With his career origins founded in an initially loss-making family-owned structural tubing company based in Ontario, Canada, Barry Zekelman, executive chairman and CEO of Zekelman Industries, is now head of a multi-billion-dollar North American steel pipe and tube manufacturer. He discusses strategy, management and outlook with Bette Kovach
Barry Zekelman was only 19 years old and finishing his first year of college when his father, Harry, died unexpectedly, only two years after founding a structural tubing company in Ontario, Canada, known as Atlas Tube.
With duty calling while offering him a way out of school, Zekelman joined his older brother Alan, who was finishing college to head up the business their father created. In 1986 after my father died and my brother and I went to help the business, Atlas was not in great shape. But a few of the older employees helped the young ones along, and we were able to turn around a company that had been losing about $80,000 a month. To recover, we adopted a formula of buy for X and sell for Y that after only eight months allowed us to make our first monthly profit of $4,000. And we thought that was great.
While those early days focused on turning the business around for good, Zekelman dedicated himself to the mechanical aspect of the business the machines which came naturally to me. I fell in love right away by seeing the achievements we were able to make every day and every hour. Each day was always different and never boring, with no one day being like the last. While I concentrated on our machinery, we had some sales agents who stood by us as we focused on making the product. I guess you could say that I went to the school of tubing.
Those humble, unprofitable days of long ago are a far cry from the Zekelman Industries, with headquarters in Chicago and 15 manufacturing locations in nine US states in the midwest, south and west along with locations in two Canadian provinces. Through both organic growth and strategic acquisitions, Zekelman, 50, today leads the company that bears his name as executive chairman and chief executive officer.
The firm has annual sales in the range of about $2.6-2.7 billion, with 2,300 employees producing and shipping 2.5 million tons of pipe and tube mill products with the brands of Atlas Tube, Picoma, Sharon Tube, Wheatland Tube, Z Modular and Western Tube & Conduit Corporation. Today the company is the largest independent manufacturer of hollow structural sections and steel pipe and the top producer of electrical conduit and elbows, couplings and nipples in North America. It uses nearly exclusively North American, and primarily US, steel.
Although Harry Zekelman founded Atlas Tube in 1984, todays company traces its roots to the 1877 founding of the John Maneely Co outside of Philadelphia, Pennsylvania, a distributor of pipe, valves and fittings, which expanded into pipe manufacturing with the 1931 founding of Wheatland Tube. Other predecessors include Sharon Tube, founded in 1929, and Picoma, founded in 1970. All of those firms established their own followings and brand loyalty.
To grow Atlas, Barry Zekelman instilled in his employees the belief that their pay would rise as the company became more productive. Some employees were asking for more money, which I didnt have. My challenge to them was I could pay them more if we were more productive. We came up with a gain sharing program that rewards employees for eking out more tons of production and for their ideas on how to increase productivity. That release of human capital was not capital intensive, and we really havent changed that formula even today, he explained.
For the next 18 years, Zekelman concentrated on expanding Atlas Tube through greenfield growth and strategic acquisitions. The firm had sales of $1.2 billion when it was approached by the private equity firm Carlyle Group, which owned John Maneely Co, to merge the two companies to increase strength in the market. According to an October 2006 article in American Metal Market, the merger created North Americas largest steel tubing manufacturer with annual sales of about $2 billion and annual volume of more than two million tons. Although my initial reaction was to say, Atlas is not for sale, we ended up doing the combination, Zekelman said. The new firm, known as JMC Steel Group, allowed us to expand tremendously while streamlining facilities and instituting incentives for continued growth, he continued.
But the entrepreneurial itch that was passed on from the father to the son was too strong to resist after a few years. The Zekelman family had the opportunity to buy back JMC Steel Group in 2011 and in doing so has thus far retained the enterprise as a privately held business. In announcing the sale in February 2011, Andrew Marino, the Carlyle Groups managing director, told
American Metal Market: Working closely with the Zekelmans and management, we have made JMC a stronger company economically and from an environmental and governance standpoint. With Barry Zekelman at the helm, his brothers Alan and Clayton are partners and renamed the family-owned firm in 2016.
Since returning to family ownership, Zekelman Industries has continued to grow. Since early 2017 it has made two significant acquisitions. First, the company completed last February the acquisition of Western Tube & Conduit Corp, giving the acquiring firm a US coast-to-coast network of mills for the first time. The addition of the Long Beach, California, mill operator expands Zekelman Industries share of the electrical, fence and mechanical tube market in western North America. The seller was Japans Nippon Steel & Sumitomo Metal Corp, plus minority shareholders. Previously Zekelman Industries did not have a non-energy-related tube mill west of Blytheville, Arkansas.
The second recent addition to Zekelman Industries followed shortly thereafter, as the firm bought American Tube, Birmingham, Alabama, to further expand its share of the hollow structural sections market, the foundation of the Zekelman brand. The Birmingham mill, founded in 1994, includes a high-speed mill and packaging line installed in 2015, and gives Zekelman Industries a foothold in the American deep south.
