awpa annual meeting economic discussion€¦ · prior to tsg, john was a managing director and...
TRANSCRIPT
AWPA Annual Meeting Economic Discussion
Member FINRA/SIPC
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AL February 19, 2018
Investment BankersLos Angeles • San Francisco
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Table of Contents
Section Content PageI Introduction to TSG 3II Macroeconomic Filter 6III Competitive Outlook 23IV Capital Markets 32V Consolidation 39
Introduction to TSG I
Industrial Growth
Extensive Partner Experience
OEM / Aftermarket / PerformanceMetals / Fabricated Metal Products
Transportation & Logistics
John co-founded TSG and has over 25 years of Investment Banking experience covering public and private Technology, Industrial Growth and Business Services companies
Prior to TSG, John was a Managing Director and co-founder of the West Coast Corporate Finance Group of Banc of America Securities
John also co-founded General Finance Corporation, a public rental services company, as Chief Operating Officer in 2005 and led 14 acquisitions totaling nearly $400 mill ion
John O. JohnsonManaging DirectorLos Angeles Office (626) 204-6380 | Direct(213) 706-0317 | [email protected]
Introduction to TSG Senior Investment Bankers: Industrial Growth and Business Services
4
Macroeconomic Filter II
Historical World GDP
69.5 71.3 73.3 75.2 77.179.3
30.0
40.0
50.0
60.0
70.0
80.0
90.0
2012 2013 2014 2015 2016 2017
Months of Economic Expansion following Indicated Trough
Since the end of World War II, there have been four global recessions, all lasting a year, followed by expansion cycles that lasted 120 months, on average
The current cycle is 103 months long (since June 2009)
We are currently in a period of harmonized global growth
81 87
193
103+
0
50
100
150
200
250
Mar 1975 Dec 1982 Mar 1991 Jun 2009
Macroeconomic FilterGlobal Historic Recession Trends
______________________________________________________________________Source: IMF
6
Macroeconomic FilterMetal Prices, as of 2/16/2018
______________________________________________________________________Source: InfoMine
7
Aluminum$0.98/LB
Copper$3.22/LB
Platinum$1010.60/LB
Nickel$6.42/LB
Lead$1.18/LB
8
World Price of Steel IndexMacroeconomic Filter
Source: IBISWolrd
0
50
100
150
200
250
300
350
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
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2016
2017
2018
2019
2020
2021
2022
2023
2024
For developing countries, exports are the main element of production
Export volume and pricing are primarily determined by the following:
Import dynamics in other countries: at what price and volume are neighboring countries receiving their imports (economic health and relative currencies)
“Hindering Factors” - Trade barriers, transportation costs, cultural discrepancies
Exports are ergative and not always in line with GDP cycles, as they are heavily dependent on other countries
Macroeconomic FilterExport Demand and Pricing
______________________________________________________________________Source: Economic Web Institute, World Bank
9
15%
17%
19%
21%
23%
25%
27%
29%
31%
33%
2000 2002 2004 2006 2008 2010 2012 2014 2016
World Exports as % of World GDP
Months of Economic Expansion following Indicated Trough
The technical indicator of a recession is two consecutive quarters of decreasing GDP
Since the end of World War II, U.S. business expansion cycles have lasted 58 months, on average
The current business cycle is 103 months long (since June 2009)
A recent survey of people in the real estate industry conducted by PwC reported sentiment in the market is at its lowest value at 69%. The same survey reported an 84% positive sentiment six months ago
Macroeconomic FilterU.S. Historic Recession Trends
______________________________________________________________________Source: Bloomberg, U.S. Department of Commerce, Fortune, Investopedia
