Metals Manufacturing Market Update – December 2024

Trade Regulations and Construction End Markets Create Strategic Value Propositions in the Metals Manufacturing Market

Policy implications in trade regulations and developing trends in Construction segments have driven strategic opportunities, competitive advantages, and optimism in merger and acquisition (M&A) activity in the Metals Manufacturing market. The U.S. Trade Representative (USTR)’s Section 301 investigation, originally launched in April 2024 in response to perceived unfair trade practices by the People’s Republic of China (PRC), has resulted in the implementation of tariffs on a range of Chinese goods, including those in the Metals Manufacturing market. With final modifications to these tariffs, metal manufacturers have navigated a mix of continued restrictions and selective relief, aimed at addressing ongoing competitive imbalances while also alleviating costs for critical goods. The impact on the Metals sector will likely be multifaceted. While some companies may benefit from protective measures against underpriced Chinese imports, others reliant on Chinese raw materials or specialized equipment may face higher input costs, margin pressure, and increasingly complex supply chain planning. However, economic analyses have generally concluded that tariffs (primarily for PRC retaliation) have had few negative impacts on U.S. aggregate economic welfare, minimal impacts to prices and employment, and has even had positive impacts on U.S. production, according to a Sepember press release from the Office of the USTR.¹ Additionally, the evolving tariff landscape is expected to prompt manufacturers to diversify suppliers or relocate certain operations to mitigate costs, potentially reshaping materials sourcing strategies across the sector. Ultimately, Capstone anticipates that the USTR’s final modifications to Section 301 tariffs will push the Metals Manufacturing market toward greater supply chain diversification and strategic cost management to remain competitive, encouraging domestic M&A heading into 2025.

U.S. metal producers and value-added processors are at the forefront of domestic reindustrialization. Easing monetary policy, favorable geopolitical environment, competitive energy costs compared to foreign competitors, and ambitious economic development initiatives have favored the metals value chain and creating M&A activity from inputs to machining.

Mike SchumacherManaging Director, Capstone Partners

Aluminum Emerges as a Bright Spot Amid Growth Within the Construction Market

The Metals Manufacturing market has benefitted from recent growth in the Building Products and Construction Services markets. This surge has been driven by demand growth in commercial construction and clean energy projects, particularly as federal infrastructure initiatives, including emissions reduction programs under the Inflation Reduction Act (IRA), ramp up. While construction backlogs declined from 8.6 months in September to 8.4 months in October, they have remained stable and at healthy levels over the past year, according to Associated Builders and Contractors’ (ABC) October press release.² Furthermore, month-over-month (MoM) increases in ABC’s Construction Confidence Index related to sales and staffing levels have continued to reinforce Construction market growth into 2025. “Approximately 53% of ABC members expect their sales to increase over the next six months, while just 22% expect them to decline,” said ABC Chief Economist, Anirban Basu, in the press release. These tailwinds have trickled down to the M&A market, where strategics have begun making acquisitions to capitalize on U.S. construction growth trends. Notably, Cornerstone Building Brands acquired Mueller, a manufacturer of residential metal roofing and components and steel buildings, for an enterprise value of $475 million in July. Similarly, Nucor (NYSE:NUE) acquired Rytec, a manufacturer and seller of high-speed, high-performance commercial doors (June, $565 million). These two acquisitions have demonstrated the strategy of vertical integration into downstream businesses, which have unlocked cross-selling opportunities.

