Above: Experts at FGM track commodities pricing and numerous economic trends to hedge buyers’ risks.
November, 2024: Sophistication comes in many forms. One form is to create a welldesigned and easy-to-use system by which customers can protect their inventory value against price gyrations. Another form is a well-oiled organization that has almost 50 years’ experience managing its customers’ needs by deploying physical assets.
As of Sept. 30, Flack Global Metals (FGM), founded in 2010, purchased Pacesetter Steel Service, founded in 1977. Pacesetter has locations in Atlanta and Chicago, and took over FGM’s Houston location. The company distributes flat-rolled steel products.
FGM, a hybrid steel business, is the combination of: the 30th largest service center in the United States; the Fabral Metal Roof and Wall Systems business; an investor in Windsor Americas; Flack Metal Trading, an international commodities trading company; and Flack Capital Markets, the steel industries’ most sophisticated capital markets desk, offering steel hedging and price risk management.
Founder and CEO Jeremy Flack and Pacesetter’s founder and CEO, Steve Leebow, met at least eight years ago and kept up a correspondence. Then, an investment banker signaled that the two companies might have some mutual interests.
“The way the Flack organization runs its business was intriguing,” says Leebow. “They separated themselves from mills and from service centers with the steel price hedging model.” He adds that his own executive team “was interested in a strategic investment. That’s how the communication moved forward early in 2024.”
What intrigued Flack initially was “the legacy” of the Pacesetter business. “Steve has been running it for 47 years. It has very sophisticated customers and a sophisticated business. They have so much that we don’t have as an organization,” says Flack. “They have a footprint, and we have aspirations based on what they do. The fit seemed good on paper. And then we met the team.”
Pacesetter Steel Service processes and distributes flat-rolled carbon
Stainless steel products, including cold-rolled and coated
Leebow recalls, “We had the same thought process: We didn’t have the tools that Flack has so we found it extremely complementary. We foresee a home run.”
FGM President Ben Bucci says the platform— combined with Pacesetter’s sales, processing and distribution capabilities— should enable the merged entity to introduce new contract solutions for larger corporations.
“We can build business with OEMs through innovative higher valueadded solutions. Our tools and the service center knowledge of Pacesetter will lead to more of that business.
This also gives us the opportunity to process steel closer to where customers are located.”
‘SHOW ME’
“Necessity is the mother of invention,” says Flack. In 2010, “we set out to do one thing but we are doing something else now. In the early 2010s, we thought companies would flock to us because of our hedging ability.” However, it took a lot longer than expected for that business to grow because trading of derivative products was slow and volumes were low.
“We were set up to build the front end of a service center”—sales, finance and administration— but it was frequently difficult to compensate for the lack of physical assets. The acquisition of Pacesetter “makes sense” because it expresses additional capabilities. “A distributor cannot control price risk without hedging,” says Flack. “This investment creates an ability to roll out different models for pricing to Pacesetter customers. We had to invest in hard assets in order to express our philosophy of hedging. We had to pivot and invest in the physical side” in order to truly grow, he explains.
Bucci adds that for many customers, “It was a ‘show me’ thing. Now we are showing them.”
SURVIVAL MODE
Flack and Leebow agree that the service center industry continually struggles with volatility.
“It is more than a struggle,” says Leebow. “Over the years, it is more and more difficult as mills want to sell you on an index basis. And, the price history has changed. The margins that distributors work on are small and the volatility can be greater than the margins. Survival, let alone growth, has become difficult.”
Flack submits that the combination of higher steel prices in the postCOVID world, higher interest rates and volatility are making owning and distributing steel much harder than during the 2010s.
“Mills sell on a fairly uniform platform, which we would characterize as essentially a delayed ‘price in effect at time of shipment.’” That makes it nearly impossible to know in advance what actual costs will be.”
What started in 2004 as scrap surcharges, he says, eventually “fully morphed into today’s indexing models which, in our opinion, work to the disadvantage of the service centers. We believe steel consumers and service centers should bifurcate their physical steel buy and the pricing mechanism, using exchange traded derivatives to neutralize volatility.”
This solution, he says, is a win-win: “the mills sell on their preferred platform, and the consumers protect themselves against market asymmetries.”
Pacesetter is now able to obtain longer term pricing, up to 18 months instead of three, and Leebow’s team is helping customers to reduce their own risks. “Most customers are not able to change their own prices quarterly, and so they get caught up in volatility. They like avoiding risk and working on an even playing field.” By using the hedging tools, “they can go out further” with their quotes.
“It’s a way to be able to carry inventory and not freak out about it. If your carrying cost is 9 percent, you can go out of business” because the margins are too thin to support that.
TRADING TRADITION
Flack says that “no individual function of what we offer is novel. Inventory, buying and hedging are normal. Notional hedging values on the Chicago Mercantile Exchange are eight times the daily traded value of the stock market. Most commodities trade more derivatives contracts than their physical counterpart. FGM uses these proven models.
“What FGM is able to do is bring well-established traditions from outside steel into the industry,” he continues. “This has been done in other markets, like energy, and in U.S. agriculture since the 1850s, We have an important message for the industry: There are ways to do it better and we need to embrace that.”
Pacesetter’s processing services include slitting, blanking/multiblanking and cut to length.
COMPETITIVE STREAK
Leebow says the organizations are working together to find synergies. “We will reduce costs by using Flack associates and Pacesetter associates but not overlapping. We have a mutual desire to find ways to add value and bring consistent profitability to steel distributors. When you go only from quarter to quarter, the results can be markedly different,” he says.
“We are looking to grow the Pacesetter business aggressively,” Flack says. “If you bring together the capacity of both organizations, we will do a better job than our competitors. The objective is to create an extremely competitive organization; to service customers better with higher value add and create a larger, more effective model. It is about cracking the code of difficulty for the service center industry.”
Leebow notes that by solving for volatility using hedging and related tools, Pacesetter can “focus on value, not pricing. We are in tune with customers’ needs and we’re working to find solutions that have nothing to do with the purchasing of steel.”
For example, Pacesetter had a customer that believed it required the addition of 50,000 square feet to its facility because the company ran out of room. Pacesetter sent in a team that helped the customer reconfigure its existing footprint so that it did not need a costly build. That is another form of sophistication.
Flack Global Metals, 480/575-3221, http://flackglobalmetals.com/
Pacesetter Steel Service, 770/919-8000, http://teampacesetter.com/
