Scrap Metal Services Retires a Legend
September 30, 2012
Scrap metal is big business, and one of the industry’s rising players is Scrap Metal Services, L.L.C. (“SMS”) named one of the nation’s fastest-growing private companies by Inc. magazine. Founded in 2005, SMS already had established operations in several Midwestern states beyond its native Illinois when it contemplated the purchase of Texas-based All Star Metals. As a leading ship recycling operation that would complement and diversify Scrap Metal Services’ existing business, it made an attractive target. Some of All Star Metal’s business came through government contracts, which, in combination with additional resources from SMS, would allow All Star Metals to compete for massive projects like the dismantling and scrapping of the USS Forrestal, a historic “supercarrier” that, on its commissioning in 1955, was the largest aircraft ever built.
SMS asked an LP team led by Russell Shapiro and Robert Connolly, who brought deep experience in both M&A and the scrap metal industry, to advise on the purchase.
- Acquire All Star Metals, a significant ship-recycling operation consisting of multiple entities with overlapping ownership.
- Allow All Star Metals, as a subsidiary of Scrap Metal Services, to become more competitive for major government contracts.
Concerns and Issues
- Obtaining financing for purchase of All Star Metals.
- Negotiating agreements for owners of All Star Metals, some of whom would be staying on as employees and retaining partial ownership of the operation.
- Achieving acquisition of All Star Metal’s multiple entities in an efficient manner.
What We Did
All Star Metals consisted of two different businesses: a shredding operation and a separate unit dedicated to dismantling ships. Because purchasing the stock and assets of those entities could have involved numerous agreements with overlapping terms, LP designed a hybrid purchase agreement that covered both stock and assets in a single agreement that proved the most efficient approach. To ensure the continued involvement of All Star Metals’ successful and valuable ownership, LP also carefully negotiated balanced employment agreements and a multi-member LLC operating agreement addressing the minority interest retained by the selling owners.
The deal, which closed in September 2012, came to further fruition in October 2013, when All Star Metals—as a subsidiary of SMS —won the contract to dismantle the USS Forrestal, which had served for four decades across the Atlantic, Pacific, and Mediterranean. LP assisted with that transaction as well, helping Scrap Metal Services with the challenge of securing financing for an asset—a decommissioned aircraft carrier—of a type with which lenders are not familiar. After making national news with the award of the contract, All Star Metals conducted multiple events, attended by LP, to honor the ship and those who served on it before retiring a proud piece of history.