Aluminum usage, in particular, has benefitted from heightened demand across Construction markets, offering a durable and cost-effective alternative to other materials, and is anticipated to dominate M&A rationale. Consumption of the low-density metal in construction is projected to increase ~9% by 2027 compared to 2022 levels, according to Ducker Carlisle’s 2024 survey report.³ Annual shipments are expected to increase by ~$260 million pounds by 2027 and 62% of building and construction professionals surveyed anticipate their aluminum usage to increase in the near future, with respondents identifying aluminum as the material most likely to experience increased consumption. Aluminum usage growth has largely been driven by heightened demand for extruded aluminum profiles, especially in applications such as window frames and cladding, followed by solar installations and non-residential doors. Metal Manufacturers have increasingly sought out aluminum providers to capitalize on heightened demand and increased consumption of the metal. Of note, Reliance Steel (NYSE:RS) acquired Midwest Materials (April, undisclosed). Midwest Materials provides a portfolio of carbon, stainless, and aluminum products, expanding Reliance’s offerings and sales. Midwest Materials generated ~$87 million in full-year 2023 sales, according to a press release.⁴ The transaction supports Reliance’s ongoing strategic initiatives to drive growth through targeted acquisitions that enhance both geographic presence and sector diversification while demonstrating growth in key Metals Manufacturing markets. Federal infrastructure investments in key sectors such as Commercial Building and Clean Energy has underpinned growth across the Construction market and in aluminum usage. Capstone anticipates that these trends will continue to provide attractive M&A opportunities for metals manufacturers.

Metals Manufacturing M&A Struggles to Find Footing, Sector Primed for Rebound

Metals Manufacturing M&A activity has faltered in 2024 as political uncertainties, high interest rates, and regulatory pressures have made buyers more cautious. Deal volume has declined 37.1% year-over-year (YOY) to 127 deals announced or completed in year to date (YTD) 2024, with every buyer type experiencing lower deal activity YOY. Private strategic deal volume fell 42.6% YOY, marking the most drastic decline in M&A activity to date. In contrast, public strategic activity fell 11.8% YOY, which represented the smallest decline as public players continue to demonstrate an appetite for deploying capital towards M&A. However, the sector is forecasted to rebound in 2025 as many of these headwinds are anticipated to unravel with political clarity and Federal Reserve interest rate cuts that provide buyers with a more favorable financing environment. As a result, financial buyers (volume down 41.9% YOY) are expected to reenter the M&A market in 2025, driven by a need to deploy large amounts of dry powder and resolve extended holding periods that have dragged out beyond target timelines. Despite what seems to be a free fall in deal volumes, multiples in the sector have sustained targets that have found interested buyers. Sector M&A multiples through YTD 2024 averaged a robust 1.3x EV/Revenue and 8.3x EV/EBITDA, with the average EBITDA multiple rising more than a full turn compared to YTD 2023 (6.9x EV/EBITDA). The growth in multiples can be attributed to sector players’ desire to move downstream into fabrication and higher margin businesses. Buyer activity will likely continue to be fueled by future interest rate cuts and heightened metal usage and participants are expected to capitalize on consolidation and expansion opportunities, making 2025 a promising year for M&A resurgence in the sector.

Strong Strategic Value Proposition Plays Garner Buyer Appetite

To date, strategics have pursued acquisitions that offer vertical integration, new technology, and access to specialized markets. These buyers have targeted acquisitions that not only expand their core capabilities, but also create new efficiencies in supply chains, strengthen customer relationships, and build competitive advantages. With deal activity expected to rebound, both public companies and private strategics have prioritized assets that can elevate their market position and drive sustainable growth, positioning themselves to capitalize on new opportunities in an evolving Industrial landscape. Several notable metals manufacturing transactions are highlighted below.

