Good morning, ladies and gentlemen, and welcome to the investor call regarding the Russel Metals' acquisition of seven service centers in the U.S. from Kloeckner Metals. Today's call will be hosted by Mr. Martin Juravsky, Executive Vice President and Chief Financial Officer, and Mr. John Reid, President and Chief Executive Officer of Russel Metals. Today's call will be followed by a question and answer period. At that time, if you have a question, please press *1 on your telephone keypad. I will now turn the meeting over to Mr. Martin Juravsky. Please go ahead, Mr. Juravsky. Thank you.
Great, and thank you, operator, and good morning to everyone. Thank you for joining this discussion on short notice, but we just finalized the purchase agreement with Kloeckner over the weekend. For this call, I am joined by John Reid, our CEO. After I go through some introductory comments, John and I will open the floor to questions. If you want to follow along to my introductory comments, I'll have the information package; it's posted to our website. It's in the Investor Relations section in the Conference Calls submenu. If you go to page 2, you can read our cautionary statement on forward-looking information. Let me start with an overview of the acquisition. First, we're really excited about this transaction, this announcement.
We do look at a lot of potential acquisitions over the course of the year, and I've talked extensively about how we remain committed to our criteria when it comes to potential acquisitions. We look at opportunities that align from a geographic perspective, a product perspective, and they must be economically attractive relative to our 15% return on capital threshold over the cycle. This announced transaction lines up very well with these criteria. It's a great fit, and it will be immediately accretive to earnings. The other thing to point out is that transactions do take a long time to pull together, and there's a lot of detailed plumbing associated with every transaction.
This deal is highly structured and took around six months of working with Kloeckner to get to this point, so it highlights that bringing deals over the finish line are not quick or easy if they are to be structured the right way. In this case, I think we have arrived at an arrangement that works from both a Russel and Kloeckner perspective. Somewhat related, we've had the opportunity to work closely with the team from Kloeckner over an extended period in structuring this transaction, and we very much appreciate their professionalism as we work towards this outcome. In terms of deal highlights on page 4, we'll be acquiring seven of their locations in the U.S.: two are in Florida, two are in Texas, one is in Georgia, one is in North Carolina, and one is in Iowa.
This transaction has some similarities to our Samuel acquisition in that we are carving out assets related to specific targeted locations from another company, but it differs in this case because we'll be acquiring all the fixed assets, being land and buildings, in addition to the working capital for the seven locations. The purchase price formula is set at $51.5 million U.S. for the PP&E, plus the value of the working capital at closing, and the working capital was $67 million on June 30th. This equates to an estimated total purchase price of approximately $119 million U.S. As said earlier, the value is underpinned by the value of the hard assets, being both the working capital and the PP&E. In total, these seven locations have over a million square feet under roof, and some are located in expensive real estate markets.
In total, this million square feet of buildings will add around 15% to the square footage of our metal service center footprint. From a financial perspective, over the last two and a half years, these locations in total generated average annual revenues of around $500 million U.S. and adjusted EBITDA of greater than $20 million U.S. If we were to look at the financial results for these seven locations over a more extended historical period beyond those two and a half years, the results were even higher. As such, this transaction should add about 15% to our average annual revenues and a bit less than that on a mid-cycle EBITDA basis. Therefore, we think the value makes a lot of sense in relation to both the underlying hard assets and on an EBITDA multiple basis that should equate to about five times average cycle EBITDA.
The transaction rationale is pretty straightforward. The geography of these seven branches are perfect fits into our existing network. In addition, when we conducted due diligence on the operations, we identified a series of improvement opportunities related to new investments, efficiency gains on procurement, inventory management logistics that should be achieved by blending these locations into our existing system. Lastly, as a result of this transaction, our U.S. platform will represent greater than 50% of our revenues, which is a continuation of that U.S. revenue growth profile. Our U.S. revenues have migrated from 30% of the total revenues in 2019 to 39% in 2024 to 44% through the first six months of 2025, and will now be greater than 50% on a pro forma basis. In terms of deal logistics, there are no regulatory approvals required, so the transaction should close in late 2025 or early 2026.
