Steel Mills
SDI Eyes 'Strong' M&A Pipeline, Leery of 'Ludicrous' Valuations
Written by Michael Cowden
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.
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
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