Gibraltar Steel Corporation

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Gibraltar Steel Corporation

3556 Lake Shore Road Buffalo, New York 14219-0228
U.S.A.
Telephone: (716) 826-6500
Fax: (716) 826-1589
Web site: http://www.gibraltarl.com

Public Company Incorporation: 1993
Employees: 3,100
Sales: $621.9 (1999)
Stock Exchanges: NASDAQ
Ticker Symbol: ROCK
NAIC: 331221 Rolled Steel Shape Manufacturing; 331513 Steel Foundries

Based in Buffalo, New York, the Gibraltar Steel Corporation is a leader in the intermediate steel processing industry, operating 52 facilities in 19 states and Mexico. Once highly dependent on its automotive customers, the company has in recent years engaged in an aggressive program of acquiring smaller businesses to become active in construction products, heat treating services, materials management, the manufacture and distribution of strip steel and steel strapping, as well as general consumer products such as mailboxes. Controlled by the second generation of the Lipke family, Gibraltar Steel went public in 1993.

Dr. Ken Lipke buys Gibraltar Steel in 1972

Buffalo, with its access to the Erie Canal and Great Lakes, as well the power provided by Niagara Falls, was once a major center for the manufacture of steel. The industry in America was highly integrated, with companies controlling raw materials, manufacture, as well as the distribution of steel products, but some smaller businesses still found a niche. One such venture was the Gibraltar Steel Corporation, a marginally profitable, single facility, specialty steel processing company. Its modern history began in 1972 when Dr. Ken Lipke and two partners purchased the company for $1 million.

Although Gibraltar Steel posted modest annual earnings of $9 million, Lipke vowed to increase sales to $100 million within ten years. What to some seemed an unrealistic goal would be aided by changes in the steel industry. Steelmakers began to restructure their business to concentrate on manufacture. Likewise, major users of steel, such as automakers, eliminated facilities that processed steel to concentrate on the building of their final products. The result of this fundamental shift left a gap in processing, the preparation of steel for its actual use. A multitude of small companies like Gibraltar Steel were the beneficiaries.

Lipke came to the steel business by an unusual route. He was a chiropractor by training and ran a successful practice for 20 years. However, he was also a risk taker who enjoyed the competition of business. In the 1960s he established a stock brokerage, before raising the money to purchase Gibraltar Steel. His new business was a cold reduction strip mill that bought hot-rolled black steel, then produced sheet metal that was primarily used by automakers. Lipke’s first major step in growing the business came in 1975 when he acquired another area cold-rolling operation, Seneca Steel. In that year he also added Buffalo’s Beals, McCarthy & Rogers, as well as the Rochester firm of Follansbee Metals. In all, these transactions added $24 million in annual sales.

Lipke installed a management team that included two of his sons, Brian and Neil. By 1977 Gibraltar Steel posted sales in excess of $50 million dollars. By 1982 Brian Lipke was named corporate president. Although Dr. Lipke did not realize his ambitious sales goal for Gibraltar Steel, the company did reach the $100 million mark in 1984, in 12 years rather than ten. By 1987 he turned his attention to other interests, and sold the majority of the business to his four children. The management team he nurtured took over day-to-day operations of Gibraltar Steel. In addition to Brian Lipke as president, Neil Lipke was in charge of marketing; Walter Erasmus, finance; Joseph Rosenecker, commercial; and Carl Spezio, manufacturing. (In 2000 the team remained intact, providing stability during a period of exceptional growth for the company.)

Management quickly began to realize that it was too dependent on the often cyclical automotive industry. As much as 40 percent of Gibraltar Steel’s business came from General Motors alone. To begin the process of diversifying its risk, the company in 1987 acquired another cold-rolling operation, this mill located in Cleveland with customers in a range of industries. In 1989 Gibraltar Steel entered into a joint venture in Ohio with Samuel Steed for steel pickling (a finishing process). In 1990 Gibraltar Steel opened its first materials management facility, Integrated Terminals, that serviced a Buffalo Ford Motors plant.

Gibraltar Steel goes Public in 1993

In 1992 Gibraltar Steel reached a turning point: Dr. Lipke passed away, and management realized that the company was still too dependent on automakers. In order to fuel growth, the company decided to convert from a Subchapter S corporation to a Subchapter C corporation and make a public offering of its stock. Not only would Gibraltar Steel shed $27 million in debt, it would be in a position to use its stock in order to acquire larger companies. Thus, on November 4, 1993, Gibraltar Steel sold 2.5 million shares of common stock at $11 per share, which began to trade on the NASDAQ exchange.

As Dr. Lipke had done when first purchasing the company, his son Brian announced an ambitious ten-year goal, this time to reach $1 billion in annual sales, a number that would require an average sales increase of 20 percent per year. As it formulated an acquisition strategy to make the goal a reality, Gibraltar Steel upgraded existing facilities as well as opening a new cold-rolling processing facility in Chattanooga, Tennessee, which gave the company a foothold in the rapidly expanding south-eastern market. Sales in 1994 surpassed the $200 million mark.

