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Back in the Fray

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The Rifkin family re-enters the scrap recycling business, opening Indiana-based MetalX.

Dan Sandoval March 11, 2013

METALX

Officers: President and CEO Danny Rifkin (pictured above), Executive VP of Marketing Jim Ustian, Executive VP and CFO Paul Everett, VP of Marketing Steve King, VP of Operations Jeff Rynearson, VP of Operations David Stage, VP of Engineering Brian Brown, Administrative Manager Sharon Zink and Vice President Neal Rifkin

Location: Waterloo, Ind.

No. of Employees: Approximately 75 by late spring 2013

Equipment: A two-ram baler for nonferrous metals, an array of material handling equipment, mobile shears, a full complement of transportation equipment and a double shredder design with an oversized downstream sorting system from Wendt Corp., Tonawanda, N.Y., which the company expects to start up in the spring

Services Provided: Full-service ferrous and nonferrous scrap processing, brokerage and trading; scrap consulting and management; community recycling; and transportation

In the history of family-owned scrap companies, the Rifkin name stands out as the family behind OmniSource Corp., Fort Wayne, Ind. For more than six decades, the Rifkins grew OmniSource from its humble beginnings in 1943 to a multistate operation with several billion dollars in sales and more than 2,500 employees before exiting the company because of philosophical differences with the company’s new owners.

With the recent establishment of MetalX in Waterloo, Ind., however, the Rifkin family has carefully and successfully bridged the gap between the burgeoning U.S. scrap industry of the mid-20th century and the present.


Looking Back

Irving Rifkin emigrated from Russia to the United States as a teenager in 1918. After living in New York City for 20 years, he moved to Lima, Ohio, where he worked in a relative’s surplus business, which included rags, hides, furs and some scrap metal.

In 1941, Irving Rifkin borrowed $750 to purchase a truck, which allowed him to focus on peddling scrap. From there he grew the business to the point where he needed a garage to store scrap. Within two years, Irving Rifkin and his brother-in-law, Irving Walters, received a $7,500 loan from another relative, Nathan Liff (who was also in the scrap business), to purchase a scrap yard in Fort Wayne named Superior Iron and Metal.

The company added more locations, growing beyond Fort Wayne. Irving Rifkin’s son, Leonard, came on board and became the driving force behind what was to become one of the largest scrap companies in the world. Danny Rifkin and his brothers, Rick and Marty, joined their father, Leonard, in the late 1970s and early 1980s, eventually becoming the third generation of the Rifkin family to manage the company, which officially changed its name to OmniSource in 1983. Under the leadership of Leonard Rifkin and “the boys” (as they’re still called), OmniSource grew to one of the most respected names in the scrap metal industry.

By 2007 OmniSource was handling in excess of 5 million tons of ferrous scrap and more than 1 billion pounds of nonferrous scrap per year. The company had grown its employee ranks to nearly 2,500 at more than 50 locations. Affiliated companies in the southeastern U.S. processed an additional 1 million tons of ferrous scrap and 300 million pounds of nonferrous scrap and employed 500 more people.

In anticipation of major changes in the industry, the Rifkin family, with the help of OmniSource’s executive team, set out to evaluate the best course of action for the company and its employees. The process resulted in the sale of OmniSource to Fort Wayne-based Steel Dynamics Inc. (SDI), the publicly traded steel company that the Rifkins had helped found in the early 1990s. The Rifkins had intended to remain actively involved in the business, Danny Rifkin says. However, just eight months after the deal closed, the brothers, along with other key executives, left OmniSource because of philosophical differences with SDI.

Danny Rifkin, who was president of OmniSource and a member of SDI’s board of directors, says leaving the company was never part of the plan. “We expected our entire team (including us) to stay on after the sale to SDI,” Danny Rifkin says. “We believed that the companies were being combined to take advantage of some real synergies and to embark on a new growth strategy. It was unfortunate the way it turned out,” he adds.

After leaving OmniSource, the Rifkins went on to form North River Capital, a Fort Wayne-based privately held equity capital firm. (See sidebar, “A Working Model,” below)

Despite North River Capital’s exposure to a variety of industries, Danny Rifkin says, “There’s nothing like the scrap business for me. I haven’t found anything as challenging and still see tremendous opportunity for the creation of a lasting organization. I’m excited that my sons, Neal and Mark, both have an interest. I’m thrilled that Neal has wanted to work with me to embark on this adventure together and has been able to be a part of MetalX from the beginning. The opportunity to sustain the family legacy is very important to me personally,” he says.


Back to the Yard

Danny Rifkin, joined by a team of seasoned executives who have worked with him before, recently re-entered the scrap metal business with the opening of MetalX in Indiana. “Even though we evaluated similar opportunities elsewhere in the country, we have a strong bias towards northeast Indiana. This is really home to us,” Rifkin says.

A Working Model

After leaving Fort Wayne, Ind.-based OmniSource in 2008, members of the Rifkin family soon experienced the urge to pursue new business development opportunities. This urge led brothers Danny, Rick and Marty Rifkin, along with other former members of the OmniSource executive team, to form a private equity firm called North River Capital. The new firm was created to develop and grow companies in a myriad of industries.