3745
39
24
106
36
58
92
14
120
103
0
20
40
60
80
100
120
140
Oct1949
May1954
Apr1958
Feb1961
Nov1970
Mar1975
Jul1980
Nov1982
Mar1991
Nov2001
Jun2009
10
Macroeconomic FilterInternational Economic Development
China Brazil
Mexico Turkey
______________________________________________________________________Source: Federal Reserve Bank of St. Louis.
0%
10%
20%
30%
40%
50%
$- $200,000 $400,000 $600,000 $800,000
$1,000,000 $1,200,000 $1,400,000
2000 2002 2004 2006 2008 2010 2012 2014 2016
($ in
Mill
ions
)
GDP % Exports
0%
5%
10%
15%
20%
$-
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
$3,000,000
2000 2002 2004 2006 2008 2010 2012 2014 2016
($ in
Mill
ions
)
GDP % Exports
0%
5%
10%
15%
20%
25%
30%
$-
$200,000
$400,000
$600,000
$800,000
$1,000,000
2000 2002 2004 2006 2008 2010 2012 2014 2016
($ in
Mill
ions
)GDP % Exports
0%
10%
20%
30%
40%
$-
$2,000,000
$4,000,000
$6,000,000
$8,000,000
$10,000,000
$12,000,000
2000 2002 2004 2006 2008 2010 2012 2014 2016
($ in
Mill
ions
)
GDP % Exports
It is likely that the U.S. is at or near its economic peak, and demand is expected to decline
The question is whether this decline will correlate with BRIC economies and/or European economies
11
Macroeconomic FilterWeakening U.S. Dollar
______________________________________________________________________Source: U.S. Census Bureau, U.S. Bureau of Labor Statistics, Forbes
The U.S. dollar has already decreased more than 1% in 2018, and it saw a 10% decrease in 2017
The weakening of the U.S. dollar will lead to a rise in commodity prices, having a negative impact on wire producers
As domestic rod prices go up, a margin compression for the wire producers/converters, especially the those that do not own their own rod mills
This decrease is due to several factors, including higher wages, U.S. political uncertainty and higher economic growth in in the BRIC Countries and Europe, particularly Germany and France
Estimates show that world GDP grew 3.75% in 2017
However, it is important to put this in perspective: developed economies are growing at a slower pace of 2%-2.5%
12
20
30
40
50
60
70
80
90
100
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018P 2020P 2022P
World GDP ($ in trillion)
Macroeconomic FilterWeakening U.S. Dollar
______________________________________________________________________Source:IBISWorld, Trading Economics
The BRIC economies experienced significant growth, fueled by the E.U.’s and the U.S.’s increased demand for BRIC’s manufactured goods
From the years 2015 to 2017, Brazil, Russia, India, and China GDP experienced a compounded average annual growth rate of 7.5%, 3.7%, 8.0%, and 3.1%, respectively
With China focusing on manufacturing (25%+ of country’s GDP) and India specializing in the service industry (61% of GDP), both countries’ middle classes are doing exceptionally well
As of 2015, 8% of India’s population is middle class, an eight fold increase from 15 years ago
BRIC Countries Annual GDP ($ in trillion)
13
$4
$5
$6
$7
$8
$9
$10
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018P 2020P 2022P 2024P
U.S. National Average Minimum Wage
0
5,000
10,000
15,000
20,000
25,000
30,000
Brazil Russia India China Total BRIC
Macroeconomic FilterU.S. 2017 Construction Employment and Costs
______________________________________________________________________Source: Federal Highway Administration
As of December 2017, construction employment increased in 75% of metro areas (“MSA’s”) in the U.S.
The largest increase occurred in Riverside-San Bernardino-Ontario, CA, which saw 14,300 added construction jobs (15% increase); the second largest was Las Vegas-Henderson-Paradise, which saw an increase of 10,800 construction jobs (18% increase)
Construction employment hit an all time high in December 2017 for 38 MSA’s, and no MSA’s saw an all time low in employment; however, 89 MSA’s saw a decrease in construction employment
Highway construction prices increased 4.2% from March to June 2017 and 3.4% from June to September 2017
These are the largest quarterly increases since September 2014
0.6
0.8
1
1.2
1.4
1.6
1.8
2
Mar
ch
Sept
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r
Mar
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Sept
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Mar
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Sept
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Mar
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Sept
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Mar
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Sept
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Mar
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Sept
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Mar
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Sept
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Mar
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Sept
embe
r
Mar
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Sept
embe
r
Mar
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Sept
