Industrial Investment Banking Round-Up - KeyBank
21
Industrial Investment Banking Round-Up Capital Markets Perspectives As of October 16 th , 2020 Sources: CNBC, WSJ, Dealogic, KeyBanc Capital Markets Disclosure: KeyBanc Capital Markets is a trade name under which corporate and investment banking products and services of KeyCorp and its subsidiaries, KeyBanc Capital Markets Inc., Member FINRA/SIPC and KeyBank National Association (“KeyBank N.A.”), are marketed. Securities products and services are offered by KeyBanc Capital Markets Inc. and its licensed securities representatives, who may also be employees of KeyBank N.A. Banking products and services are offered by KeyBank N.A. This report was not issued by our research department. The information contained in this report has been obtained from sources deemed to be reliable but is not represented to be complete and it should not be relied upon as such. This report does not purport to be a complete analysis of any security, issuer, or industry and is not an offer or a solicitation of an offer to buy or sell any securities. This report is prepared for general information purposes only and does not consider the specific investment objectives, financial situation and particular needs of any individual person or entity. Real-Time Market Perspectives • The Fed recently released minutes from its September 16 th meeting that featured extensive discussion about the economy’s better than expected performance due to the fiscal stimulus packages provided – Despite the fiscal relief, GDP plunged 31.4% in Q2 2020 but is expected to be on track to recoup most of those losses in Q3 2020 • Container throughput at the Port of Los Angeles hit an all-time high in Q3 2020, handling 2.7 million containers from July through September, up by 5.9% from the same quarter a year ago and exhibiting few signs of slowing down – Total volume for Q3 2020, typically the peak season for container shipping, was also a 38% increase over the pandemic-hit Q2 • M&A activity has continued to rebound despite pandemic-related headwinds, with deal volume expected to return to 2019 levels in the 2H 2020, a promising picture after the 1H 2020 had deal volume come in at $404 billion, 68.9% lower than the year prior – Overall, Q3 2020 deal volume totaled $509 billion, a 37.9% increase versus Q3 2019, which totaled $369 billion – Sponsors have been very aggressive in recent months, with an ~8x boom of deal volume that reached $179 billion in Q3 2020 versus $22 billion the prior quarter These trends are indicative of many businesses returning to near-normalized levels and sellers’ willingness to evaluate transactions, as buyer aggression grows and many anticipate potential tax changes to occur in early Q1 2021 Debt Capital Markets • The leveraged loan market continues to improve as pricing grinds tighter for repeat issuers with higher credit rating profiles, as 19 of 29 deals flexed in September – The average break price for U.S. leveraged loans that allocated in September rose 23 bps to 99.60% of par, from 99.37% in August – Middle market leveraged loan activity is starting to clear for several sponsor-to-sponsor deals, with additional add-on acquisitions emerging, while flexes and terms remain issuer specific – Dividend transactions also continue to clear the market, signaling strengthening conditions • CLOs have seen tighter spreads on AAAs, with those spreads recovering about 90% versus pre-COVID levels, in addition to well known money managers pricing deals at aggressive levels • The high yield bond market set a September record for issuance volume, while Q3 2020 came in second for top ten quarterly issuance volumes – October is experiencing significant new issue volume with 24 deals already pricing for $14.0 billion Two additional deals for Ports America and Ligado Networks are slated to price, bringing MTD new issue volume to $14.5 billion • The high yield asset class recouped approximately $5.8 billion of inflows over the past two weeks, which follows $7.8 billion of outflows the preceding two weeks – High yield bond yields and spreads have rallied recently, sitting at 5.86% / 556 bps versus 6.59% / 628 bps in late September • The investment grade fixed income market has seen many companies in “blackout” mode, with issuance being light as of late – Activity has been lighter than expected because some of the bank names that usually hit the market around this time have been absent • Volatility in the equity markets has not spilled over into the investment grade bond market, as investors are still signaling strong demand given the continued inflows – Issuance is 69.7% ahead of last year at $1.6 trillion, with domestic industrial issuance 122% ahead of last year Equity Capital Markets • With $379 billion raised in the first nine months, 2020 has already broken the record for the highest full-year U.S.-listed equity capital markets volume, beating the previous record of $351 billion in the 2000s during the Dot.com era – Both IPOs and convertibles helped boost the volume this year, with SPAC IPOs contributing 45% of activity (118 out of 259 deals) For the first nine months of 2020, U.S. SPAC IPOs stood at $44 billion, surpassing previous full year volumes dating back to 2010 • Equity issuance is expected to slow down heading into the election and then pick back up beginning the week of November 9 th post-election with several IPOs looking to launch virtual roadshows
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Transcript of Industrial Investment Banking Round-Up - KeyBank
Industrial Investment Banking Round-UpCapital Markets PerspectivesAs of October 16th, 2020
Sources: CNBC, WSJ, Dealogic, KeyBanc Capital Markets
Disclosure: KeyBanc Capital Markets is a trade name under which corporate and investment banking products and services of KeyCorp and its subsidiaries, KeyBanc Capital Markets Inc., Member FINRA/SIPC and KeyBank National Association (“KeyBank N.A.”), are marketed. Securities products and services are offered by KeyBanc Capital Markets Inc. and its licensed securities representatives, who may also be employees of KeyBank N.A. Banking products and services are offered by KeyBank N.A. This report was not issued by our research department. The information contained in this report has been obtained from sources deemed to be reliable but is not represented to be complete and it should not be relied upon as such. This report does not purport to be a complete analysis of any security, issuer, or industry and is not an offer or a solicitation of an offer to buy or sell any securities. This report is prepared for general information purposes only and does not consider the specific investment objectives, financial situation and particular needs of any individual person or entity.
Real-Time Market Perspectives• The Fed recently released minutes from its September 16th meeting that featured extensive discussion about the economy’s
better than expected performance due to the fiscal stimulus packages provided
– Despite the fiscal relief, GDP plunged 31.4% in Q2 2020 but is expected to be on track to recoup most of those losses in Q3 2020
• Container throughput at the Port of Los Angeles hit an all-time high in Q3 2020, handling 2.7 million containers from July through September, up by 5.9% from the same quarter a year ago and exhibiting few signs of slowing down
– Total volume for Q3 2020, typically the peak season for container shipping, was also a 38% increase over the pandemic-hit Q2
• M&A activity has continued to rebound despite pandemic-related headwinds, with deal volume expected to return to 2019 levels in the 2H 2020, a promising picture after the 1H 2020 had deal volume come in at $404 billion, 68.9% lower than the year prior
– Overall, Q3 2020 deal volume totaled $509 billion, a 37.9% increase versus Q3 2019, which totaled $369 billion
– Sponsors have been very aggressive in recent months, with an ~8x boom of deal volume that reached $179 billion in Q3 2020 versus $22 billion the prior quarter
These trends are indicative of many businesses returning to near-normalized levels and sellers’ willingness to evaluate transactions, as buyer aggression grows and many anticipate potential tax changes to occur in early Q1 2021
Debt Capital Markets• The leveraged loan market continues to improve as pricing grinds tighter for repeat issuers with higher credit rating profiles, as
19 of 29 deals flexed in September
– The average break price for U.S. leveraged loans that allocated in September rose 23 bps to 99.60% of par, from 99.37% in August
– Middle market leveraged loan activity is starting to clear for several sponsor-to-sponsor deals, with additional add-on acquisitions emerging, while flexes and terms remain issuer specific
– Dividend transactions also continue to clear the market, signaling strengthening conditions
• CLOs have seen tighter spreads on AAAs, with those spreads recovering about 90% versus pre-COVID levels, in addition to well known money managers pricing deals at aggressive levels
• The high yield bond market set a September record for issuance volume, while Q3 2020 came in second for top ten quarterly issuance volumes
– October is experiencing significant new issue volume with 24 deals already pricing for $14.0 billion
Two additional deals for Ports America and Ligado Networks are slated to price, bringing MTD new issue volume to $14.5 billion
• The high yield asset class recouped approximately $5.8 billion of inflows over the past two weeks, which follows $7.8 billion of outflows the preceding two weeks
