I won’t profess any expertise in the field of mergers and acquisitions (of course, that won’t stop me from commenting). But the metals industry offers great examples of some textbook cases as to why companies merge, including the recent merger of Kennametal and ATI’s Tungsten Materials business.
The merger of Namasco and Macsteel back in March of last year created the third-largest metals service center with a stronger national footprint and 57 different locations. In the distribution business, geography reigns supreme. The more locations you have, the better equipped the operation to take on national contracts and/or serve local clients.
Or take, for example, the recent Sapa AS merger combining Norsk Hydro ASA with Orkla ASA that we reported on earlier this week – that deal also created a broader footprint for the extrusion producer, including operations in South America.
But not all M&A deals are marriages of love
Outokumpu’s purchase of ThyssenKrupp’s Inoxum stainless business on the other hand, looked chew-your-arm-off ugly (though admittedly, necessary)! Deals that invoke the words “rationalization, efficiency and synergies” typically don’t scream market growth and in our metals world that can only mean one thing – taking capacity off-line.
So what to make of the Kennametal-ATI Tungsten Materials acquisition?
The recycling angle likely makes the most sense – Kennametal used to do recycling and purchasing from GTP, but that relationship may have ended so this acquisition gives Kennametal the ability to recover tungsten from scrap. And given that Conflict Minerals legislation impacts tungsten supply chains, creating closed-loop scrap supply chains makes a lot of sense.
Unlike many other metals industries such as aluminum, steel and stainless steel (in which we have too much supply chasing too little demand), the deals in the tungsten industry have more to do with locking up conflict-free supply – as we also recently wrote about, announcing that HC Starck formed a joint venture with the Masan Group and their Nui Phao project in Vietnam.
At the end of the day, tungsten market demand has outstripped supply. And the natural gas boom has not helped matters.
How this deal will impact end users that buy either tungsten powders or APT remains a bit murky, but if we ventured a guess we’d say it will likely create some supply concerns as ATI will likely dedicate more of its production capacity to Kennametal needs.
Other tungsten suppliers will likely benefit from those concerns.