Economy
Pappalardo: Metals Market’s Ripe for M&A
Written by Tim Triplett
March 28, 2018
The metals market in the United States is ripe for mergers and acquisitions in 2018 and 2019, reported investment banker Vincent Pappalardo, managing director of Brown Gibbons Lang & Co., who spoke at the S&P Global Platts steel conference March 20 in Chicago.
Valuations are up across the board. Family-owned firms that missed the opportunity to sell in 2006 before the crash are anxious to finally cash out. “Pricing is good, and the baby boomers are ready to retire,” he said.
He highlighted four factors driving M&A:
- Mature industries have limited opportunity for organic growth. Acquisitions offer a means to exceed the market growth rate.
- Buying into a market gives quick access to new customers and helps diversify a company’s business. Acquiring new customers can help “smooth out” supply cycles across a diverse portfolio of end markets.
- Where the competitive landscape consists primarily of small to medium-sized companies, M&A can be a big differentiator, giving early consolidators a first-mover advantage by building scale and establishing barriers to entry. The service center sector is particularly fragmented, Pappalardo noted. The top five service centers hold less than a 10 percent share of the distribution market. “There’s still a lot of consolidation that needs to happen there.”
- The lower federal corporate tax rate is also an incentive to buy. Acquire a company today, get the cash flow tomorrow, benefit from the lower tax rate right away. “The tax code is helping the M&A market, at least for the short term,” Pappalardo said.
Several factors inhibit M&A activity, however. Lingering uncertainty over the Section 232 tariffs, unresolved issues in the NAFTA negotiations, and the potential for further tax law changes tend to give buyers pause. An acquisition target must also offer just the right strategic fit, at the right price.
“There’s lot of volatility in the market right now, which makes it difficult for people to make decisions,” Pappalardo added.
Tim Triplett
Read more from Tim TriplettLatest in Economy
New York state manufacturing falls back into contraction
After a brief pickup in September, manufacturing activity in New York state retreated into contraction, according to the October Empire State Manufacturing Survey.
Dodge Momentum drops on moderating data center growth
Slowing growth in data center planning caused the Dodge Momentum Index (DMI) to pull back in September. The decline followed five months of growth after the index hit a two-year low in March.
US construction spending drops again in August
Construction spending in the US declined for a third month in August but showed an increase year over year (y/y). The US Census Bureau estimated construction spending to be $2.131 trillion in August on a seasonally adjusted annual rate (SAAR). While this was 0.1% below July’s revised spending rate, it was 4.1% higher than spending […]
ISM: Manufacturing contracts again in September
US manufacturing activity contracted for the sixth consecutive month in September, according to the latest report from the Institute for Supply Management (ISM). The index has indicated a contracting industrial sector for 22 of the past 23 months.
Chicago Business Barometer remains gloomy in September
The Chicago Business Barometer increased marginally in September but continues to indicate deteriorating business conditions.