– High yield bond yields and spreads have rallied recently, sitting at 5.86% / 556 bps versus 6.59% / 628 bps in late September
• The investment grade fixed income market has seen many companies in “blackout” mode, with issuance being light as of late
– Activity has been lighter than expected because some of the bank names that usually hit the market around this time have been absent
• Volatility in the equity markets has not spilled over into the investment grade bond market, as investors are still signaling strong demand given the continued inflows
– Issuance is 69.7% ahead of last year at $1.6 trillion, with domestic industrial issuance 122% ahead of last year
Equity Capital Markets• With $379 billion raised in the first nine months, 2020 has already broken the record for the highest full-year U.S.-listed equity
capital markets volume, beating the previous record of $351 billion in the 2000s during the Dot.com era
– Both IPOs and convertibles helped boost the volume this year, with SPAC IPOs contributing 45% of activity (118 out of 259 deals)
For the first nine months of 2020, U.S. SPAC IPOs stood at $44 billion, surpassing previous full year volumes dating back to 2010
• Equity issuance is expected to slow down heading into the election and then pick back up beginning the week of November 9th
post-election with several IPOs looking to launch virtual roadshows
Industrial Investment Banking Round-UpBuilding ProductsAs of October 16th, 2020
(60%)
(45%)
(30%)
(15%)
0%
15%
30%
Feb-21 Mar-27 May-01 Jun-05 Jul-10 Aug-14 Sep-185.0x
10.0x
15.0x
Feb-21 Mar-27 May-01 Jun-05 Jul-10 Aug-14 Sep-18
Building Products Market Perspective• Employment conditions reeled last week while the Labor Department recorded 898,000 new unemployment claims, just above
economists’ estimates of 830,000
– Last week represented the highest unemployment level since August 22nd, signaling the ongoing struggles within the labor market
– Additionally, the Labor Department recorded a significant drop in continuing unemployment claims, which decreased by ~1 million this week to 10 million
• Homebuilders continue to grapple with skyrocketing OSB lumber costs, which have jumped 138% year-over-year
– Sawmills have been unable to meet current elevated demand and lead times have nearly doubled
– Homebuilders have found several ways to mitigate material costs including offsite construction, which features pre-built framing panels for walls, floors and roofing
– PulteGroup acquired Innovative Construction Group in January, a panelization company, as part of its strategic plan to convert most of its nationwide production into offsite built panels and components
– Additionally, an influx of alternative materials for sheathing, including gypsum, rigid foam and ThermoPly, have gained popularity as OSB lumber prices and lead times continue to rise
– Brian McMullen of Ox Engineered Products, a manufacturer of ThermoPly, noted that the product has been installed in five millionhomes, is being used by each of the nations top ten homebuilders, provides on average $1,400 in savings on a typical 2,200 square foot home and has maintained constant prices and lead times over the past five years
• Installed Building Products completed its sixth acquisition since the start of 2020, buying Insulation Contractors/Magellan Insulation
– IBP has acquired over $84 million of annual revenues in 2020 and will continue to seek bolt-on acquisitions as a major component of its growth strategy going forward
Sources: Builder Online, CNBC, NAHB, NAR, Wall Street ResearchNote: Market data as of 10/14/2020; Manufacturing (Large Cap): ALLE, AOS, ASX:JHX, CSL, FBHS, HUBB, IR, LII, MAS, MHK, NYSE:CNR, OC, SHW, SWK; Manufacturing (Mid Cap): AAON, AMWD, AWI, AYI, BCC, CREE, CVCO, DOOR, FRTA, GFF, JELD, LPX, NYSE:LCII, PATK, ROCK, SSD, TILE, TREX, TSX:OSB, WMS; Manufacturing (Small Cap): AFI, APOG, CSTE, DXYN, IIIN, LYTS, NX, NYSE:SKY, PGTI, TGLS; Distribution / Installation: BECN, BLD, BLDR, BMCH, BXC, FBM, GMS, HDS, IBP, POOL, SIC, SITE, TSX:HDI, UFPI, WSO
Disclosure: KeyBanc Capital Markets is a trade name under which corporate and investment banking products and services of KeyCorp and its subsidiaries, KeyBanc Capital Markets Inc., Member FINRA/SIPC and KeyBank National Association (“KeyBank N.A.”), are marketed. Securities products and services are offered by KeyBanc Capital Markets Inc. and its licensed securities representatives, who may also be employees of KeyBank N.A. Banking products and services are offered by KeyBank N.A. This report was not issued by our research department. The information contained in this report has been obtained from sources deemed to be reliable but is not represented to be complete and it should not be relied upon as such. This report does not purport to be a complete analysis of any security, issuer, or industry and is not an offer or a solicitation of an offer to buy or sell any securities. This report is prepared for general information purposes only and does not consider the specific investment objectives, financial situation and particular needs of any individual person or entity.
For additional information on KeyBanc Capital Markets, please contact any of the individuals listed below:Building Products Team
Public Company Stock Performance Since February 21 Public Company Trading Performance Since February 21
(8%)
8%5%(1%)
14.8x
10.2x
Manufacturing (Large Cap) Manufacturing (Mid Cap) Manufacturing (Small Cap) Distribution / Installation S&P 500
13.7x
37%
Pat CurryManaging Director
Head of Building Products
212.476.7428
J.R. Doolos Managing Director
Industrial M&A
216.689.7674
Cole MorrisonAnalyst
Building Products
212.476.7477
Ali Zahrieh Associate
Building Products
212.476.7467
(Enterprise Value / Next-Twelve-Months EBITDA)(Indexed to 0%)
9.5x
Oct-14 Oct-14
Industrial Investment Banking Round-UpChemicals & Materials
As of October 16th, 2020
10-Yr. Avg 1-Yr. Avg 3-Mon. Avg. 1-Mon. Avg.
Specialties 10.6x 14.2x 15.7x 15.6x
Commodities / Diversified 6.9x 8.1x 8.8x 8.9x
0.0x
2.0x
4.0x
6.0x
8.0x
10.0x
12.0x
14.0x
16.0x
18.0x
Oct-19 Oct-20
Specialties Commodities / Diversified
(50.0%)
(40.0%)
(30.0%)
(20.0%)
(10.0%)
-
10.0%
20.0%
30.0%
Oct-19 Oct-20
Specialties Commodities / Diversified S&P 500
Chemicals & Materials Market Perspectives• The Chemicals indexes moved sideways over the last month, with Specialties down -1.7% and Commodities / Diversifieds up 1.2%
– Q3 reporting will define the next several weeks leading to the election
– Rebounding revenue trends from Q2 nadir continue with offsetting concerns about increasing layoffs – Evonik pre-released 3Q beating consensus estimates and demonstrating
a month-over-month upwards trend
• M&A gained strong momentum in the past month, supported by continued strength in leveraged finance:
– The Jordan Company will acquire Potters from PQ
– Cinven / Barentz will acquire Maroon Group from CI Capital
– Ardian will acquire a 50% stake in Angus from Golden Gate Capital
– IK Investment Partners will acquire Kersia from Ardian
– ChemChina / Syngenta acquired Valagro SPA from Metalmark
– American Vanguard acquired Agrinos
– Stone Canyon / Kissner will acquire the Americas Salt business of K + S
– Mitsui Chemicals / SDC Technologies will acquire Cotec Gmbh
– LyondellBasell will acquire the Louisiana-based LDPE / ethane assets from Sasol
– Flint Group acquired Poteet Printing Systems
– Covestro will acquire the Resins & Functional Materials business of DSM
– Herbstreith & Fox KG acquired the pectin business of Givaudan
– Black Diamond and InvestIndustrial will acquire Hexion PSR
– Sterling Auxiliaries will acquire the Sand Springs business of Baker Hughes
– EQT will acquire the Natural Colors business of Chr. Hansen
– Total Lubrifiants acquired Lubrilog SAS
Sources: Capital IQ as of 10/15/2020
Commodities / Diversified: ASIX, ENXTPA:AKE, ASH, XTRA:BAS, BOVESPA:BRKM5, CBT, SWX:CLN, CE, NYSE:CF, CINR, NYSE:CMP, XTRA:1COV, NYSE:UAN, Dow, EMN, XTRA:EVK,NYSE: FOE, HUN, IPHS, TASE: ICL, KPLUY, ENXTAM:DSM, KOP,
KRA, KRO, LXS, LYB, TSX:MX, MTX, TSX:NTR, OLN, BMV:ORBIA *,AVNT, SASE:2010,SOLB, LSE:SYNT,CC,NYSE:MOS,NYSE:MOS,TSE,TROX,VNTR,WLK, XTRA:WCH,OB:YAR
Specialty: NasdaqGS:AGFS, APD, ENXTAM:AKZA, ALB, AVD, AXTA, BCPC, CCMP, CBM,LSE:CRDA, NYSE:CTVA,NYSE:DD,ECL, ESI, ENTG, FMC, GIVN, FUL, HXL, XTRA:HEN3,NGVT, IFF, ENXTPA:AI, LIN, LONN, NEU, PPG, KWR, RPM, SXT, SY1,
SHW, GRA
Disclosure: KeyBanc Capital Markets is a trade name under which corporate and investment banking products and services of KeyCorp and its subsidiaries, KeyBanc Capital Markets Inc., Member FINRA/SIPC and KeyBank National Association (“KeyBank
N.A.”), are marketed. Securities products and services are offered by KeyBanc Capital Markets Inc. and its licensed securities representatives, who may also be employees of KeyBank N.A. Banking products and services are offered by KeyBank N.A. This report
was not issued by our research department. The information contained in this report has been obtained from sources deemed to be reliable but is not represented to be complete and it should not be relied upon as such. This report does not purport to be a
complete analysis of any security, issuer, or industry and is not an offer or a solicitation of an offer to buy or sell any securities. This report is prepared for general information purposes only and does not consider the specific investment objectives, financial
situation and particular needs of any individual person or entity.