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r
Mar
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Sept
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Mar
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Sept
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Sept
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Mar
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Sept
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Mar
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Sept
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2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
National Highway Construction Cost Index
14
40
50
60
70
80
90
100
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018P 2020P 2022P 2024P
Federal Funding for Transportation ($ in billions)
Macroeconomic Filter Historical Infrastructure Spending
______________________________________________________________________Source: Federal Highway Administration
15
U.S. State and Local Capital Spending as % of GDP
2.11%2.34%
2.19%2.12%2.14%2.25%
2.38%2.51%
2.38%2.17%
2.06%1.94%1.91%
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
2000 2002 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Macroeconomic FilterHistorical Infrastructure Spending
______________________________________________________________________Source: Federal Highway Administration
16
Public Infrastructure Spending as a Share of GDP
0
50
100
150
200
250
300
35019
5619
5819
6019
6219
6419
6619
6819
7019
7219
7419
7619
7819
8019
8219
8419
8619
8819
9019
9219
9419
9619
9820
0020
0220
0420
0620
0820
1020
1220
14
State and Local Governments Federal Government
2.0%
2.2%
2.4%
2.6%
2.8%
3.0%
3.2%
1956
1958
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
Annual % of GDP Average
Real Infrastructure Spending by Federal vs State & Local Governments
Macroeconomic Filter Expected Growth Until 2020 of 50 MSAs by GMP
______________________________________________________________________Source: TSG Research, United States Conference of Mayors
17
Tampa-St Petersburg-Clearwater: 3.4%
San Jose-Sunnyvale-Santa Clara: 3.9%
Nashville-Davidson-Murfreesboro-Franklin: 3.3%
Jacksonville: 3.3%
NY-Northern NJ-Long Island: 2.4%
LA-Long Beach-Santa Ana: 2.9%
Chicago-Joliet-Naperville: 2.6%
Houston-Sugarland-Baytown: 4.0%
Washington-Arlington-Alexandria: 3.2%
Dallas-Fort Worth-Arlington: 4.0%
San Francisco-Oakland-Fremont: 3.2%
Philadelphia-Camden-Wilmington: 2.5%
Boston-Cambridge-Quincy: 2.8%
Atlanta-Sandy Springs-Marietta: 3.6%
Miami-Ft. Lauderdale-Pompano Beach: 3.4%
Seattle-Tacoma-Bellevue: 3.0%
Minneapolis-St. Paul-Bloomington: 2.9%
Detroit-Warren-Livonia: 2.1%
Phoenix-Mesa-Glendale: 4.0%
San Diego-Carlsbad-San Marcos: 3.5%
Denver-Aurora-Broomfield: 3.5%
Baltimore-Towson: 2.7%
St. Louis: 2.4%
Charlotte-Gastonia-Rock Hill: 3.5%
Pittsburg: 2.3%
Kansas City: 2.8%
Indianapolis-Carmel: 2.6%
Riverside-San Bernardino-Ontario: 4.2%
Cleveland-Elyria-Mentor: 2.1%
Cincinnati-Middletown: 2.5%
Orlando-Kissimmee-Sanford: 4.1%
Austin-Round Rock-San Marcos: 4.4%
Columbus: 2.9%
Sacramento-Arden Arcade-Roseville: 3.8%
Las Vegas-Paradise: 3.8%
San Antonio-New Braunfels: 3.7%
Milwaukee-Waukesha-West Allis: 2.2%
Bridgeport-Stamford-Norwalk: 2.7%
Hartford-West Hartford-East Hartford: 2.2%
Virginia Beach-Norfolk-Newport News: 2.2%
New Orleans-Metairie-Kenner: 2.4%
Salt Lake City: 3.7%
Richmond: 78.7
Providence-New Bedford-Fall River: 2.4%
Memphis: 2.7%
Louisville-Jefferson County: 2.6%
Oklahoma City: 2.9%
Raleigh-Cary: 4.3%
Portland-Vancouver-Hillsboro: 4.0%
Birmingham-Hoover: 2.6%
3-3.5%2-3%
3.5%+
Expected Growth Until 2020 of Top 50 MSAs by GMP
18
Top 50 MSAs by Expected GMP Growth Until 2020Macroeconomic Filter
Source: TSG Research, United States Conference of Mayors
4.1%+
Salt Lake City: 3.7%
Houston-Sugarland-Baytown: 4.0%
Dallas-Fort Worth-Arlington: 4.0%
Atlanta-Sandy Springs-Marietta: 3.6%Phoenix-Mesa-Glendale: 4.0%
San Diego-Carlsbad-San Marcos: 3.5%
Sacramento-Arden Arcade-Roseville: 3.8%
Denver-Aurora-Broomfield: 3.5%
Tampa-St Petersburg-Clearwater: 3.4%
Riverside-San Bernardino-Ontario: 4.2%
Orlando-Kissimmee-Sanford: 4.1%
Austin-Round Rock-San Marcos: 4.4%
San Jose-Sunnyvale-Santa Clara: 3.9% Las
Vegas-Paradise: 3.8%
San Antonio-New Braunfels: 3.7%
Jacksonville: 3.3%
Raleigh-Cary: 4.3%
Portland-Vancouver-Hillsboro: 4.0%
Midland : 5.8%
Greeley: 4.8%
St. George: 4.6%
Provo-Orem: 4.6%
Naples-Marco Island: 4.5%Laredo: 4.3%
Palm Coast: 4.3%
Fayetteville-Springdale-Rogers: 4.2%
Bakersfield-Delano: 4.1%
Durham-Chapel Hill: 4.3%
Logan: 4.0%
Cape Coral-Fort Myers: 4.0%
Wilmington: 3.9%
Ogden-Clearfield: 3.9%
Myrtle Beach-North Myrtle Beach-Conway: 3.8%
Las Cruces: 3.7%
Visalia-Porterville: 3.7%
Port St. Lucie: 3.7%
Fargo: 3.6%
Madera-Chowchilla: 3.6%
Ocala: 3.6%
Grand Junction: 3.6%
Charlotte-Gastonia-Rock Hill: 3.5%
Modesto: 3.5%Ocean City: 3.5%
Stockton: 3.5%
Gainesville: 3.5%Odessa: 3.4%
Merced: 3.5%
North Port-Bradenton-Sarasota: 3.4%
Vallejo-Fairfield: 3.4%
