One Tennessee processing plant gobbled up by Reliance Steel & Aluminum Co. – a company worth $4 billion – might not be noteworthy on its own.
But that acquisition, announced last week, and another one in February could signal the downtown L.A. company is returning to an aggressive acquisition strategy after taking a break during the recession.
In 2007, Reliance acquired five metal-processing and sales companies with combined annual revenue of about $600 million. The following year, it acquired three more with combined sales of more than $2 billion.
But the company made no acquisitions in 2009, two relatively small acquisitions in 2010 and one large acquisition last year. Already this year, the company has announced plans to acquire McKey Perforating Co. Inc. in New Berlin, Wis., and to purchase a Vonore, Tenn., plant owned by Worthington Industries Inc. of Columbus, Ohio. More acquisitions are likely on tap.
Reliance, which operates metal-processing and distribution centers worldwide, has acquired nearly 50 firms in the past two decades, most of them small companies that approached Reliance.
During the recession, those solicitations dried up, said Kim Feazle, the company’s director of investor relations.
“During the recession, privately held companies did not feel comfortable talking to us,” she said. “We knew after the recession went away, people would start coming to us again.”
Feazle would not say Reliance is pursuing other specific acquisitions, but said there are now “a lot more possibilities.”
Reliance stock rose slightly after the March 26 announcement of the Tennessee acquisition. Shares closed March 28 at $56.42.
In a research note prepared after the February announcement of the McKey acquisition, analyst Michael Gambardella at J.P. Morgan Chase Bank in New York wrote that more acquisitions are good news for Reliance investors.
“Recent acquisitions as well as potential future ones should be an additional catalyst for earnings given the company’s solid track record of making accretive acquisitions and having them prosper under new ownership,” said Gambardella, who rates Reliance stock a “buy” with a target price of $63.
Ban in the Bag
Makers of plastic bags took their latest hit last month when an L.A. judge ruled a Los Angeles County ban on plastic bags does not violate the state Constitution.
The ban, which took effect in July for large stores and in January for smaller ones, prohibits stores from handing out plastic bags and requires them to charge a 10-cent fee for paper bags. The Board of Supervisors adopted the ban in 2010.
National bag maker Hilex Poly Co. of Hartsville, S.C., had argued the fee on paper bags is a tax and violated a California constitutional amendment that requires local taxes to be approved by two-thirds of local voters. But county Superior Court Judge James Chalfant ruled that the paper bag fee is not a tax because the money is neither collected nor spent by the county.
Hilex Poly has said it plans to appeal the ruling.
“By imposing a bag tax on its residents without a public vote, L.A. County violated the Constitution, and we are confident in our case as it moves to the appellate courts,” said Mark Daniels, a Hilex Poly vice president.
While the county ban doesn’t impact the vast majority of county residents, bag makers, including local companies Crown Poly in Huntington Park and Command Packaging in Vernon, worry that the growing number of bans in Southern California and other parts of the country will gradually erode the market.
Companies are especially concerned about a Los Angeles city ban that could be approved this year. If the city moves ahead, it would be the largest city in the nation to ban plastic bags.
Seeing the Light
Hawthorne’s OSI Systems Inc. gets press mostly for its airport scanners and other security equipment, but last week the company announced federal approval of a new medical device and robust orders for its electronic components.
The company said last month that $5 million worth of electronic assemblies made by its optoelectronics division, which specializes in devices that sense and control light, have been purchased by makers of digital imaging and therapeutic equipment. Names of buyers were not disclosed.
The new medical device, the Arkon anesthesia delivery system, will let doctors better monitor patients under anesthesia, according to a company statement. OSI announced March 26 that the Food and Drug Administration cleared the company to start marketing the system.
Just a few years ago, OSI brought in nearly equal amounts of revenue from its security and health care segments, with optoelectronics not far behind. But security revenue has grown much faster, now representing nearly half of company income.
That trend is expected to accelerate over the next few years as OSI starts realizing revenue from recent security service contracts in Puerto Rico, Mexico and elsewhere. Through those agreements, OSI will operate security systems rather than simply sell equipment.
Jeff Martin, a senior analyst at Roth Capital Partners in Newport Beach, said those contracts will grow OSI’s security revenue by 50 percent or more over the next few years.
“With Puerto Rico and Mexico fully running, those combined are probably $170 million, $180 million in annual revenue,” Martin said. “The other segments just can’t grow that fast.”
Staff reporter James Rufus Koren can be reached at [email protected] or at (323) 549-5225, ext. 225.