Trading Perspectives by Sector
Share Price Performance by Sector Enterprise Value / NTM EBITDA
For additional information on KeyBanc Capital Markets, please contact any of the individuals listed below:
Chemicals and Materials Team
Chris Hogan
Managing Director
Chemicals M&A
216.689.3447
Luke Korney
Associate
Chemicals & Materials
216.689.4716
Trent Glasser
Analyst
Chemicals & Materials
216.689.3318
David Ruf
Managing Director
Head of Chemicals & Materials
212.476.7424
Share Price Performance by Sector Enterprise Value / NTM EBITDA
15.7x
6.9x
20.2%
(1.9%)
% of 52-Week High: 97.6%
% of 52-Week High: 90.9%
10.6x
9.0x
10-Yr. Avg.
10-Yr. Avg.
17.6%
10-Yr. 1-Yr. 3-Mon. 1-Mon.
Specialties 169.1% 20.2% 5.2% (1.7%)
Commodities / Diversified 5.4% (1.9%) 11.3% 1.2%
S&P 500 196.6% 17.6% 8.1% 2.6%
Industrial Investment Banking Round-UpDiversified IndustrialsAs of October 16th, 2020
5.0x
10.0x
15.0x
20.0x
Sources: Institute for Supply Management (ISM), Wall Street Research, Capital IQ market data as of 10/14/20Note: PMI: Readings above 50 indicate activity is expanding across the manufacturing sector, while those below 50 signal contractionCapital Goods: CFX, GNRC, LECO, MTW, THR, TNC; Construction: ASTE, CAT, DE, MTW, TEX; Engineered Components: EPAC, HI, KMT, NPO, NVT; Flow Control / Water: AOS, AQUA, BMI, FELE, PNR, WTS, XYL; Food Equipment: ITW, JBT, MIDD, WBT; Industrial Technology: CTS, GGG, IEX, LFUS, NDSN; Large Cap Diversifieds: AME, DOV, EMR, ETN, HON, ITW, JCI, PH; Power Transmission: AIMC, RBC, RXN, TKR; Diversified Index: Average of all indexes
Disclosure: KeyBanc Capital Markets is a trade name under which corporate and investment banking products and services of KeyCorp and its subsidiaries, KeyBanc Capital Markets Inc., Member FINRA/SIPC and KeyBank National Association (“KeyBank N.A.”), are marketed. Securities products and services are offered by KeyBanc Capital Markets Inc. and its licensed securities representatives, who may also be employees of KeyBank N.A. Banking products and services are offered by KeyBank N.A. This report was not issued by our research department. The information contained in this report has been obtained from sources deemed to be reliable but is not represented to be complete and it should not be relied upon as such. This report does not purport to be a complete analysis of any security, issuer, or industry and is not an offer or a solicitation of an offer to buy or sell any securities. This report is prepared for general information purposes only and does not consider the specific investment objectives, financial situation and particular needs of any individual person or entity.
Recent Economic Trends in Manufacturing
• PMI decreased sequentially in September to 55.4 from 56.0 in August; New Orders component decreased to 60.2 vs. previous month’s 67.6
• Manufacturing performed well in the month of September with demand, consumption and inputs registering growth indicative of a normal expansion cycle
• While certain industry sectors are experiencing difficulties that will continue in the near term, the manufacturing community as a whole has learned to conduct business effectively and deal with the variables imposed by the COVID-19 pandemic
For additional information on KeyBanc Capital Markets, please contact any of the individuals listed below:Diversified Industrials Team
Marco PalacioVice President
216.689.3096
Luke KorneyAssociate
216.689.4716
Chris RoehmManaging Director
312.730.2708
TJ MonicoManaging Director
216.689.3079
Jeff JohnstonManaging Director, M&A
216.689.4115
Connor WillseyAnalyst
312.730.2790
19.0x
Diversified Industrials EV / LTM EBITDA Trading Dashboard
15.9x
15.4x
21.9x
17.5x
15.9x
10.4x
11.6x
15.5x
Overall, diversified industrials sector valuations have fully recovered, and in some cases exceeded pre-pandemic levels
Category Current1-Month
Avg.r vs.
1-MonthYTD Avg.
r vs. YTD
Industrial Technology 21.9x 21.1x 0.9x 17.4x 4.5x
Food Equipment 19.0x 18.4x 0.5x 14.9x 4.1x
Flow Control / Water 17.5x 16.6x 0.9x 14.1x 3.4x
Capital Goods 15.9x 15.4x 0.5x 12.2x 3.7x
Construction 15.9x 15.1x 0.7x 11.8x 4.1x
Diversified Index 15.5x 15.0x 0.6x 12.4x 3.1x
Large Cap Diversifieds 15.4x 14.9x 0.5x 12.8x 2.6x
Power Transmission 11.6x 11.3x 0.3x 8.8x 2.8x
Engineered Components 10.4x 10.1x 0.4x 9.7x 0.7x
Historical PMI and New Orders
3Q20 Diversified Industrials Earnings Preview• Industrial demand recovery is bifurcated by market; end markets outperforming expectations include residential and institutional construction,
defense, medical and automotive
• Margin beats derived from temporary cost-outs will likely be largely overlooked, while those structural in nature preferred, but still evaluated on merit
– Temporary cuts today likely signal markets "lower for longer," while returning costs imply sustainable recovery taking place; as such, names with exposure to more resilient end markets will also likely fall in the structural / preferred cost bucket
• Expect wide range in consensus estimates and valuations for 2021E
– Weighing stimulus (upside) vs. tax (downside) is a key macro consideration; risk of second-wave shutdown also a considerable factor and near impossible to model, as it requires speculating on both pandemic and political outcomes; however, companies are better prepared to navigate related headwinds vs. the beginning of this year
Industrial Investment Banking Round-UpIndustrial & Business Services
As of October 16th, 2020
Disclosure: KeyBanc Capital Markets is a trade name under which corporate and investment banking products and services of KeyCorp and its subsidiaries, KeyBanc Capital Markets
Inc., Member FINRA/SIPC and KeyBank National Association (“KeyBank N.A.”), are marketed. Securities products and services are offered by KeyBanc Capital Markets Inc. and its
licensed securities representatives, who may also be employees of KeyBank N.A. Banking products and services are offered by KeyBank N.A. This report was not issued by our
research department. The information contained in this report has been obtained from sources deemed to be reliable but is not represented to be complete and it should not be relied
upon as such. This report does not purport to be a complete analysis of any security, issuer, or industry and is not an offer or a solicitation of an offer to buy or sell any securities. This
report is prepared for general information purposes only and does not consider the specific investment objectives, financial situation and particular needs of any individual person or entity.