Prescott: 3.4%
3.8-4.0%3.4-3.7%
Top 50 MSAs by Expected GMP Growth Until 2020
______________________________________________________________________Source: TSG Research, United States Conference of Mayors
Industrial Construction Revenue(Dollars in Millions)
Trade Weighted Index
The Rod & Wire industry performance is sensitive to industrial building construction in the U.S.
Revenue in the U.S. industrial building construction industry is expected to grow 4.2% to $41.2 billion at an annual compounding growth rate during the next five years. This is a substantial decrease of the five years to 2017 growth of 7.6% The Federal Reserve is expected to continue raising interest rates throughout 2018, making borrowing costs
more expensive and limiting expansion of inflation rates. These forecasts never include a recession
19
Macroeconomic Filter U.S. Industrial Building Outlook
Source: IBISWolrd
0
10,000
20,000
30,000
40,000
50,000
60,000
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
70.0
75.0
80.0
85.0
90.0
95.0
100.0
105.0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Global Automobile Manufacturing(Units in Millions)
U.S. Automobile Manufacturing(Units in Millions)
The Rod & Wire industry performance is also impacted by the number of new vehicles produced and demand for automobile parts.
Global demand from the Car and Automobile Manufacturing industry is expected to increase at an annual compounding growth rate of 1.5% during the next five years to 2022; this is a $2.5 trillion industry
U.S. demand from the Car and Automobile Manufacturing industry is expected to decline at an annual compounding growth rate of -0.3% during the next five years to 2022 However, total U.S. transportation construction and related market activity, which includes investment in
highways, bridges, public transit, rail, ports, waterways, airports, roads, and parking was expected to see 1.3% growth in 2017
20
Macroeconomic Filter Car & Automobile Manufacturing Outlook
Source: IBISWolrd
10
13
15
18
20
2010
2011
2012
2013
2014
2015
2016
P
2017
P
2018
P
2019
P
2020
P
Actual Projected
70
80
90
100
110
2010
2011
2012
2013
2014
2015
2016
P
2017
P
2018
P
2019
P
2020
P
Actual Projected
Macroeconomic Filter NAFTA
______________________________________________________________________Source: New York Time
Implemented between 1994 and 2008, NAFTA eliminated tariffs on products traded in between Canada, Mexico, and the United States
Although there are many benefits to the agreement, the deal has become a point of discussion for many political candidates, including President Trump
President Trump has also threatened to completely withdraw from NAFTA, leading to serious consequences for the U.S., these include
3.5% tariffs per WTO rules, a portion of which consumers will pay for
Disruption of current North American supply chains that take advantage of differing costs and resources
In May 2017, NAFTA renegotiations started between the three countries
Although specific details have yet to be released, it has been said that the U.S. will focus on reducing the U.S. trade deficit, tightening rules-of-origin requirements, reforming the investor-state dispute resolution mechanism, and updating the pact for digital services and intellectual property
21
Macroeconomic FilterSection 232
______________________________________________________________________Source: New York Time
22
President Trump is possibly moving with his pledge to protect domestic steelmakers against unfairly priced steel imports with Section 232
Anti-China sentiment, which is currently the U.S.’s 11th
largest source of steel imports, is thought to be a primary reason for the campaign pledge
Because many countries could be affected by the blanket Section 232 ruling, European countries, particularly the U.K., worry supplies from their region will have to deal with duties that could hit their steelmakers disproportionately hard
Canada and Mexico are both in the top five steel exporters to the U.S., along with Brazil, South Korea, and Turkey
81% of U.S. imports come from ten countries
Canada17%
Brazil13%
South Korea12%
Mexico9%
Turkey7%
Japan7%
Russia6%
Germany4%
Taiwan3%
Vietnam3%
Rest of World19%
U.S. Steel Imports – Top Sources 2016
Competitive Outlook IV
Competitive OutlookU.S. Rod Market Volumes in units
2,064,763 1,715,265
2,065,286
402,045
382,000
450,213
1,343,294
1,350,222
1,446,082
(102,122) (94,686) (94,649)
3,707,980
3,352,801
3,866,932
(500,000)
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
3,500,000
4,000,000
4,500,000
2015 2016 2017
US Rod Shipments US Mini-Mill Consumption Rod Imports Rod Exports
*
*2017 annualized based on January - October
______________________________________________________________________Source: American Wire Producers Association
24
25
Locations of U.S. Carbon Rod MillsRod Mill Competitive Landscape – Upstream ProducersCompetitive Outlook
Source: TSG ResearchNote: Long carbon steel mills include ArcelorMittal, Cascade Steel, CMC, EVRAZ, Gerdau, Nucor and Timken.