• Ryerson Acquires Production Metals (August 2024, Undisclosed) – In August, Ryerson (NYSE:RYI) acquired Production Metals, a distributor of aluminum, stainless, and specialty steels. Terms of the deal were not disclosed. Connecticut-based Production Metals serves the Northeastern U.S. and provides bar, tube, sheet, and plate products along with precision sawing, lasering, and water jet cutting. Precision Metals’ exposure into high-growth end markets such as Aerospace & Defense and Semiconductor, paired with robust precision cutting capabilities were cited as key acquisition rationale for Ryerson.
• Charter Manufacturing Acquires Niles Iron & Metal (July 2024, Undisclosed) – Charter Manufacturing acquired Niles Iron & Metal in July for an undisclosed sum. Niles, a recycler of ferrous and non-ferrous scrap metal, strengthens Charter’s vertical integration by securing a stable supply of recycled metal, reducing dependency on external suppliers, and cutting procurement and transportation costs. The acquisition supports Charter’s sustainability goals and expands its service offerings into the Recycling sector, opening new revenue streams and allowing the company to provide end-to-end solutions for metal reclamation. Niles’ established Midwest presence is expected to enhance Charter’s geographic footprint in a region rich with industrial clients, positioning Charter for faster service delivery and improved client relationships.
• Cleveland-Cliffs Acquires Stelco (July 2024, $3.0 billion, 1.4x EV/Revenue, 9.0x EV/EBITDA) – Cleveland-Cliffs (NYSE:CLF) acquired Stelco Holdings (TSX:STLC) in July for $3 billion, equivalent to 1.4x EV/Revenue and 9.0x EV/EBITDA. The acquisition price represented an 87% premium to Setelco’s closing share price as of July 12, according to a press release.⁵ The addition of Stelco is expected to solidify Cliffs’ position as the largest flat-rolled steel producer in North America, diversifying Cliffs’ end markets and expanding its geographical presence in Canada. Cliffs is a vertically integrated metal sheets producer with a primary focus on the Automotive sector. Stelco will continue operations as a wholly owned subsidiary of Cliffs, preserving the name and Canadian legacy. “By bringing Stelco into the Cliffs family, we are building on our commitment to integrated steelmaking and good paying union jobs in North America. This acquisition allows us to further diversify our customer base and lower our cost structure. We are excited about the opportunities this acquisition brings and appreciate the warm welcome we have received from all government officials in Canada,” said Lourenco Goncalves, Chairman, President and CEO of Cliffs, in a press release.⁶

While the Metals Manufacturing M&A market has experienced significant turbulence to date, several factors are expected to uplift dealmaking in the new year. Namely, resilient construction demand, anticipated interest rate cuts, an easing Private Credit market, and government manufacturing support have provided a positive M&A outlook in the sector. Financial sponsors are expected to begin deploying more capital as a result of these tailwinds, reigniting competition with larger strategic players for assets in the Metals Manufacturing space.

To discuss the widespread government spending and stimulus, provide an update on your business, or learn about Capstone's wide range of advisory services and Metals Manufacturing market knowledge, please contact us.

Neve Adler, Analyst, was the lead Market Intelligence contributor to this article.

Endnotes

1. Office of the United States Trade Representative, “USTR Finalizes Action on China Tariffs Following Statutory Four-Year Review,” https://ustr.gov/about-us/policy-offices/press-office/press-releases/2024/september/ustr-finalizes-action-china-tariffs-following-statutory-four-year-review, accessed November 13, 2024.

2. ABC, “ABC’s Construction Backlog Indicator Slips in October, Contractor Confidence Remains Elevated,” https://www.abc.org/News-Media/News-Releases/abcs-construction-backlog-indicator-slips-in-october-contractor-confidence-remains-elevated, accessed November 13, 2024.

3. Ducker Carlisle, “Building the Future: Trend of Aluminum Use in the Construction Market,” https://www.aluminum.org/sites/default/files/2024-08/Trend-of-Aluminum-Use-Construction-Market.pdf, accessed November 13, 2024.

4. Reliance, “Reliance, Inc. Acquires Mid-West Materials, Inc.,” https://investor.reliance.com/press-releases/news-details/2024/Reliance-Inc.-Acquires-Mid-West-Materials-Inc/default.aspx, accessed November 13, 2024.

5. Stelco, “Cleveland-Cliffs to Acquire Stelco for C$70 per Share,” https://investors.stelco.com/news/news-details/2024/Cleveland-Cliffs-to-Acquire-Stelco-for-C70-per-Share/default.aspx, accessed November 13, 2024.

6. Cliffs, “Cleveland-Cliffs Completes Acquisition of Stelco,” https://www.clevelandcliffs.com/news/news-releases/detail/661/cleveland-cliffs-completes-acquisition-of-stelco, accessed November 13, 2024.