Gibraltar Steel opted to grow more by acquisition than by starting new operations. According to Brian Lipke, “If we were to build a brand new plant somewhere, it would take a year to design the plant, a year to build it, and a couple of years to build up the business to the point where you are making a profit. But if you make an acquisition, you get $60 million or $70 million worth of [annual] sales the day you close the deal; then you can refine the business and improve its profitability.” Looking to diversify its product offering to make the company less dependent on the automotive industry, as well as broadening it geographic base, Gibraltar Steel established strict guidelines for potential purchases. First, the target had to be involved in the steel or metals industry, in order to best utilize management’s experience and the company’s infrastructure. The target also had to be profitable, with the clear potential for Gibraltar Steel to realize even greater revenues out of the business. A complimentary corporate culture was also a priority. Dr. Lipke had impressed on Gibraltar Steel management the concept of team-work. In this regard, the company also looked to buy family-run businesses with committed leaders who were willing to stay on after the purchase. Many steel businesses created after World War II were single facilities either run by aging founders or, like Gibraltar Steel itself, run by the founder’s children, and now lacked the desire and means to expand at the rate necessary to properly compete in a contemporary environment. Unlike many corporations on acquisition sprees, Gibraltar Steel was not looking to cut work force in order to reduce costs. Its commitment to maintaining staff while gaining more business made it a desirable suitor to many companies looking to sell in an industry that was becoming increasingly more consolidated.

In 1995 Gibraltar Steel made its first acquisition employing these guidelines when for $39 million it purchased all of the stock of the Wm. R. Hubbell Steel Corporation, an Illinois processor. The move established Gibraltar Steel in the residential and commercial buildings industry. In addition to adding $70 million in annual non-car-related sales, Hubbell gained modern, well-maintained facilities in Illinois, South Carolina, and Florida.

The following year, Gibraltar Steel acquired Carolina Commercial Heat Treating (CCHT), based in North Carolina, for $25 million in cash. (Heat treating enhances the hardness and durability of steel products.) Whereas Gibraltar Steel was already involved in the business—heat treating coiled steel that it shipped to other firms for manufacture—CCHT gave the company a presence on the other end of the process. CCHT heat treated steel parts after manufacture, working for automotive, hand tool, construction equipment, and industrial machinery firms. Only 25 percent of its sales came from the auto industry. The purchase of CCHT added more than $20 million in annual sales to Gibraltar Steel, as well as adding to its presence in the South with plants in Tennessee, Georgia, South Carolina, and North Carolina.

In June 1996 Gibraltar Steel made a secondary public offering of two million shares of stock, raising an additional $34 million. Again, the purpose of the offering was to reduce debt and provide money for expansion and acquisition. Since going public in 1993, the company had grown from nine facilities to twenty-two, located in ten states and Mexico. Employment had increased from 470 people in 1991 to 682. Annual sales were also significantly ahead of the pace necessary to reach the $1 billion goal by 2003.

Company Perspectives:

Gibraltar’s primary mission is to place the highest possible emphasis on quality, excellence, and continuous improvement, in a dedicated effort to exceed customer expectations and to maximize the total return to shareholders over the long term.

In 1997 Gibraltar Steel expanded its presence in the residential and commercial construction industry with the $40 million purchase of the Jacksonville, Florida-based Southeastern Metals Manufacturing Company. The deal was a direct result of the earlier acquisition of Hubbell, the executives of both companies being acquainted with each other. The two companies also complemented each other in product lines. Hubbell primarily sold prepainted, galvanized, and Galvalume steel to roofing and siding businesses, whereas Southeastern’s 3,500 products included steel framing for buildings and sheds, metal roofing, storm panel systems, gutters, and metal trim. The acquisition contributed $90 million in annual sales, and customers in 20 U.S. states, Latin America, and the Caribbean. It also increased the Gibraltar Steel work force by 500, adding plants in Jacksonville, Miami, Tampa, San Antonio, Houston, Nashville, and Lyons, Georgia.

One of the Top 100 Fastest Growing Companies in 1997

Gibraltar Steel increased its share of the heat treating business in 1997 with the purchase of an Athens, Alabama, facility from Specialty Heat Treating Inc. In addition to $2 million in annual sales, the new plant provided presence for Gibraltar Steel in a new state. The company, in the meantime, continued to upgrade existing operations, adding two annealing furnaces to its Cleveland plant, as well as beginning operation of the nation’s widest cold-rolled strip mill that would by itself increase annual sales by $80 million. An auto strike hurt profits, prompting a steep drop in the price of Gibraltar stock, but it quickly rebounded, as analysts realized that the company was still enjoying a record-breaking year in sales. Management’s effort to make the company less reliant on the automotive industry was already proving wise, despite the fact that sales to automakers still comprised 36 percent of annual sales. In September 1997 Fortune magazine recognized Gibraltar Steel by naming the company to its list of America’s 100 fastest growing companies, ranking it 94th.

