Steel Mills

SDI Eyes 'Strong' M&A Pipeline, Leery of 'Ludicrous' Valuations

July 21, 2021

Steel Dynamics Inc. (SDI) is still in growth mode and actively looking at M&A options But don’t expect another new mill on the scale of the electric-arc furnace (EAF) flat-rolled mill being built in Sinton, Texas, company executives said.

SDI The $1.9 billion Sinton mill, which will have annual capacity of three million tons per year, is expected to start up its hot end in the fourth quarter.

“We don’t see a Sintonesque greenfield project on our horizon. (But) transactional activity, there could be something meaningful there,” SDI President and CEO Mark Millett said during a quarterly earnings call with analysts.

As for M&A, SDI has an “incredibly strong” balance sheet – especially after posting record second quarter earnings. And there is a “strong pipeline” of potential deals both for steel assets as well as for downstream manufacturing operations, Millett said.

Nucor, for example, recently announced a $370-million deal for Hannibal Industries, which makes racking and tubing products that are expected to see strong demand thanks to explosive growth in the warehouse sector.

But any deals might have to wait for valuations to come down to earth. “When you look at our experience of growth over the years, it’s always been very, very intentional,” Millett said. “It’s also very disciplined, and we won’t do a transaction at ludicrous numbers.”

Dan Sullivan, founder of independent M&A and strategic advisory firm Montrose Advisors, said during an SMU Community Chat last week that deal activity should rebound on pent-up demand. One speed bump: Valuations based on traditional factors such as EBITDA multiples could be more difficult for buyers and sellers to agree on given current record-high steel prices – and how sharply they vary from just a year ago, he said.

Case in point: SMU’s benchmark hot-rolled coil price stands at $1,850 per ton ($92.50 per ton). That’s up 88% from $985 per ton at the beginning of the year and up fourfold from $460 per ton a year ago, according to SMU’s interactive price tool.

By Michael Cowden, Michael@SteelMarketUpdate.com

Michael Cowden

Michael Cowden is editor-in-chief for Steel Market Update. Cowden has covered the steel industry since 2007. He specializes in flat-rolled steel but has also reported on steel long products, steel pipe and tube, and aluminum. Before joining SMU, Cowden held reporting jobs at Fastmarkets AMM in Chicago, the Associated Press in Pittsburgh, and the Cambodia Daily in Phnom Penh. He has also worked as a copy editor and in marketing at the University of Chicago Press. Cowden has a BA in English from the University of Chicago and an MSJ journalism from Northwestern University’s Medill School of Journalism. Contact him at michael@steelmarketupdate.com or 724-759-7872.