I'll talk our balance sheet in a minute, but the transaction will be financed from our existing liquidity, which stood at $566 million at June 30, 2025. If we go to page 5, I've included some more detail on the locations. The pictures on the left part of the page are the branches in Suwanee, Georgia, Dubuque, Iowa, and Charlotte, North Carolina. If we look at the map, you can see the compelling geographic fit. The seven branches that are part of this transaction are communities where we had targeted to grow in the U.S. If we look at the map and start with the southeast region in the bottom right, in Florida, we acquired Tampa Bay late last year with a view of extending that footprint into both the north and southern parts of the state.
We'll now have a location in Pompano Beach to the south and Jacksonville to the north, with a value-added process and capabilities from our Tampa Bay operation being able to serve a customer base beyond their traditional shipping zones. Going north into Georgia and North Carolina, we have a new location just outside of Atlanta in Suwanee, as well as a branch in Charlotte, North Carolina. Both of these locations will fit well and extend our existing platforms into those two states. In the south region, in Texas in particular, the new locations are just outside of Austin and in Houston, and they will extend our reach into the mid and southern part of the state and will complement our existing branches that are in Fort Worth near Dallas, as well as Texarkana that is on the Texas-Arkansas border.
In the Midwest region, the Kloeckner branch in Dubuque, Iowa will extend our customer reach from our existing branches in Wisconsin. On page 6, we have our balance sheet. As discussed, we had net debt of only $104 million, $566 million of liquidity on June 30, 2025. Therefore, we'll continue to have a strong capital structure to not only complete this transaction but also pursue other capital deployment alternatives that could make sense. On page 7, I want to shift gears a little bit and provide an update on the previous acquisition that we did for Samuel. At that time, we originally announced the Samuel asset acquisition in December 2023. The headline purchase price was $225 million, but we had a very specific plan to reduce capital. When the acquisition closed in August of 2024, the working capital was already reduced by almost $60 million.
With the pro forma impact of the announcement to close and sell some of the real estate for our Delta BC facility that we announced about a week and a half ago, we'll have pulled over $100 million out of the $225 million original purchase price and substantially reduced the acquisition multiple. I bring this up as we knew it was going to take some time to implement all of our initial initiatives related to that transaction, but we have surpassed our original capital reduction goal, and we now have more efficiency opportunities on the come in Western Canada. There will be some operational noise over the coming few quarters as we close the one facility and move around a lot of equipment across our network. These initiatives can be disruptive to those impacted operations in the very near term.
Somewhat related, we announced a one-time charge of $4 million in Q3 that is specifically related to the Delta closure, but there will be some other operational impacts that linger into Q4 and early Q1 before we expect the substantial benefits from this rationalization to be crystallized as we turn the calendar into 2026. Lastly, on page 8, I want to use this chart as a reminder to how we have migrated our platform through a series of growth initiatives. This provides a context of not only where we've come from, but perhaps where we're going. Upon completing the Kloeckner acquisition, we have deployed around $600 million on a series of acquisitions over a four-year period.
Said another way, we will have deployed an average of around $150 million per year, but there were some years where we didn't complete any acquisitions as the available opportunities didn't make sense, while there were other years where we deployed more than the average. The point is we remain opportunistic yet active in looking at acquisitions. Therefore, I suspect we'll continue to uncover interesting growth prospects in the years ahead that are similar in nature and scope to what we've done in the recent past. In closing, on behalf of John and myself, I'd like to extend our thanks to the team at Russel, who have worked very hard on the due diligence and structuring this transaction, as well as our colleagues at Kloeckner in both Germany and the U.S., with whom we have worked very closely.
In addition, we look forward to welcoming the approximately 350 team members from Kloeckner into Russel. Operator, that concludes my introductory remarks. Please open the line for questions.
Thank you. As a reminder, to ask a question, please press * followed by the number 1 on your telephone keypad. To withdraw any questions, press *1 again. We'll pause for just a moment to compile the Q&A roster. Our first question comes from James McGarragle from RBC Capital Markets. Please go ahead. Your line is open.
Hey, thanks for having me on. Congrats, guys.
Thanks, James.
I just wanted to ask on the strategic alignment for this deal. I know your team is making a big push towards value add, but in the seller's press release, they mentioned that they're selling these assets to focus more on the high value add and service center business. I know you guys are also focusing on that as well. Can you comment on how you're thinking about this deal, given that commentary from the seller?
Yeah, thanks, James. This is John. When we look at this, this really aligns well with both parties' strategic objectives. Keep in mind, we are highly transactional in nature. Our counterparty here, they are not transactional. They want to be more contractual in those. As we look at those, there are really two different channels when we look at value add for growth and how we approach the customer base there. We think it aligns really, really well in addition to the geographic growth we get, and we can continue to work through our hub-and-spoke concept. We'll continue to grow our value add. They'll have their opportunities in value add, but they're in two very different channels through that transactional nature versus the contractual nature.