For additional information on KeyBanc Capital Markets, please contact any of the individuals listed below:
Industrial & Business Services Team
Ed Hertz
Director, I&BS
216.689.5006
Steve Meehan
Associate, I&BS
216.689.3494
Luke Korney
Associate, I&BS
216.689.4716
Industrial & Business Services Subsector Median Trading Multiples
Steve Hughes
Managing Director, I&BS
216.689.4101
Field Services Construction Services Engineering & Consulting
Waste & Environmental Staffing / Training / Security Rental Services
John Wen
Analyst, I&BS
216.689.5089
Jeff Johnston
Managing Director, M&A
216.689.4115
7.6x 7.4x
9.0x 9.7x
3/31/2020 6/30/2020 9/30/2020 10/14/2020
4.9x 5.8x 5.1x 5.5x
3/31/2020 6/30/2020 9/30/2020 10/14/2020
12.0x 11.8x 12.4x 13.1x
3/31/2020 6/30/2020 9/30/2020 10/14/2020
11.4x 12.2x
13.4x 13.4x
3/31/2020 6/30/2020 9/30/2020 10/14/2020
5.4x
10.2x 9.0x
10.1x
3/31/2020 6/30/2020 9/30/2020 10/14/2020
8.7x 10.3x 10.8x 11.2x
3/31/2020 6/30/2020 9/30/2020 10/14/2020
Industrial & Business Services Market Perspectives
Near the deadline on September 30, the U.S. Senate passed a stopgap spending bill that averted a shutdown of federal agencies
and extended federal highway and transit programs for a full fiscal year, a crucial bill for some Industrial & Business Services
companies, particularly those serving government or infrastructure end markets
• The stopgap spending bill serves as a full fiscal year extension of the 2015 FAST Act, which was scheduled to lapse at midnight
on December 30
– The package includes a $13.6 billion infusion of cash for the Highway Trust Fund ($10.4 billion for highways and $3.2 billion for transit)
– The extension and funding infusion will provide states certainty for critical road and bridge projects across the states at a time when
many state infrastructure and highway funds have been drained due to COVID-related reduction in gas tax funding
• The construction industry added 26,000 jobs in September, a fifth straight month of job growth following the initial 1 million job
loss in April due to the pandemic shutdown
– Job growth in the industry continues to be concentrated in residential construction, which accounted for more than 22,000 of the
additional jobs whereas non-residential and infrastructure construction posted more modest gains
• Apple launched its first 5G-enabled phone with the iPhone 12 line driving renewed interest in 5G services from consumers and
putting new pressure on carriers to rollout robust 5G networks
– The heightened interest in 5G technology is expected to accelerate 5G deployment by AT&T, T-Mobile and Verizon, resulting in a spike
in demand for both wireless and wireline telecom infrastructure services nationwide
• Municipal waste collectors are seeking hazard pay due to the health risks and increased residential trash volumes from COVID
– Sanitation workers have been declared essential workers during the pandemic, but most were ineligible for federal hazard pay
– However, many city budgets have been devastated by the pandemic response and are unable to fund hazard bonuses for these workers
Industrial Investment Banking Round-UpDistribution
As of October 16th, 2020
Distribution Market Perspectives
• The distribution industry continued to recover through the third quarter with signals pointing to a favorable outlook
– In a recent industry survey, respondents reported a 3.2% decline in revenue growth → the slight contraction represents a significant
improvement from a tumultuous second quarter where distributors reported an average decline of 9.8%
▪ Two categories of note that have seen substantial performance rebounds in the third quarter are building products and industrial supplies
– Fastenal was one of a few public companies that grew in the past quarter, posting a gross sales increase of 2.5% and a profit increase of
3.7% compared to the third quarter of 2019 → the increase was driven by a 34.4% increase in daily sales of safety products
• Wholesale trade improved in August, increasing ~1.4% over July levels but was still down 2.3% compared August 2019 → the
increase represents a slowing of recovery in wholesale trade which had improved 4.8% from June to July
– Total inventories of merchant wholesalers for August were up slightly at $635.5 billion, 0.4% above July levels
• e-Commerce continues to be a driving force of recovery in today’s economy as online sales jumped 32% from Q1 to Q2 to
reach ~$212 billion
– Warehouse and Storage sector employment reached a new all-time high of 1.25 million workers in September partially due to the rapid
acceleration of e-commerce trends that had taken shape over the past decade
▪ Online channel dependence and new operational necessities as a result of the pandemic have paved the way for global shipping to reach 220
billion parcels by 2026 after exceeding 100 billion for the first time in 2019
– Booming e-Commerce has also impacted trucking spot rates and LTL volumes → average spot rates recently hit a record high of $2.46
per mile, an increase of 21% over July rates with LTL shipping volumes registering a 42% increase from March
• Over the past quarter most distribution industries returned to positive returns in the equity market → only Food / Foodservice
and Oil & Gas industries remain negative over the past 12 months due to the onset of the pandemic in March
– Across the distribution sector, consensus EBITDA estimates forecast a median increase of 9.2% from 2020 to 2021 → Food /
Foodservice and Oil & Gas are expected to see the largest gains with forecasted increases of 37.0% and 61.3% respectively
Sources: MDM, Supply Chain Dive, U.S. Census Bureau1 Leverage = Index Average Net Debt / NTM EBITDA
Disclosure: KeyBanc Capital Markets is a trade name under which corporate and investment banking products and services of KeyCorp and its subsidiaries, KeyBanc Capital Markets
Inc., Member FINRA/SIPC and KeyBank National Association (“KeyBank N.A.”), are marketed. Securities products and services are offered by KeyBanc Capital Markets Inc. and its
licensed securities representatives, who may also be employees of KeyBank N.A. Banking products and services are offered by KeyBank N.A. This report was not issued by our
research department. The information contained in this report has been obtained from sources deemed to be reliable but is not represented to be complete and it should not be relied
upon as such. This report does not purport to be a complete analysis of any security, issuer, or industry and is not an offer or a solicitation of an offer to buy or sell any securities. This
report is prepared for general information purposes only and does not consider the specific investment objectives, financial situation and particular needs of any individual person or entity.
Public Company 30-Day Stock Performance
(Indexed to 0.0%)
Public Company 30-Day Trading Performance
(EV / NTM EBITDA)
John EbertDirector
Distribution
216.689.3553
Will BeecherAssociate
Distribution
216.689.5683
Sam BeecherSenior Analyst
Distribution
216.689.5836
TJ MonicoManaging Director
Head of Distribution
216.689.3079
Jeff JohnstonManaging Director
Head of M&A
216.689.4115
For additional information on KeyBanc Capital Markets, please contact any of the Distribution Team individuals listed below:
Note: Market Data as of 10/14/2020; BL / Ind MRO: AIT, BOSN, FAST, GWW, HDS, LAWS, MSM, PKOH, SYX; O&G: DXPE, MRC, DNOW; Tech / E / E: ARW, AVT, BDC, ECM,
HWCC, RXL, SNX, TRNS, WCC; Food / Foods: BNZL, CHEF, CORE, PFGC, SYY, UNFI, USFD; Chem: BNR, DKSH, IMCD, UNVR; Vehicle: AAP, AZO, DORM, GPC, LKQ, MPAA,
ORLY, SMP, UNS; BP: BECN, BMCH, BLDR, BXC, FERG, FBM, GMS, HDI, RCH; Other: POOL, SITE, WSO
Broadline / Industrial MROOil & Gas
Technology / Electronics / ElectricalFood / Foodservice
ChemicalsVehicle Aftermarket
Building ProductsOther Specialty Distributors
S&P 500
1-Mo. 1-Wk. 1-Yr.
11% 5% 65%
11% 2% 34%
5% (2%) 5%
4% (0%) 17%
4% 2% (11%)
3% 1% 33%
3% 2% 18%
(3%) 3% 8%
(11%) (0%) (53%)
Average
Today 1-Mo. 1-Wk. 1-Yr. Lev.1
27.6x 26.1x 27.2x 22.4x 1.7x
20.7x 21.3x 21.1x 14.7x 2.5x
15.8x 15.4x 16.0x 13.3x 1.5x
13.4x 13.2x 13.4x 12.8x 2.0x
12.7x 12.6x 12.6x 13.1x 3.7x
11.7x 11.6x 11.7x 10.4x 2.2x
11.1x 11.0x 11.0x 10.0x 3.0x
8.9x 8.8x 8.9x 8.6x 3.5x
5.0x
10.0x
15.0x
20.0x
25.0x
30.0x
Sep-14 Sep-24 Oct-04 Oct-14
(20%)
(15%)
(10%)
(5%)
0%
5%
10%
15%
Sep-14 Sep-24 Oct-04 Oct-14
1
Global metals & mining review
Disclosure: KeyBanc Capital Markets is a trade name under which corporate and investment banking products and services of KeyCorp and its subsidiaries, KeyBanc Capital Markets Inc., Member FINRA/SIPC and KeyBank National Association (“KeyBank N.A.”), are marketed. Securities products and services are offered by KeyBanc Capital Markets Inc. and its licensed
securities representatives, who may also be employees of KeyBank N.A. Banking products and services are offered by KeyBank N.A. This report was not issued by our research department. The inf ormation contained in this report has been obtained from sources deemed to be reliable but is not represented to be complete and it should not be relied upon as such. This report does
not purport to be a complete analysis of any security, issuer, or industry and is not an offer or a solicitation of an offer to buy or sell any securities. This report is prepared for general inf ormation purposes only and does not consider the specific investment objectives, financial situation and particular needs of any individual person or entity.
Aluminum
▪ On September 15, the Trump Administration removed Section 232 duties on imported non-alloyed wrought aluminum productfrom Canada (retroactively effective September 1, 2020), just 40 days after the duties were reinstated. The duties have beenreplaced by a monthly import quota, imposing the duty if shipments surpass the quota. The Midwest U.S. Aluminum Premiumhas fallen from its recent year-to-date high in August, but remains above pre-duty levels
Steel
▪ Big River Steel has announced the opening of its second EAF, at its mill in Osceola, AK. The furnace will double the mill’sannual capacity to ~3.3 million tons and be will be commercially operational by November 2020. Big River has also announcedthe restart of its galvanizing line at the Osceola facility, after the site suffered damage from severe weather in late August
▪ JSW Steel USA, a subsidiary of India’s JSW Steel Ltd, has announced its intention to restart production at their EAF steel mill inMingo Junction, OH. The Company did not specify whether they would restart the hot-strip mill, or only the EAF and slabcaster(‘the melt-shop’). The melt-shop has an annual production capacity of ~1.5 million tons and the hot-strip mill has an annualrolling capacity of more than ~3.0 million tons. The facility was idled in July due to weak demand and is expected to resumeoperations in the 1Q of 2021
▪ Cleveland-Cliffs (‘Cliffs’) has entered into a definitive agreement to acquire ArcelorMittal’s U.S. operations for ~$3.3 billion. Thetransaction builds on Cliffs’ vertical integration strategy following Cliffs’ acquisition of AK Steel in March 2020. The transaction isexpected to close in the 4Q of 2020 and will establish Cliffs as the largest flat-rolledsteel producer in the U.S.
