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M&A activity downshifts in tough economy.

Article Excerpt
IN EACH OF THE LAST TWO YEARS, I have written in this column about the level of merger and acquisition activity in the service center industry, the rationale behind transactions and the valuations realized by those selling their companies. The thesis for these articles was that changes within the steel supply chain continue to reward larger companies, and that valuations and the availability of capital made transactions attractive to both buyers and sellers alike.

Much has changed in the last year.

While many service centers still need to grow by way of acquisition, valuations are lower and bank capital in support of transactions remains difficult to access for even well-capitalized companies. In light of these changes, many potential sellers feel the current environment is unfavorable for a transaction and are postponing the sale of their businesses.

While the current market presents challenges for any transaction, the reality is that opportunities to sell remain positive for owners of good businesses.

Valuation observations

The value of North American public service centers is much lower than last year. In January 2008, major public service centers were valued...

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