While Zekelman Industries was solidifying its preeminent position in the North American pipe and tube market, so was Nucor Corp, the largest US steel producer. In late 2016, in rapid-fire succession Nucor acquired three different companies to also establish itself as a formidable force in the pipe and tube market. It acquired Independence Tube for $435 million for four mills in Illinois and Alabama that produce hollow structural sections. Southland Tube was bought for $135 million to also produce hollow structural sections in Birmingham, Alabama. Then Nucor wrapped up the year by announcing the purchase of Republic Conduit for $335 million; that firm, with operations in Kentucky and Georgia, makes electrical metallic tubing, intermediate metal conduit and hot-dip galvanized electrical rigid metal conduit.
Is there an advantage to having a single source of steel for a pipe and tube manufacturer? Not according to Zekelman. We buy from about 12 different mills to supply our operations. That gives me flexibility and cost savings on freight to buy on a regional basis.
Zekelman Industries buys of the recent past are allowing it to participate more fully in a strengthening market for pipe and tube products. Barry Zekelman said that the firm sees a very strong market for the next six to 12 months: Our customers are telling us their business is up by double digits. The energy sector is coming alive and that could bring in about 500,000 tons a month into domestic tube mills. Plus, industrial and non-residential construction is booming, and agricultural, mining and transportation are all coming back with automation making steel easier to fabricate than alternative materials. And if a national infrastructure bill gets moving, that would supersize demand for our products.
Modular construction is another market which Zekelman Industries is serving. The predecessor JMC Group in 2015 partnered with Amico Affiliates to launch Connexio Building Systems Inc to increase structural tubing demand in the modular construction industry. Since then, Zekelman Industries established Z Modular, which combines previously separate divisions of VectorBloc, Z Modular Fabrication and Connexio. A new factory for modular construction products opened in late 2017 in Birmingham, Alabama, to fabricate structural sections and steel sheet into three-dimensional chassis. The factory then fully finishes the chassis into rooms ready for stacking to complete a building.
Zekelman believes continued growth in modular construction will revolutionize the construction of hotels, condos, apartments and student housing. Modular construction is somewhat of an assembly line type of scenario that is done in a controlled environment with greater quality control and worker safety. We can also better control costs and shorten the time of construction. And I believe steel will displace concrete and wood for these types of structures.
Underpinning the companys growth has been the steadfast resolve of Zekelmans employees who are energized and empowered. Our gain-sharing program rewards results, and I trust that our employees know what to do to be successful and will be rewarded for it. We listen to both our teammates and our customers.
The company has also embraced an operating management philosophy dubbed Make it eZ, which uses enterprise-wide technology and employee initiative to increase efficiency and provide quick turnaround on product delivery, while offering engineering services to bring new products to market. From website navigation to the release of trucks to in-plant process improvement, we are eliminating roadblocks across all our facilities and making a great organization even better. We are customer centric and can always improve. We believe we can build significant value by being the easiest company to do business with, Zekelman said.
Despite a growing market for tube and pipe products in North America, Zekelman both the company and the man remains concerned about the international trade environment. He has been a vocal critic of dumping of foreign steel in the North American markets and is an advocate for the Section 232 trade petition, which is an extension of the Trade Expansion Act of 1962 under which the US president can penalize imports if he decides they pose a threat to national security. At the time of writing, the Trump administration is considering a report on Section 232 from the US Department of Commerce. American Metal Market reported on February 13 that President Trump is mulling duties and tariffs against a range of nations.
Pipe and tube has been a battleground for decades, Zekelman said, referring to the volume of imports coming into North America and particularly the US. He characterized determining the origins of incoming products as akin to playing whack a mole, a popular arcade game where the mole or target is hard to hit and surprisingly will appear again on the games surface.
To circumvent US trade laws, a steel product can be fabricated or made into something else in another country before it is sent here, thus making our laws very hard to enforce. The consumer ends up paying more for a product from abroad while we suffer the consequences of job losses here. Its been death by a thousand cuts to our industry. The enforcement of fair and appropriate trade laws will solve the woes of the steel industry by giving us consistency and the ability to invest in our jobs and our communities.
When the married father of two children goes to Washington, DC, to support the Section 232, Zekelman naturally wears a suit and tie. But he is more comfortable in jeans and a tee shirt, and on the shop floor rather than on Wall Street. I will do both but am more comfortable being in our plants talking to people. That is what completes me. I am an extremist of sorts, always pushing the limits to see where the breaking point is located. And although I dont always have to win, I enjoy the challenge.
While the Zekelman family currently controls the business, would Barry consider taking it public? There is a time and place for everything. There are pros and cons about going public. Going public gives you access to capital to grow. Its not about what is right for me, but rather what is right for the company. The Zekelman name is well known in the industry, and we are here to stay. And right now I am happy with the way things are, Zekelman concluded.
By: Bette Kovach