Copper, Lead and Zinc
▪ SDI La Farga, a joint venture between Steel Dynamics and La Farga Group, has invested $16 million to commission its secondshaft furnace at its facility in New Haven, IN. The furnace will increase the plant’s annual capacity by ~250 million lbs. andsupport enhanced production of electrolytic tough pitch (‘ETP’) copper rod products
Specialty & Alloys
▪ U.S. ferro-titanium pricing has continued to improve from an all-time low in August on a resurgence in demand and diminishingsupply. Pricing is up ~16% from an August 20th low, but remains down ~26% from a November 2017 high. Buyers havereturned to the market following Covid-19 shutdowns, but supply remains scarce due to decreased industrial production, whichis the primary source of scrap used to produce the alloy
Mining, Scrap and Materials
▪ ArcelorMittal Long Products Canada and Triple M Metal have announced the formation of Integrated metal Recycling LLC, ascrap recycling JV in Quebec, Canada. The new JV is comprised of Triple M’s Metrobec asset and ArcelorMittal’s four LegaultMétal sites (acquired in 2019). Integrated Metal Recycling will process a wide range of ferrous and non-ferrous metals, but willprimarily focus on supplying processed scrap to ArcelorMittal's steel mills and Triple M’s aluminum production facilitiesthroughout North America
▪ China has announced plans to release new standards for steel scrap imports by the end of 2020. The new rules will restrictimports of low-quality scrap with dangerous materials and pollutants. High local scrap costs, and rising scrap demand have ledto a call from the China Association of Metalscrap Utilization (CAMU), for the government to re-open the country to greaterquantities of ferrous scrap imports. An increase in ferrous imports will likely to have a ‘knock-on’ effect across the ferrous supplychain, as greater iron unit volumes will likely increase the bargaining power of Chinese iron ore buyers
3.5%
(3.3%)
(46.6%)
14.4%
(60.0%)
(40.0%)
(20.0%)
0.0%
20.0%
40.0%
Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20
Global Producers Service Centers Specialty Metals S&P 500
2
Capital markets update
Source: Capital IQ
Investment Grade and High Yield Bond Spreads (through October 9, 2020)
A and BBB rated bond spreads remained stable throughout September, while BB and B rated spreads declined sharply
Index Performance (through October 9, 2020)
All KeyBanc’s metals indices have underperformed the broader market over the past 12 months
Global Producers are up by 3.5% while Service Centers and Specialty Metals are down by (3.3%) and (46.6%), respectively
133
205
392
598
0
200
400
600
800
1,000
1,200
1,400
Oct-15 Oct-16 Oct-17 Oct-18 Oct-19 Oct-20
Sp
rea
d t
o M
atu
rity
A Index BBB Index BB Index B Index
598.6
814.3
$30
$130
$230
$330
$430
$530
$630
$730
$830
$930
Aug-13 Aug-14 Aug-15 Aug-16 Aug-17 Aug-18 Aug-19 Aug-20
Billio
ns
of
Do
lla
rs
Residential Non-residential
3
Economic commentary
Source: Bloomberg, U.S. Census Bureau, Institute for Supply Management
Construction Put In Place – Annualized and Seasonally Adjusted (through August 2020)
Purchasing Managers Index (PMI) (through September 2020)
The U.S. manufacturing PMI decreased from 56.0 in August to 55.4 in September
The PMI was above 50.0 for the 4th time in 5 months, driven by the on-going recovery in the manufacturing sector and overall economy; An index value over 50.0 indicates expansion in the manufacturing sector
According to the U.S. Census Bureau, August 2020 construction spending totaled $1,412.8 billion, up 2.5% YoY
Gains are attributable to an increase of 7.0% and a decrease of (0.7%) in Residential Construction and Non-Residential Construction, respectively
55.4
30.0
35.0
40.0
45.0
50.0
55.0
60.0
65.0
Sep-17 Mar-18 Sep-18 Mar-19 Sep-19 Mar-20 Sep-20
ISM
Pu
rch
as
ing
Ma
na
ge
rs I
nd
ex
(P
MI)
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
2,200
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Oil v
s. G
as
(R
ig C
ou
nt)
Oil Gas
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
100.0%
2010 2012 2014 2016 2018 2020
% o
f T
ota
l R
ig C
ou
nt
% Horizontal % Vertical
4
Source: American Iron and Steel Institute, Baker Hughes Investor Relations/Rig Data1 Horizontal drilling data includes directional drilling wells
Economic commentary (continued)
U.S. steel production increased throughout September with capacity utilization at 66.6%, up from 61.7% in August
Mills have produced 59.9 million tons in 2020 at an average capacity utilization rate of 65.9%
Capacity Utilization (through October 9, 2020)
Oil & Gas Drilling Activity – U.S. 1 (October 9, 2020)
0.0%
15.0%
30.0%
45.0%
60.0%
75.0%
90.0%
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
Jun-19 Jul-19 Sep-19 Oct-19 Dec-19 Feb-20 Mar-20 May-20 Jun-20 Aug-20 Oct-20
Ca
pa
city
Utiliz
atio
n (%
)
To
ns
(0
00
s)
Total Production Capacity Utilization
Friday Prior Week Change
1-Month LIBOR 0.14% 0.15% (0.01% )
3-Month LIBOR 0.23% 0.22% 0.01%
SOFR 1 0.08% 0.08% 0.00%
Fed Funds 0.25% 0.25% 0.00%
Fed Discount 2.75% 2.75% 0.00%
Prime 3.25% 3.25% 0.00%
US Treasury Yields
2-year Treasury 0.13% 0.13% 0.00%
5-year Treasury 0.29% 0.27% 0.02%
10-year Treasury 0.70% 0.66% 0.04%
Swaps vs. 3M LIBOR
2-year 0.22% 0.22% 0.00%
5-year 0.36% 0.34% 0.02%
10-year 0.72% 0.69% 0.03%
Current Rate Snapshot (as of October 5, 2020)
5
Source: Bloomberg, Federal Reserve1 SOFR is a secured overnight rate, currently without a term structure
FED Speak & Economic News
• Despite ongoing discussions and meetings last w eek, U.S. Treasury Secretary Steven Mnuchin and House of Representatives Speaker
Nancy Pelosi have yet to agree on terms for a second fiscal aid package that many believe is critical in supporting economic recovery.
House Democrats passed a ~$2.2 trillion stimulus package last w eek, but the Republicans rejected this proposal largely due to different
beliefs around fiscal support to state and local governments. This continued gridlock, along w ith President Trump and First Lady Melania
Trump both testing positive for Covid-19, only added to an overw helming sense of political and economic unpredictability at this time
• After signif icant intra-w eek volatility, all major equity indices posted gains w eek-over-w eekw hile market participants did not see a shift to
safe-havens. Both the U.S. Treasury yield and USD sw ap curves w ere largely unchanged last w eek, w ith most of the litt le change taking
place at the long end of both curves. Furthermore, the spread betw een the 2- and 10-year U.S. Treasury yields ended the w eek at 57
bps. This is only three bps above the average since September 1st, meaning that the U.S. Treasury yield curve has barely steepened
over the past f ive w eeks
• The University of Michigan’s consumer sentiment survey result for September came in at 80.4, beating a consensus estimate of 79.0 and
August’s result of 74.1. This reflects ongoing improvement in U.S. consumers’ hopes of an economic recovery in the coming years.
Further, unemployment claims results also gave market participants reason to believe that a domestic labor market recovery is still
underw ay despite the recent spike in Covid-19 cases throughout the country. Both init ial and continuing claims for unemployment
benefits fell for the w eeks ending September 26th and September 19th, respectively. Initial claims fell by roughly 36,000 to 837,000 and
continuing c laims fell by roughly 813,000 to ~11,767,000. How ever, it is important to note that the number of Americans continuing to
receive unemployment benefits is still signif icantly above pre-pandemic levels and this economic indicator serves as a point of concern
moving forw ard
Capital Markets Update
U.S. Unemployment Rate
Source: Bloomberg
September’s improved unemployment rate w as largely driven by
the addition of roughly 661,000 jobs and 1,100,000 Americans that
left the w orkforce over the same stretch of time. This result ref lects
the f if th consecutive monthly decline in the unemployment rate
follow ing its all-time high of 14.7% in April, shortly after Covid-19
related lockdow ns began throughout the U.S.