Limited greenfield additions: volume increases through
productivity expansion
26
Intermediate Rod/Wire Processors Competitive Outlook
Representative Examples
Carbon Steel
Leading Processors – by Wire Product Type
27
Stainless Steel Aluminum Copper Electrical Other(Nickel, Titanium, Brass, etc.)
Specialty Steel(Annealed, bright, galvanized, etc.)
Wire Products – Finished Products/End MarketsCompetitive Outlook
Source: TSG Research
Leading Processors – by Wire Product Type (Green = generally higher margins)
28
Wire Products – Finished Products/End MarketCompetitive Outlook
LowCarbon Plating Quality Galvanized Straight & CutHigh
Carbon Mesh Deformed Wire
LacingWire
Source: TSG Research, Green boxes indicate high margin categories.
29
Wire Products – Finished Products/End MarketCompetitive Outlook
Leading Processors – by Wire Product Type (cont.) (Green = generally higher margins)
MusicWire
ColdHeading
WeldingWire
WireRope Shapes CF BarPC
Strand
Source: TSG Research, Green boxes indicate high margin categories
30
Two Different Growth StrategiesCompetitive Outlook
Source: Wall Street research
Vertical Integration End Market Concentration
• >60% capacity from owned specialty fabricators located near rod-mills
• More reliable and projectable shipments and revenue
• Control over input prices
• Fabricators dispersed around the U.S. or near customers
• Obtain long term supply agreements with customers/mills
• Just-In-Time delivery, low shipping costs
Precision Wire Products, Inc.
31
Growth Strategies Drivers - CurrenciesCompetitive Outlook
Source: XE Corporation, U.S. Census Bureau
• A weak dollar means U.S. currency purchases less of another country’s products or services• This leads to an increase in import pricing• A weak dollar could lead to more competitive export pricing for the U.S., which can create
U.S. jobs, if capacity existed• China, like many other government controlled economies, manages its currency, making its
export products more attractive• Currency conflicts can lead to trade wars and import tariffs, which are often
counterproductive
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
3,500,000
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Goods Services Total
U.S. $ to EUR U.S. Imports ($ in millions)
Capital Markets V
The financial system facilitates economic growth by providing four basic services:
Facilitating trade;
Facilitating risk management for various individuals and businesses;
Mobilizing resources; and
Obtaining information, evaluating businesses and individuals based on this information, and allocating capital
As businesses grow they can access both debt and equity financing, and the mix of these two, called the “capital structure” decision, is an important choice every business makes
A rich diversity of financing sources is provided by the U.S. financial system.