Appreciate the caller. Just one more for me. Can you guys just talk about your management team's capacity? I know you're still working through the Samuel deal. This deal looks like it's going to require some work from an operational perspective. Just how you're viewing the management team's capacity to kind of focus on integrating both Samuel and what's remaining there, and then this new deal that you announced this morning.
Yeah, thanks, James. Our succession plan has been going on for several years, and in the recent year, we've announced that we have divided Canada in the east and west with R.J. Wisner taking over the west. Scott Harris will be taking over the east January 1st. Brandon Ezell runs the United States for us. We still have John McClain in the operating role as the Chief Operating Officer. All of these are veterans with us that have had 15, 20, 25 years' experience. R.J. is dealing with the Samuel integration. It's going extremely well. As Marty mentioned, we'll be wrapping that up sometime in early 2026 with all the milestones should be accomplished at that point. This will really fall with Brandon Ezell that has been with us well over 25 years now, very experienced, and very familiar with this area, very familiar with the Kloeckner Group.
We've got a good bandwidth where we've built depth in operations on that side. Financially, we've got the controllers that are their partners that also are partnered with each one in each region. From a managerial bandwidth, we have spent a lot of time getting poised to have these opportunities in front of us.
Thank you very much, and I'll turn the line over.
Thanks, James.
Our next question comes from Michael Tupholme from TD Cowen. Please go ahead. Your line is open.
Thank you. Good morning and congratulations on the acquisition.
Thanks, Mike.
First question is around margins. Just based on the financial metrics provided in the news release, the margins at the acquired locations are lower than Russel's overall service center margins. Two-part question, I guess. First off, just to understand, is there much difference across the various locations you're acquiring, or would they all be around a similar level? Secondly, I think John sort of touched on this earlier, but just trying to understand, it doesn't sound like there's much, but to what extent is there any value-added processing going on at these locations right now?
Yeah. Hey, Mike. A couple of things. One, your observation is correct, which is their margin profile on average is lower than our margin profile. We think that is where the upside opportunity is for this business. I think the way they've approached these particular branches over the past will be different than how we will approach the operations and management of these businesses going forward. I think what you'll be able to do is see a bridge between what they've historically generated and something closer to what our margin profile has been over the past period of time for a like-branch. In addition to that, and this is kind of what John was alluding to before, they do a little bit of processing at these seven branches, but not to the same degree that we do in some of our operations.
There are situations where we can uncover and have uncovered opportunities for incremental investments, either within the branches themselves or in adjacent branches where we're currently operating. I use the Florida example as a prime example where we already have value-added processing capabilities within Tampa that can reach to now both the north and south part of the state where we will have these incremental branches. While this situation isn't exactly the same as the Boyd acquisition that we made in 2021, I use that as an example where Boyd did not do a lot of value-added processing in the period of time before we acquired them. Since we've acquired them, we've invested a fair amount in opportunities, sometimes within Boyd, sometimes within the neighboring branches in the region. Those are the incremental opportunities that we can see coming to the table in the years ahead.
There is a bridge from what they've historically achieved from a margin profile perspective and what we think they can do under our platform.
Okay, that's helpful. Thank you. Maybe just to build a little bit further on that, if we think about the opportunity to improve margins, and I mean, I guess there's sort of two buckets, but maybe I can break it even into three. The first is maybe through different approach to operations and blocking and tackling. The second is really this, you know, the opportunity for enhanced value-added processing. Within that, as you point out, there's the ability to, one, leverage existing processing at adjacent facilities, and then secondly, to add more equipment at these locations, which would take some more time.
Can you just give us a sense, just based on sort of the blocking and tackling piece, like what sort of margin upside potential is there before we even get into sort of the value-added processing contribution, just from maybe overlaying your operational approach and making some adjustments on that sense?
Yeah, I'd hate to be too specific on what exactly we think we can achieve, but let me give a historical frame of reference. When you see the information, the press release, it implies the last couple and a half years, they generated an EBITDA margin of around 4%. Our like-for-like equivalent on similar operations would have probably been a couple hundred basis points higher than that. I think when we look back, there's probably some low-hanging fruit that can be achieved, some of which relates to just operational priorities and how you deal with customers and how you deal with suppliers and how you deal with inventory, the basic blocking and tackling to the business. There's a whole separate bucket that you alluded to correctly, Mike, which is what happens when there's incremental capital deployed.