0%
2%
4%
6%
8%
10%
12%
14%
16%
$0.00
$2.50
$5.00
$7.50
$10.00
$12.50
$15.00
Oct-15 Apr-16 Oct-16 Apr-17 Oct-17 Apr-18 Oct-18 Apr-19 Oct-19 Apr-20 Oct-20
U.S
. $
/ l
b
Nickel
$0.00
$1.00
$2.00
$3.00
$4.00
$5.00
Oct-15 Apr-16 Oct-16 Apr-17 Oct-17 Apr-18 Oct-18 Apr-19 Oct-19 Apr-20 Oct-20
U.S
.$ / l
b
Aluminum Copper Zinc
$0
$200
$400
$600
$800
$1,000
$1,200
Oct-15 Apr-16 Oct-16 Apr-17 Oct-17 Apr-18 Oct-18 Apr-19 Oct-19 Apr-20 Oct-20
U.S
. $
/ t
on
Rebar Merchant Bar
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
Oct-15 Apr-16 Oct-16 Apr-17 Oct-17 Apr-18 Oct-18 Apr-19 Oct-19 Apr-20 Oct-20
U.S
. $
/ t
on
HRC CRC HDG Plate
6
Steel Prices (through October 9, 2020)
Base Metals Prices (through October 9, 2020)
Source: American Metal MarketNote: Midwest quotes used for steel pricing
Industry fundamentals
Steel HRC CRC HDG Plate Rebar Merchant Bar
End of Month Price ($ / Ton) $620 $780 $885 $580 $595 $715
MoM % Change 14.8% 14.7% 12.7% 11.5% 7.2% 4.5%
YoY % Change 22.1% 9.9% 11.3% (7.6%) (1.7%) 9.2%
Base Metals Aluminum Copper Nickel Zinc
End of Month Price ($ / lb) $0.77 $2.98 $6.48 $1.04
MoM % Change (2.6%) (1.1%) (5.4%) (5.1%)
YoY % Change (6.2%) 10.5% (12.5%) (9.4%)
0.0
50.0
100.0
150.0
200.0
250.0
300.0
0
2,000
4,000
6,000
8,000
10,000
Aug-17 Dec-17 Apr-18 Aug-18 Dec-18 Apr-19 Aug-19 Dec-19 Apr-20 Aug-20
Av
g. D
aily
Sh
ipm
en
ts ('0
00
s T
on
s)
En
din
g In
ve
nto
ry (
'00
0s
To
ns
)
Ending Inventory Avg. Daily Shipments
7
Source: World Steel Association, Metals Service Center Institute
MSCI Ending Inventories & Average Daily Shipments (through August 31, 2020)
Monthly Steel Production (LTM through August30, 2020)
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,000
Aug-17 Dec-17 Apr-18 Aug-18 Dec-18 Apr-19 Aug-19 Dec-19 Apr-20 Aug-20
Mo
nth
ly P
rod
uc
tio
n (
'00
0s
To
ns
)
U.S. China Rest of World
('000s M T) U.S. China Rest of World World Total
LTM Production 75,861 1,019,605 692,237 1,787,703
MoM % Change 6.6% 1.6% 3.2% 2.3%
YoY % Change (24.4%) 8.7% (7.8%) 0.7%
% of World Total 4.2% 57.0% 38.7% 100.0%
$0.00
$3.00
$6.00
$9.00
$12.00
Oct-15 Apr-16 Oct-16 Apr-17 Oct-17 Apr-18 Oct-18 Apr-19 Oct-19 Apr-20 Oct-20
U.S
. $
/ l
b
Aluminum Scrap Copper Scrap Nickel Scrap
$0
$100
$200
$300
$400
$500
Oct-15 Apr-16 Oct-16 Apr-17 Oct-17 Apr-18 Oct-18 Apr-19 Oct-19 Apr-20 Oct-20
U.S
. $
/ t
on
Heavy Melt #1 Shredded Auto
128
176
(4)
(75)
0
75
150
225
300
Aug-15 Aug-16 Aug-17 Aug-18 Aug-19 Aug-20
Aluminum Scrap Copper Scrap Nickel Scrap
8
Ferrous & Nonferrous Scrap Prices (through October 9, 2020)
Source: U.S. Census Bureau, American Metal Market1 Scrap trade data through 8/31/2020
Ferrous Monthly Scrap Net Exports1 Non-Ferrous Monthly Scrap Net Exports1
417
0
100
200
300
400
500
Aug-15 Aug-16 Aug-17 Aug-18 Aug-19 Aug-20
Ferrous ($ / ton) Nonferrous ($ / lb)
Scrap Heavy Melt #1 Shredded Auto Aluminum Scrap Copper Scrap Nickel Scrap
End of Month Price $245 $280 $0.51 $2.73 $3.63
MoM % Change 0.0% 0.0% (1.9%) 0.7% (10.5%)
YoY % Change 11.4% 29.0% 1.0% 13.3% (9.9%)
Scrap Spread $375 $340 $0.27 $0.25 $2.85
October 4, 2020
Aerospace - ALERT: Thoughts on 787 Production Consolidation, 737 MAX
October 5, 2020
WOR: Raising Estimates on Steel; NKLA Windfall Shifts Focus to Capital Allocation
September 18, 2020
X - ALERT: 3Q EBITDA Loss a Bit Narrower; Big River Likely Still on Tap
9
1 Key Banc Capital Markets’ Industrial Research platform has consistently achieved a Top 3 ranking in Greenwich Associates annua l survey of small / mid-cap fund managers. In its June 2019 Analyst Awards, ThomsonReuters recognized Phil Gibbs as the #1 earnings estimator in the Metals & Mining sector
KeyBanc Capital Markets’ top-ranked 1 equity research team covers numerous companies across the Metals and Miningsector. Selected recent research notes are provided below. Click on the respective “tear out” to read the entire note.
Select KeyBanc Capital Markets’ equity research
Aerospace
September 28, 2020
Carbon Steel - ALERT: MT USA to Sell Assets to CLF; Evening Takeaways
September 18, 2020
STLD - ALERT: 3Q20 Guidance Beats on Fabrication and Recycling Spreads
Carbon Steel
Steel
October 5, 2020
MT: Raising Estimates and Price Target; CLF Deal Offers Further Equity Runway
September 17, 2020
NUE - ALERT: 3Q20 Guidance Beats on Non-Res Catch Up, Sheet Recovery Begins in 4Q
October 13, 2020
Steel - ALERT: China's September Steel Exports Up M/M; Broader Data Depicts Macro Recovery
Announced ClosedAcquirer
(Parent)
Target
(Seller)Highlights
9/28/2020 Pending Clev eland-Cliffs ArcelorMittal USA
▪ Cleveland-Cliffs has entered into a definitive agreement with
ArcelorMittal to purchase ArcelorMittal’s U.S. operations. The
transaction consideration is expected to be ~$1.4 billion
▪ This acquisition continues Cliff’s downstream acquisition strategy to
transition into a fully integrated high-value steel enterprise
8/24/2020 10/6/2020 American SecuritiesNN Life Sciences
(NN, Inc.)
▪ American Securities has acquired NN Life Sciences, a division of NN.
The transaction consideration was $825 mill ion
▪ The transaction is part of NN’s long term strategy to reduce leverage
and streamline its businesses
▪ KBCM acted as buy-side advisor on the transaction
9/15/2020 10/1/2020
Premier Pipe
(Sumitomo Corp of
Americas)
Pyramid Tubular
(Sumitomo Corp of
Americas)
▪ Premier Pipe and Pyramid Tubular have agreed to form a new wholly
owned subsidiary of Sumitomo
▪ The new entity’s name is not yet determined
9/28/2020 9/28/2020
Riv er Metals
Recycling
(Dav id J. Joseph Co.)