This diversity helps U.S. consumers and businesses to better manage their risks and lowers their cost of capital, but is cyclical
The ability of businesses to access debt and equity financing is tied strongly to the economy
During periods of economic growth, access to capital is readily available
On the contrary, during recessions, finding capital investments is much more restricted
Capital MarketsAvailability of Capital is Tied to the Economy
______________________________________________________________________Source: IMF
33
Mergers and acquisitions volume is driven by companies’ desire for continued growth (“Inorganic growth”)
Also, often large, well-established companies, as well as smaller companies, turn to M&A in need of long-term growth
M&A is often undertaken with the intention to expand customer base, geographic, scale/expansion, and vertical or horizontal integration (“investment themes”)
Companies must simultaneously exploit existing profitable business models to run their core business and also explore new products, markets, and models to drive growth
The intention, quite reasonably, is that the resulting combination of products, people and pipelines will grow ROIC/ROE
Revenue synergies also alter the competitive balance of power and create opportunities to change market dynamics, sell more products, or raise prices
Capital MarketsMergers & Acquisitions Driven by Need for Growth
______________________________________________________________________Source: Hinge Marketing
34
Capital MarketsMergers & Acquisitions Driven by Need for Growth
______________________________________________________________________Source: Hinge Marketing
35
Internal M&A Drivers External M&A Drivers
Customer base Regulation
Geography Energy costs
Economies of scale Environmental
Vertical integration Labor
Horizontal integration Currency fluctuations
Product/service expansion Technology
Retail synergies
Pursue cost/scale synergies
Expand customer base in existing geographic market
Enter new geographic markets
Expand products/services
Obtain bargain-priced assets
Talent acquisition
Technology acquisition
Digital strategy
Fall 2017 Fall 2016
36
Extensive Partner Experience
Broad Capabilities
Wilshire Total Market And U.S. GDPCapital Markets
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
13,000
13,500
14,000
14,500
15,000
15,500
16,000
16,500
17,000
17,500
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
U.S. GDP ($ in billions) S&P Annual Return
Capital MarketsGDP, Private Investment and the Federal Funds Rate
______________________________________________________________________Source: Federal Reserve Bank of St. Louis.
0.0%1.0%2.0%3.0%4.0%5.0%6.0%7.0%8.0%9.0%10.0%
$- $2,000 $4,000 $6,000 $8,000
$10,000 $12,000 $14,000 $16,000 $18,000 $20,000
2000
2000
2001
2002
2003
2003
2004
2005
2006
2006
2007
2008
2009
2009
2010
2011
2012
2012
2013
2014
2015
2015
2016
2017
2018
($ in
Bill
ions
)
US GDP US Private Investment Federal Funds Rate
Lower interest rates encourage investment spending, boosting the economy in times of slow growth
The Federal Reserve Board sets the interest rates to increase and decrease demand for services
Recently the U.S. has been periodically increasing the interest rate, and that trend is expected to continue
During the 2008, the Fed lowered rates to 0.25% and it remained there until the end of 2015, when it was raised to 0.5%
The Federal Reserve is expected to increase the rate to 2% in 2018, 2.5% in 2019, and 3% in 2020
Capital MarketsMetals and Mining M&A Summary
______________________________________________________________________Source: Pitchbook.
850
713
$26.30
$35.90
$0
$5
$10
$15
$20
$25
$30
$35
$40
600
650
700
750
800
850
900
# Deals Average Deal Size ($ in mm)
Consolidation III
40
Focused Approach
Broad Capabilities
Industry Historical ROIConsolidation
Source: CapitalIQ
-10%
-5%
0%
5%
10%
15%
20%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
North American Wire Fabricators Global Wire Fabricators S&P 500
41
Focused Approach
Broad Capabilities
Rod and wire investing themes are cyclical, as the industry is heavily influenced by commodity prices, the health ofthe U.S. and global economy, government policy, and foreign exchange rates
Moving forward, product price improvements will help increase capital flows, as will the shift of demographics in ageas well as movement to the Sun Belt
The wire market should experience increased consolidation, particularly in the U.S., in order to improve margins,reduce excess capacity and diversify product mix, but only after baby-boomer ownership looks to retire and seekliquidity
Organic growth in upstream/intermediate is very difficult as the market is over capacitated with swing imports(limited Greenfields)
The current trade environment and weakening U.S. Dollar will lead to consolidation
Energy, wage and regulatory costs make it harder for domestic wire manufacturers to remain profitable
Companies will need to scale to effectively leverage the rod market at various price points
Trends and Opportunities – Rod and WireConsolidation
Source: Market Research, IBISWorld and TSG Research.
Ownership # EnterprisesPublic 2,466Sponsor-Backed 814Independent 18,933Total 22,213
U.S. and Canada Metal and Mining Companies
* Primary contacts.
The Spartan Group LLC16 N. Marengo Ave, Suite 307
Pasadena, CA 91101Telephone: +1 (626) 204-6376
Fax: +1 (626) 204-6377
John Johnson*Managing Director+1 (626) 204-6380
Peter Morgan*Managing Director+1 (415) 388-5684
Juan MondragónSenior Vice President
+1 (626) [email protected]
Benjamin TillisAnalyst
+1 (626) [email protected]