I think that's where you kind of, back to my comment about the bridge between their historical results and what we think we can achieve, there's probably some low-hanging fruits that it's in the zero to 12 months category. Again, just better alignment in terms of procurement decisions, inventory management decisions, customer decisions. The incremental benefit will come over time related to targeted capital investments.
Okay, perfect. Just one last one. I mean, earlier on you alluded to, in some respects, the similarity between this and Samuel, but I think that was specific in terms of the fact that that was a carve-out as this is. In the case of Samuel, there was an opportunity to reduce the invested capital in those locations. Is there any such opportunity with this transaction?
Mike, you know, Samuel was unique in that respect, and that was the playbook. The $225 we knew going in, that was too high, and that's where some of the, I mean, using your words, the low-hanging fruit was going to be in the near term, and we've achieved that. This is less of that. In the Samuel case, again, I highlight that one of the things was about facility rationalization. The announcement we made a week and a half ago related to our Delta closure facility rationalization, we do not see facility rationalization coming out of this transaction. This is an extension of our existing platform. It's going to be less on the capital reduction side and more on the P&L side with efficiency gains that we can achieve.
The capital that we have going in, yeah, there's probably things at the margin that might be available, but it won't be the same playbook as we used at Samuel because at Samuel, it was heavily geared around capital reduction, including the rationalization of locations. We don't, and again, I'm repeating myself, but we do not see facility rationalization coming out of this situation.
Okay, that's all I had. Thank you.
Thanks, Mike.
Our next question comes from Frederic Bastien from Raymond James Ltd. Please go ahead. Your line is open.
Morning, guys. Maybe I just wanted to build on Michael's questions around capital deployment and perhaps extracting capital out of the business. Is all the real estate owned currently by Kloeckner? Would there be potential plans to sell those assets and do a leaseback on those?
Yes to the first point. All the facilities are owned, and we will be owning them as part of the transaction. Unlike the Samuel deal where everything was under lease, long-term leases, in this situation, we'll be having physical title to all the real estate. We're not contemplating any sale leaseback type arrangements right now. That's a form of financing, and we've got lots of flexibility within our current financial arrangements. I never say no to anything that might be interesting from a capital efficiency standpoint, but it's not being contemplated right now.
Okay, thanks. I know you've touched on the opportunity in Florida with merging, I guess, combining the assets of Tampa Bay Steel and those you're acquiring. Could you expand on sort of the opportunity you really could tap into with this?
Thanks for adding this, John. Yeah, starting with just Florida, for example, and you're familiar with our hub-and-spoke concept, and especially as we grow value add, we typically work off of the hub where the spokes can use the process and value add, and then they can grow their own business and then expand by adding their own equipment. Tampa has all the equipment that's necessary. It will allow both Jacksonville and Pompano Beach to develop that very quickly where they can start to add their own equipment. If you move to Texas, you see exactly the same thing where we have it either in Texarkana or we have it in Fort Worth. Both the Austin and the Houston operations can build off that as well with that hub-and-spoke approach, as well as sharing inventories between these locations. The same thing in North Carolina.
Dubuque brings a really added dimension there. They're really, really strong in long products there. We're good in long products there as well, but we're also very good in plate. We will share some shared services initially back and forth where they have some value-added services on beams that we don't have. We have the plate processing that they don't have, so it will become a natural extension of each other and work very quickly together. All of these just become, again, part of those individual regions that's highlighted there in our slide deck. Being able to share the value-added processing to grow your own and being able to share inventory just gives everybody a much larger inventory pool to pull from while you maintain your inventory turns to manage working capital better.
That's great. Looks very promising. Well done, guys.
Thanks, Fred. Appreciate it.
Our next question comes from Ian Brooks Gillies from Stifel. Please go ahead. Your line is open.
Good morning, everyone.
Good morning.
Ian, maybe trying to come at this a bit of a different angle. CapEx for 2026, how much higher do you think it is now with the inclusion of these assets and with any potential plans you may have for value-added processing at this time?