Certain Metal Recycling
Assets of Columbus
Recycling
(Columbus Recycling)
▪ River Metals Recycling, a subsidiary of David J. Joseph Co. (DJJ),
has purchased four recycling facilities from Columbus Recycling. The
transaction consideration was undisclosed
▪ This transaction allows DJJ to become more self-sufficient in
sourcing raw materials
9/29/2020 9/29/2020 Lerman Enterprises Welded Tubes
▪ Welded tubes has acquired high-volume, small-diameter tube
manufacturer, Welded Tubes. The transaction consideration was
undisclosed
▪ The transaction expands Lerman’s size range and customer base
12/1/2019 10/1/2020Alv ance
(GFC Alliance)Aleris Duffel Rolling Mill
▪ Aleris’ Duffel Rolling Mill processes a variety of aluminum products
and will increase Alvance’s capacity by 250,000 tons a year. The
transaction consideration was ~$365 million
▪ The acquisition will unlock significant cost saving synergies for the
Company’s production sites at Dunkerque and Lochabe
10
Source: American Metal Market, The Daily Deal, MergerMarket
Select recent transaction activity
Closed Company Gross Offering Size Highlights
10/9/2020 Steel Dynamics $750 million Notes
▪ $350 million 1.650% 2027 notes and $400 million 3.250% 2050 notes
▪ The proceeds are being used to redeem $350 million of its outstanding 4.125%
Senior Notes due 2025 and for general corporate purposes
10/6/2020Life Sciences (American
Securities)
$485 million Senior
Secured Credit Facilities
▪ $425 million Senior Secured Term Loan and $60 million Revolving Credit Facility
▪ The proceeds are being used in conjunction with American Securities’
acquisition of NN’s Life Sciences Division
▪ KBCM acted as Joint Lead Arranger and Joint Bookrunner on the
transaction
9/23/2020 Hudbay Minerals $600 million Senior Notes
▪ $600 million Senior Notes at 6.125% due in 2029
▪ The proceeds were used to refinance existing debt and for general corporate
purposes
11
Source: American Metal Market, The Daily Deal, MergerMarket
Recent capital markets’ activity
$ in millions, except per share data Prices
as of Market Enterprise LTM CY 2021 LTM CY 2021
Company Ticker 10/6/2020 Cap Value Sales EBITDA % Margin EPS EBITDA EPS EV / EBITDA P/E Ratio EV / EBITDA P/E Ratio
ArcelorMittal ENXTAM:MT $14.07 $15,467 $25,209 $57,968 $3,738 6.4% ($2.22) $5,427 $1.26 6.7x NM 4.6x 11.2x
Companhia Siderúrgica Nacional BOVESPA:CSNA3 3.21 4,430 9,047 4,618 896 19.4% 0.30 1,359 0.32 10.1x 10.8x 6.7x 9.9x
Gerdau S.A. BOVESPA:GGBR3 3.18 5,453 8,111 6,797 818 12.0% 0.10 1,255 NA 9.9x NM 6.5x NA
Grupo Simec, S.A.B. de C.V. AMEX:SIM 6.94 1,072 823 1,480 210 14.2% 0.20 211 NA 3.9x NM 3.9x NA
PAO Severstal LSE:SVST 12.68 10,278 12,295 7,316 2,391 32.7% 1.47 2,634 1.75 5.1x 8.6x 4.7x 7.3x
SSAB AB (publ) OM:SSAB A 3.44 3,547 4,755 7,822 190 2.4% (0.14) 734 0.21 NM NM 6.5x 16.6x
Tata Steel Limited 500470 5.14 5,890 20,131 19,297 2,666 13.8% 0.59 3,334 0.78 7.6x 8.6x 6.0x 6.6x
thyssenkrupp AG XTRA:TKA 5.47 3,406 12,697 48,664 839 1.7% (2.03) 1,336 (0.62) 15.1x NM 9.5x NM
Average $6,193 $11,634 $19,245 $1,469 12.8% $2,036 8.4x 9.4x 6.0x 10.3x
Median $4,942 $10,671 $7,569 $868 12.9% $1,347 7.6x 8.6x 6.2x 9.9x
Commercial Metals Company CMC $21.06 $2,508 $3,217 $5,610 $631 11.3% $2.50 $537 $1.88 5.1x 8.4x 6.0x 11.2x
Nucor Corporation NUE 46.93 14,131 16,896 20,548 2,453 11.9% 2.64 NA 2.91 6.9x 17.8x NA 16.1x
Steel Dynamics, Inc. STLD 30.87 6,492 7,631 9,567 1,162 12.1% 2.68 1,078 2.29 6.6x 11.5x 7.1x 13.5x
United States Steel Corporation X 7.67 1,690 5,026 10,732 (53) (0.5%) 0.01 632 (1.52) NM NM 8.0x NM
Average $6,205 $8,193 $11,614 $1,048 8.7% $749 6.2x 12.6x 7.0x 13.6x
Median $4,500 $6,329 $10,149 $896 11.6% $749 6.2x 11.5x 7.1x 13.5x
Olympic Steel Inc. ZEUS $10.89 $127 $317 $1,307 $24 1.8% ($0.29) NA $0.00 13.5x NM NA NA
Reliance Steel & Aluminum Co. RS 106.53 6,793 8,069 9,726 1,061 10.9% 8.92 1,027 8.85 7.6x 11.9x 7.9x 12.0x
Russel Metals Inc. TSX:RUS 13.96 880 1,240 2,342 104 4.4% 0.36 168 1.16 12.0x NM 7.4x 12.0x
Ryerson Holding Corporation RYI 6.63 253 1,062 3,848 164 4.3% 0.32 168 0.83 6.5x 20.7x 6.3x 8.0x
Worthington Industries, Inc. WOR 44.80 2,447 3,145 3,059 317 10.4% 0.06 296 3.67 8.0x NM 7.8x 12.2x
Average $2,100 $2,767 $4,056 $334 6.4% $415 9.5x 16.3x 7.3x 11.1x
Median $880 $1,240 $3,059 $164 4.4% $232 8.0x 16.3x 7.6x 12.0x
ALBA SE DB:ABA $75.43 $739 $658 $436 $6 1.3% $0.37 NA NA NM NM NA NA
Schnitzer Steel Industries, Inc. SCHN 20.00 542 666 2,027 82 4.1% 0.46 NA NA 8.1x NM NA NA
Sims Limited ASX:SGM 5.82 1,171 1,092 3,519 39 1.1% (0.61) 196 0.25 NM NM 5.6x 23.4x
Average $817 $805 $1,994 $42 2.2% $196 8.1x NM 5.6x 23.4x
Median $739 $666 $2,027 $39 1.3% $196 8.1x NM 5.6x 23.4x
Allegheny Technologies Incorporated ATI $9.14 $1,159 $2,257 $3,763 $386 10.3% $0.24 $302 $0.12 5.8x NM 7.5x NM
Carpenter Technology Corporation CRS 18.32 876 1,404 2,181 282 12.9% 2.35 NA NA 5.0x 7.8x NA NA
Haynes International, Inc. HAYN 17.63 223 196 430 34 7.9% 0.84 NA NA 5.7x 21.0x NA NA
Kaiser Aluminum Corporation KALU 54.81 898 1,031 1,389 203 14.6% 5.23 197 6.33 5.1x 10.5x 5.2x 8.7x
Materion Corporation MTRN 53.72 1,128 1,031 1,203 101 8.4% 5.69 135 3.09 10.2x 9.4x 7.7x 17.4x
Universal Stainless & Alloy Products, Inc. USAP 5.50 49 121 223 9 4.2% (0.35) 12 (0.73) 13.0x NM 10.2x NM
Average $722 $1,007 $1,531 $169 9.7% $161 7.5x 12.2x 7.7x 13.0x
Median $887 $1,031 $1,296 $152 9.3% $166 5.8x 10.0x 7.6x 13.0x
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Source: CapitalIQ, ThomsonReuters, SEC FilingsNote: Outlying EV/EBITDA and P/E multiples were excluded from average and median calculations
Metals public operating & trading statistics
$ in millions
Total Net Total Debt / Net Debt / Total Debt / Net Debt / EBITDA /
Company Ticker Debt Debt EBITDA EBITDA Cap (book) Cap (book) Interest
ArcelorMittal ENXTAM:MT $13,548 $7,918 3.6x 2.1x 26.0% 15.2% 2.4x
Companhia Siderúrgica Nacional BOVESPA:CSNA3 5,078 4,402 NM 4.9x 73.3% 63.6% 2.0x
Gerdau S.A. BOVESPA:GGBR3 3,808 2,620 4.7x 3.2x 41.1% 28.3% 3.0x
Grupo Simec, S.A.B. de C.V. AMEX:SIM 0 (250) NM NM 0.0% NM NM
PAO Severstal LSE:SVST 2,590 2,002 1.1x 0.8x 47.2% 36.5% 16.4x
SSAB AB (publ) OM:SSAB A 1,819 1,195 NM NM 21.2% 14.0% 1.1x
Tata Steel Limited 500470 15,432 13,889 NM NM 60.6% 54.6% 2.6x
thyssenkrupp AG XTRA:TKA 11,499 8,794 NM NM 92.8% 71.0% 0.5x
Average $6,722 $5,071 3.1x 2.8x 45.3% 40.4% 4.0x
Median $4,443 $3,511 3.6x 2.7x 44.2% 36.5% 2.4x
Commercial Metals Company CMC $1,171 $709 1.9x 1.1x 39.4% 23.9% 9.6x
Nucor Corporation NUE 5,373 2,337 2.2x 1.0x 34.5% 15.0% 17.9x
Steel Dynamics, Inc. STLD 2,711 1,145 2.3x 1.0x 39.5% 16.7% 9.7x
United States Steel Corporation X 5,599 3,299 NM NM 60.8% 35.8% NM
Average $3,713 $1,872 2.1x 1.0x 43.6% 22.8% 12.4x
Median $4,042 $1,741 2.2x 1.0x 39.5% 20.3% 9.7x
Olympic Steel, Inc. ZEUS $197 $190 NM NM 39.6% 38.2% 2.6x
Reliance Steel & Aluminum Co. RS 1,492 1,269 1.4x 1.2x 23.1% 19.7% 15.5x
Russel Metals Inc. TSX:RUS 427 360 4.1x 3.5x 37.9% 31.9% 3.6x
Ryerson Holding Corporation RYI 1,059 959 6.4x 5.8x 86.6% 85.4% 1.9x
Worthington Industries, Inc. WOR 700 552 2.2x 1.7x 45.7% 36.1% 10.0x
Average $775 $666 3.5x 3.1x 46.6% 42.3% 6.7x
Median $700 $552 3.2x 2.6x 39.6% 36.1% 3.6x
ALBA SE DB:ABA $27 ($81) 4.6x NM 15.2% NM 4.5x
Schnitzer Steel Industries, Inc. SCHN 428 121 NM 1.5x 39.0% 11.0% 10.1x
Sims Limited ASX:SGM 84 (79) 2.1x NM 5.6% NM 3.5x
Average $179 ($13) 3.4x 1.5x 19.9% 11.0% 6.0x
Median $84 ($79) 3.4x 1.5x 15.2% 11.0% 4.5x
Allegheny Technologies Incorporated ATI $1,530 $991 4.4x 2.8x 46.9% 30.3% 3.8x
Carpenter Technology Corporation CRS 722 529 2.6x 1.9x 32.2% 23.6% 14.2x
Haynes International, Inc. HAYN 39 (27) 1.1x NM 11.6% NM NM
Kaiser Aluminum Corporation KALU 843 133 4.2x 0.7x 54.0% 8.5% 6.8x
Materion Corporation MTRN 169 (96) 0.9x NM 21.8% NM NM
Universal Stainless & Alloy Products, Inc. USAP 72 72 4.2x 4.1x 23.2% 23.2% 4.9x
Average $562 $267 2.9x 2.4x 31.6% 21.4% 7.4x
Median $445 $102 3.4x 2.4x 27.7% 23.4% 5.8x
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Source: CapitalIQ, ThomsonReuters, SEC Filings
Metals public credit statistics
Client Business Description
Deal Value
($ mm) Type Closed
American SecuritiesLeading middle-marekt private equity firm specializing
in the industrials sector $485 Buy-Side Advisor Oct-20
NN Life SciencesManufactures high-precision metal and plastic
components $485 Senior Secured Credit Facility Oct-20
