets: 20.04%
Return On Equity: 34.42%

The facility will be the first Valex manufacturing plant based in China and will position the company to improve its already significant share of the growing Asian market. Valex Corp. also has operations in Ventura, Calif., and South Korea.

"This new facility will allow us to expand our market share in this fast-growing market by offering localized production and enhanced services to our customers and also increases our existing global presence," Hannah said in a statement.

Reliance will be hosting a live broadcast of its 2008 first quarter conference call over the Internet on April 17 at 11 a.m. Interested parties can click this link to tune in: www.rsac.com/investorinformation. The Web cast will remain posted online through May 17.


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