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Why inorganic growth is important for Reliance Steel

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Inorganic growth 

Reliance Steel and Aluminum (RS) grew tremendously over the years. This has been possible due to organic growth. It was also due to a set of acquisitions to enhance shareholder value.

Growth that’s achieved through acquiring other companies is referred as inorganic growth. Investing in new plants and equipment—to enhance the production capacities—is referred as organic growth. RS completed two acquisitions in the third quarter.

acquisitions

Reliance steel completed two acquisitions in the third quarter

The previous chart shows the two acquisitions that RS completed in the third quarter. RS acquired the following companies:

  1. Northern Illinois Steel Supply Company (or NIS)
  2. Aluminium Services UK Limited (or AMS)

NIS fabricates and distributes value-added metal products. It was founded in 1961. It’s located in Illinois. It had revenues of ~$20 million in 2013. NIS compliments Reliance Steel’s focus to acquire companies that offer value-added services.

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AMS provides international exposure to RS. AMS has five locations in the United Kingdom. It also has operations in France, China, and Malaysia. AMS supplies the aerospace and defense industries. The aerospace industry is growing at a steady pace. Alcoa (AA) is a key supplier for the aerospace industry.

Acquisitions benefit Reliance Steel

Through acquisitions, RS has grown to become the largest metal service center in North America. Due to its large size, RS can negotiate with primary metal producers for better pricing. Kaiser Aluminum (or KALU) gets almost a quarter of its revenue from RS. More than 2.5% of U.S. Steel Corp’s (X) revenues come from RS. This makes RS a key customer for these companies.

In the next part of the series, we’ll discuss why RS could be an interesting play in the diversified metals industry.

Investors can also access the metals industry through the SPDR S&P Metals and Mining ETF (XME). Currently, Nucor (NUE) is the largest holding of XME.

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