AZZ back on the hunt for M&A in the galv space

The call was held to discuss financial results released on Wednesday, in which AZZ reported strong earnings in the first half of its fiscal year.

M&A

Executives said the company’s growth during its first half was “entirely organic.”

But, after taking some time off from M&A to focus on debt reduction, AZZ is back to actively exploring inorganic growth opportunities, especially in the galvanizing sector.

“We continue to evaluate bolt-on acquisitions to add inorganic growth in each” of its two segments, Metal Coating and Precoat, said Tom Ferguson, president and CEO.

“Within the galvanizing sector, we’ve got a lot of open space out there,” he commented.

AZZ is considering acquisitions in regions where it lacks a significant presence, with Ferguson mentioning the Northwest and Southeast US. It’s also interested in opportunities involving multi-site acquisitions and expects to be active if the right deals arise.

“On the galvanizing side, there’s pretty much nothing that’s off the table,” he noted.

Ferguson said the company is disciplined when it comes to taking market share. Noting its market share on the galvanizing side is ~35%, he said there is more opportunity on the Precoat side.

“We plan to remain patient while evaluating the best timing leverage and target valuations,” Ferguson added.

Recall that AZZ acquired Precoat Metals for $1.28 billion in 2022. The acquisition of the St. Louis, Mo.-based steel and aluminum coil coater added 13 manufacturing facilities, 15 coating lines, and 17 value-added processing lines to AZZ’s portfolio.

And that was just one of its purchases in a buying spree of coated metal companies that included Steel Creek Galvanizing, Acme Galvanizing, Tennessee Galvanizing, and others.

Zinc prices, hurricane recovery efforts

When asked about volatility in zinc prices, Ferguson noted that it tends to be easier for AZZ to raise its prices when zinc costs are fluctuating. While zinc costs could present headwinds in the future, he said there may also be opportunities to raise prices, especially as demand from hurricane recovery efforts picks up.

As rescue and recovery are still the focus in the areas recently ravaged by Hurricanes Helene and Milton, he said there will likely be a three- to six-month lag time on rebuilding work. Plenty of fabrication work will be available as those areas begin to rebuild the bridges, highways, signages, towers, and poles destroyed by the storms.

And with plenty of capacity available, “We stand ready to support the recovery and rebuilding efforts,” he said.

Outlook

Looking ahead, AZZ expects weaker results in the second half of its fiscal 2025 year due to the construction sector’s normal seasonal slowdown, winter weather in general, and the holiday season.

The company believes the Fed’s recent loosening of monetary policy will spur spending growth in the consumer and private sectors.

It remains optimistic about upcoming opportunities, particularly in data centers and electrical transmission.

Other general trends Ferguson noted that will continue to benefit AZZ include the “reshoring of manufacturing, the migration to aluminum and prepainted steel, as well as the conversion from plastics to aluminum in the container space.”