Yeah, I think, Ian, the reality is the lead time associated with CapEx is probably 12 months, typically, and sometimes longer, sometimes a little bit shorter. The best-laid plans that we might have are probably going to spill into 2027 when it comes to incremental investments, other than some things that are at the margin. I don't think our 2026 CapEx profile is going to change a whole heck of a lot because of this transaction, because anything that we may want to do will at best spill into the backend part of the year, but more likely into 2027.
Okay. As it pertains to product mix, I know some of the recent acquisitions have had a larger focus on non-ferrous. It doesn't sound like that's the case in this instance, but maybe could you chat a little bit about that?
That's a good observation, Ian. Yeah, these locations are not big into non-ferrous. It wouldn't be at the same % level that we are, so this will put us heavier in the U.S. market in carbon. There is the opportunity, however, to expand them into the non-ferrous. We see that again, back to that hub-and-spoke approach I mentioned earlier. They can start to pull still non-ferrous into these markets and grow that as well. It won't be like Samuel where we brought in non-ferrous as part of the platform and helped us grow immediately. This one will be more of a slow growth in the non-ferrous feeding off our existing service centers.
Okay, that's helpful. Similarly, on the end market side, is there any new end markets that come from this? I mean, in particular, in my head, I'm thinking about auto, just because I know that has been an area that Russel hasn't typically participated in. I suspect it isn't in this instance, but was hoping to confirm.
Yeah, this is not in auto, and you're exactly right. It puts us in a better position to do more work with some of the data sites that are going on out there right now. It just puts us in a better geographic position to serve some of those accounts we struggled to get to, just due to the logistics. This is really going to open some of that up for us. Okay, thanks very much.
And. Oh, sorry. Go ahead.
No, Ian, I was just going to add one thing to add to John's comment about automotive, and it kind of ties into a question that was asked at the front end of this about value add. Their definition of value add, our definition of value add is somewhat different, and part of it is targeted customers. As John said earlier, transactional versus contract-based. They do do automotive, just not within the businesses that we're talking about here, the branches that we're talking about here. That is a big distinction and continues to be part of our focus. It's not just the type of business we're doing. It's the type of industries that we don't have on our radar screen as a focus item, and we do not focus on automotive, and this transaction doesn't change that.
Got it. Okay, thanks very much. I appreciate the call.
Thanks, Ian.
For any additional questions, please press * followed by 1. Our next question comes from Alan Weber from Robotti & Company. Please go ahead. Your line is open.
Good morning. Just kind of a follow-up from the previous question. Does this add any new industries that you're currently not in?
It may, Alan, in those specific regions geographically, but it's more industry that we can currently cover that we just can't get to physically because of the limitations on the trucking hours. It expands our geographic reach. There may be some new industries. One of the big things that we see is we're covering data centers, but this allows us to reach more of the data centers that are going on now, as well as solar.
Okay, great. Thank you. What was peak EBITDA if you go beyond the two and a half years I think that you were averaging?
Yeah, Al, we're not disclosing that, but you can rest assured it was substantially, substantially higher than the two and a half year average.
Okay. Not asking for a projection, but just curious, when you look out over the next two or three years, what was your general thought in terms of EBITDA? Were you thinking the current level stays at average? I'm not suggesting it goes back to peak, but just curious what you, how you think about that.
Yeah. I don't know how the cycle is anymore, given some of the just nature of the beast of events that have happened from a macroeconomic perspective over the last little while. Let me kind of say it a slightly different way. When we look at their historical results, they were significantly hamstrung. If you look at a multi-year basis, 2024 wasn't very good for them. It really wasn't very good at all. If you look at a multi-year average, 2024 substantially, substantially brought their average down. When we went through our due diligence, a big part of our exercise was trying to understand what happened in 2024 and has the corner been turned. Obviously, in 2025, for the first eight months of this year, there was a lot of benefit, especially in the, you know, March, April, May type timeframe from a more favorable market.
The results that they're tracking on, that those branches are tracking on for 2025, are materially better than they were in 2024, and frankly, higher than that two and a half year average that we articulated. There's my answer without answering your question, Alan.
Okay. I guess the last question is, how much goodwill is there with the acquisition?
Yeah, we don't expect there to be anything of substance.
Okay, great. Thank you very much.
Thanks, Alan.
We have no further questions. I'd like to turn the call back over to Martin Juravsky for closing remarks.
Great. Thanks, operator. Thank you, everybody, for joining the call on such short notice. If you have any questions, please feel free to reach out. Otherwise, we look forward to staying in touch. Thanks, everyone.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.