Reliance Steel & Aluminum Processor and distributor of metals $900 Senior Notes Jul-20
Ryerson Inc. Processor and distributor of metals $500 Senior Secured Notes Jul-20
Kymera International Producer of specialty, non-ferrous metal powders $185Senior Secured Credit
FacilitiesMar-20
NN Inc.Manufacturer of metal bearing components, plastic and
rubber components, and precision metal components$345
Senior Secured Credit
FacilitiesDec-19
Zochem Manufacturer of zinc oxide $70Senior Secured Revolving
Credit FacilityDec-19
Navajo Transitional Energy Company Miner of coal reserves on the Navajo Nation $25 Senior Revolving Credit Facility Oct-19
Venture Metals LLC Processor of non-ferrous scrap metal $125+Senior Secured Revolving
Credit FacilitesSep-19
Versatile Processing Group Processor of non-ferrous scrap metal ND Sell Side Advisor Jul-19
Johnstown Wire Technologies Producer of steel wire ND Sell Side Advisor Jun-19
ATI Manufacturer of complex forgings for blue-chip OEMs ND Sell Side Advisor Jun-19
Ellwood GroupGlobal manufacturer of high-quality, engineered, heavy
metal components$150
Senior Unsecured Revolving
Credit FacilitiesMay-19
Kymera International Producer of specialty, non-ferrous metal powders $275 Senior Secured Credit Facilites Oct-18
Kymera International Producer of specialty, non-ferrous metal powders $275 Buy Side Advisor Oct-18
NN Inc.Manufacturer of metal bearing components, plastic and
rubber components, and precision metal components$230 Follow-On Sep-18
Aleris International Manufacturer of aluminum rolled products $400Senior Secured Junior Priority
NotesJun-18
Conuma Coal Resources Limited Miner of metallurgical coal in British Columbia $200 Senior Secured Notes Apr-18
Main Steel LLCWhite metals toll processor, specializing in stainless
steel coil polishing ND Sell Side Advisor Nov-17
14
Select Transaction Experience
For additional information about KeyBanc Capital Markets, contact:Metals & Mining Team
Eric Klenz
216.689.3974
Arindam Basu
216.689.4262
Barry Stormer
216.689.7921
Alex Leszcz
216.689.5011
Donald Bleifuss
216.689.8404
Disclosure: KeyBanc Capital Markets is a trade name under which corporate and investment banking products and services of KeyCorp and its subsidiaries, KeyBanc Capital Markets Inc., Member FINRA/SIPC and KeyBank National Association (“KeyBank N.A.”), are marketed. Securities products and services are offered by KeyBanc Capital Markets Inc. and its licensed
securities representatives, who may also be employees of KeyBank N.A. Banking products and services are offered by KeyBank N.A. This report was not issued by our research department. The inf ormation contained in this report has been obtained from sources deemed to be reliable but is not represented to be complete and it should not be relied upon as such. This report does
not purport to be a complete analysis of any security, issuer, or industry and is not an offer or a solicitation of an offer to buy or sell any securities. This report is prepared for general inf ormation purposes only and does not consider the specific investment objectives, financial situation and particular needs of any individual person or entity.
Industrial Investment Banking Round-UpPaper and PackagingAs of October 16th, 2020
General News
• PaperWorks will invest $25 million in new equipment at its Baldwinsville, NY converting facility
• Polymer Packaging is expanding with a three-phase investment in machine purchases and a physical plant expansion; the first phase included the firm's initial launch of two blown film lines, a $10 million investment in its existing 100,000-square-foot facility
• P. H. Glatfelter Company changed its name to Glatfelter Corporation, and completed its move to Charlotte, North Carolina
• Cascades will permanently close tissue production and converting operations at its Ransom and Pittston plants in PA in December / January. The Ransom plant produced 50,000 tonnes of tissue paper annually, and the Pittston plant converted this volume into 6 million cases of product. The two sites employed 229 workers.
• Transcontinental is phasing down its Winnipeg, Manitoba printing facility, resulting in the permanent layoff of 110 employees
Mergers & Acquisitions
• Pactiv Evergreen, formerly known as Reynolds Group Holdings, completed its Initial Public Offering
• Danimer Scientific has agreed to go public by merging with blank-check acquisition company Live Oak Acquisition Corp in a deal that values the U.S. bioplastics company at around $890 million
• Berlin Packaging, owned by Oak Hill Capital, acquired Vinkova, a Netherlands-based glass packaging supplier
• Brook and Whittle, owned by Snow Phipps, agreed to acquire Innovative Labeling Solutions and Wizard Labels Group
• GenNx360 Capital acquired B2B Industrial and the assets of AMW Packaging Supply
• Sole Source Capital acquired Dallas Plastics, a manufacturer of blown polyethylene film
• CORE Industrial Partners acquired TCG Legacy, a marketing solutions provider, specializing in printing and packaging servicesfor pharmaceutical, consumer products, technology and higher education companies and institutions
• Alinda Capital Partners agreed to acquire PECO Pallet, a provider of pallet rental and logistics services
• Imperial Dade, owned by Bain Capital, acquired P&R Paper Supply
• Rosewood Private Investments acquired Living Ecology, a manufacturer of functional foods and nutritional supplements
• LLFlex, owned by Centre Lane Partners, acquired the Wire & Cable Metal Armoring Tapes Segment of Web Industries
• LLFlex, owned by Centre Lane Partners, acquired the assets of Hampden Papers
• Vi-Jon was acquired by its employees through an Employee Stock Ownership Plan (ESOP)
• Essentra PLC agreed to acquire 3C! Packaging, a manufacturer of folding cartons, for $65 million (8.9x EV / EBITDA)
• Avery Dennison agreed to sell its offset sheets business in Europe, Middle East and North Africa, which include the FASSON and JAC branded self-adhesive papers and films, to Lecta
• New-Indy agreed to acquire Georgia-Pacific’s Reliable Container and its converting plants in Santa Fe Springs and Tijuana
• Qualfon acquired MAR Graphics, a print, mail and digital solutions provider in the greater St. Louis metropolitan area
• Sonoco agreed to sell its European contract packaging business to Prairie Industries, a Wisconsin-based contract packaging and contract manufacturing firm backed by The Halifax Group, for $120 million
• Meyers acquired the sheet-fed business unit from Insignia Systems to refine its products and service for the grocery industry
• BR Printers acquired Content Management Corporation, an on-demand printer based in Fremont, CA
• Mainline Printing acquired the print assets of Go Modern; Go Modern, also located In Topeka, KS, is owned by Advisors Excel
• Piedmont Plastics acquired Empire Plastics in Sioux Falls, SD
• Vistaprint, owned by Cimpress, acquired 99designs in Australia
• Green Bay Packaging acquired Third Dimension, a provider of corrugated boxes and foam packaging products
• Woodbridge agreed to acquire all shares in its joint venture, Woodbridge GSK High Polymer Technology, from its partner GSK
• Frankston Packaging Company acquired Paco Label System
Disclosure: KeyBanc Capital Markets is a trade name under which corporate and investment banking products and services of KeyCorp and its subsidiaries, KeyBanc Capital Markets Inc., Member FINRA/SIPC and KeyBank National Association (“KeyBank N.A.”), are marketed. Securities products and services are offered by KeyBanc Capital Markets Inc. and its licensed securities representatives, who may also be employees of KeyBank N.A. Banking products and services are offered by KeyBank N.A. This report was not issued by our research department. The information contained in this report has been obtained from sources deemed to be reliable but is not represented to be complete and it should not be relied upon as such. This report does not purport to be a complete analysis of any security, issuer, or industry and is not an offer or a solicitation of an offer to buy or sell any securities. This report is prepared for general information purposes only and does not consider the specific investment objectives, financial situation and particular needs of any individual person or entity.