Gibraltar Steel increased its involvement in the building products markets with the March 1998 acquisition of the Mississippi-based Solar Group for $35 million in cash. Adding ventilation equipment to round out the line of construction products offered by the Southeastern Metals Manufacturing unit, Solar also brought with it the distinction of being the nation’s leading manufacturer of mailboxes, made from galvanized steel as well as aluminum, brass, and plastic. The deal helped to make Gibraltar more involved in consumer product manufacturing, at the same time bringing an immediate $45 million in annual sales in the United States and from overseas.

The company continued to beef up its buildings product business with two more acquisitions in 1998. It purchased Wisconsin-based Appleton Supply Company for $28.5 million, followed two months later by United Steel Products Company for $35 million. United’s Livermore, California, plant gave Gibraltar a West Coast presence, plus an additional $40 million in annual sales. Gibraltar Steel also augmented its heat-treating business with the acquisition of Harbor Metal Treating Company, allowing the corporation to service other types of customers, including tool and die manufacturing, medical equipment, and aerospace.

Gibraltar continued to acquire new companies at a steady pace in 1999. A heat-treating facility in Asheville, North Carolina, was added to the CCHT division. Hi-Temp Inc, an Illinois heat-treating company was also purchased, adding $23 million in annual sales and four more facilities. Yet another heat-treating company, Brazing Concepts of Coldwater, Michigan, added 200 employees and $14 million in annual sales, bringing the total of heat-treating sales to $80 million a year, well ahead of the $100 million goal for that portion of the business by 2003. Gibraltar Steel added to its share of the construction business by acquiring Weather Guard Building Products, a Denver-based manufacturer and distributor of gutters, roofing, and other related products. It also purchased Hughes Manufacturing, Inc., a Florida-based company that produced highly engineered steel lumber connectors, with $12 million in annual sales.

Despite generating $622 million in sales for 1999 and a net income of $25 million, which completed an impressive eight straight years of sales and earnings growth, the price of Gibraltar Steel stock lagged behind the rest of the rapidly escalating stock market. Whereas the company had increased sales since going public in 1993 by an average rate of 27 percent per year, and had increased profits by 22% per year, the value of its stock grew at an annual rate of only 15 percent. While many companies in the Standard & Poor’s 500 were trading at more than 30 times earnings, and smaller companies in the Russell 2000 index at more than 60 times earnings, Gibraltar Steel traded at less than 12 times its annual earnings. Its many acquisitions of recent years may have saddled the company with $199 million in long-term debt, but the main reason that investors shied away seemed to be a preference for “growth” stocks over “value” stocks. Although management was confident that over time the long-term performance of the company would be reflected in the value of its stock, Gibraltar Steel announced in 1999 that it would begin to pay a modest dividend in an effort to lure institutional investors and individual investors who only purchased dividend-bearing stocks. Early in 2000 the company also hired an investment banker to find ways to boost the price.

In 2000 Gibraltar Steel sold a flat-rolled steel processing facility in Chattanooga, Tennessee, to Metals USA Inc. Citing that the operation simply did not fit its move to higher-profit operations, management insisted that no other divestitures were expected. In fact, later in the year the company made yet another acquisition, buying Milcor L.P., an Ohio-based manufacturer of building products, including registers, vents, bath cabinets, and doors for the residential, commercial, institutional, and industrial markets. Annual sales of $50 million were added to the balance sheet and increased Gibraltar Steel’s presence in building products to seven companies, operating 23 facilities in 13 states.

Key Dates:

1972:: Dr. Ken Lipke buys Gibraltar Steel Corporation.
1984:: Sales exceed $100 million.
1987:: Brian Lipke named chief executive officer.
1993:: Company makes initial public offering of stock.
1995:: Company acquires Hubbell Steel to enter construction industry.
1996:: Company acquires Carolina Commercial Heat Treating (CCHT) to enter heat treating business.
1997:: Gibraltar Steel is named by Fortune magazine as one of the 100 Fastest Growing Companies in America.

Gibraltar Steel also made a move in 2000 to take advantage of business opportunities available through the internet. The company retained Xpedior to help it explore eBusiness opportunities, initially focusing on its construction products. The eventual goal was to improve operating efficiency, reduce costs, and strengthen sales throughout the corporation. Later in the year, Gibraltar Steel allied itself with FerrousExchange Inc., an internet-based service for the iron and steel industries, by making a minority investment and signing a multi-year commitment to purchase and offer significant quantities of steel products over the global on-line marketplace. Gibraltar Steel hoped to improve supply chain efficiency, as well as to broaden and diversify its supplier and customer base, in a continued effort to meet the aggressive goals that were a hallmark of the company ever since Dr. Lipke purchased it for $1 million in 1972.