Reliance Steel Buying GH Metal

Reliance Steel & Aluminum Co. (RS - Analyst Report) has agreed to buy Alabama-based steel processor, GH Metal Solutions, Inc. Under the pact, the company’s fully-owned subsidiary, Feralloy Corporation, will acquire all of the outstanding shares of GH Metal Solutions, erstwhile known as Gas House, Inc.

The transaction, which is subject to customary closing conditions, is expected to be finalized within 30 days. The terms of the deal were undisclosed.

GH Metal Solutions, which has annual sales of roughly $44 million, processes and fabricates carbon steel products. Its processing equipment includes flat-bed lasers, tube lasers, torches, shears, automatic band saws, and robotic and manual welders.

Reliance Steel continues its expansion initiatives and strategic acquisitions to incite growth. The acquisitions of McKey and National Specialty Alloys (“NSA”) have enabled the company to improve its product offerings and expand into newer markets.

Moreover, the acquisition of all the assets of the Worthington Steel Vonore plant from Worthington Industries Inc. (WOR - Snapshot Report), in April 2012, has reinforced its foothold in the Southeastern regions of the U.S. In addition, the purchase of the assets of Airport Metals, in July 2012, marked Reliance Steel’s first foray into the Australian market.

These moves are in sync with Reliance’s philosophy of growing inorganically. The strategic acquisitions are expected to drive growth moving forward through improved product offerings and expansion into new markets.

Reliance Steel has tremendous earnings capacity with its broad and diversified product base, along with a wide geographic footprint that positions it well in the industry. The company continues to evaluate and execute additional growth projects and is well placed to leverage the strong momentum across a number of end markets.

However, we are concerned about the non-residential construction market (the company’s largest end market), which continues to be the weakest link. In addition, raw material prices are expected to remain volatile.

Reliance Steel currently holds a short-term Zacks #4 Rank (Sell). We have a long-term Neutral recommendation on the stock.