North River Capital sought to apply the same approach to organizational development and business strategy that had worked for the Rifkins at OmniSource. They say they were convinced this approach could be equally effective for companies in any industry.

Paul Everett, a partner in North River Capital and executive vice president and CFO of MetalX, the Rifkin’s new scrap company in Waterloo, Ind., says the portfolio of companies under the North River banner has clearly demonstrated that the family’s business philosophy can be successfully applied across a range of industries, including manufacturing, engineering and filmmaking.

“Becoming established as a private equity firm presented us with the additional opportunity to gain access to the world of institutional finance and to see things on a more global basis,” Danny Rifkin says. “That exposure has given us insight into how things operate at the most macro levels and has served to broaden our horizons. As we come back now [to the scrap industry], we are a bit more circumspect about how to achieve long-term success in this or any business.”

MetalX officially opened for business Nov. 1, 2012, just four-and-a-half months after the first shovel of earth was turned to begin construction on the new greenfield scrap facility. The 70-acre site will process ferrous and nonferrous scrap from industrial generators and wholesale suppliers in addition to offering recycling services to the general public.

His time away from the day-to-day operations of a metal recycling business has allowed Danny Rifkin to look at the scrap metal industry in a different light, he says. When asked how the industry has changed, he says, “I can’t put my finger on one or two specific things. It seems that it is more indicative of a number of situations coming together.”

One issue he sees is the inordinate pressure the current business climate creates. “Many in the industry talk as if they’re under siege,” Danny Rifkin says. “These are dark times, and many scrap metal recyclers talk as if they’d like to get out. They seem to feel like they’re living in a war zone.

“It appears to me the economic downturn has thwarted the type of growth that was the norm from the mid-1990s through 2008,” he continues. “Many players in the industry—midsize, public, large, private, etc.—are all struggling to figure out how to adapt to what’s ahead and how to find a course that will produce stability and success,” Danny Rifkin says.

Given the challenging environment, why would the Rifkins and a group of former OmniSource teammates make the decision to start MetalX?

One reason is the family’s legacy in the scrap metal business, Danny Rifkin says. Also, while the industry faces new external pressures, he says he is confident the business model that the MetalX team has developed can distinguish the company from its competitors, putting MetalX on a path to success.

Despite the company’s startup status, MetalX’ executive team doesn’t view the business that way. “I would say that anyone who has joined Danny doesn’t feel that this is a startup at all,” Paul Everett, executive vice president and CFO of MetalX, says. “There is not one person on board who sees anything like typical startup risks at MetalX. This is a reintegration of a proven model.”

Not only is the company’s model proven, but so is its culture, which is an extension of the culture the Rifkin’s created at OmniSource, according to the MetalX executive team.

Danny Rifkin’s son Neal used to work for OmniSource in the summers during high school. After graduating from college, he moved to Chicago, where he spent more than a year at a publicly traded logistics company.

“One thing that turned me off about a large, public company was that they really didn’t care for their employees like my dad had at OmniSource,” he says. “I missed the company culture that I grew up with.”

This culture is what MetalX is determined to recreate, its executive team says.

Everett says that after the Rifkins sold to SDI, the company culture that had flourished at OmniSource changed. “People felt a bit overused and disenfranchised,” he says of OmniSource’s transition to SDI ownership. “They didn’t feel as connected to the process. The role of the scrap unit was simply to source scrap for the mills rather than operating as a key margin-generating part of the business.”

Beyond re-establishing the culture OmniSource was known for, the MetalX management team has other plans for the company.


Process Investments
As part of a comprehensive plan to invest in processing operations and technology, MetalX plans to install a two-ram baler for nonferrous metals, the material handling equipment typically required by a full-service scrap yard, mobile shears and a full complement of transportation equipment, which will allow the company to support its suppliers with trailers, containers and direct service. The company’s largest investment during this initial phase is in a double shredder design with an oversized downstream sorting system. MetalX worked with Wendt Corp., Tonawanda, N.Y., on the design and says it expects startup sometime in March 2013.

MetalX says these initial installations are the first stage of its ongoing investment in processing technology. The company already has plans to design and install a wire-chopping operation to serve a base of industrial wire generators and to provide an alternative for wholesale suppliers.

“We’re always looking to the future and planning ahead,” Danny Rifkin says, “We believe that we can bring a different, more comprehensive approach to copper recovery and risk management. We can add value for our clients, which in turn will present new opportunities for us.”

Danny Rifkin says, however, that such investments cannot be taken lightly. “It’s one thing to talk about growth and investment, but we believe that such growth must be well thought-out and occur at a measured pace. We won’t get ahead of ourselves and will expand more systematically, one step at a time.”


A Different Approach
Danny Rifkin says MetalX is taking a different approach to its shredder operation. “We have designed and are constructing a shredding system that will be a bit different than other shredder systems, which will result in greater flexibility, lower capital costs and more efficient operations.”

Further, Danny Rifkin says MetalX expects to do custom shredding for certain customers, which allows for the cooperative development of proprietary shredded products, some of which may not be typical to the scrap industry. “We are looking at the opportunity to get into the niche shredding business rather than trying to simply blast as much volume through a machine as possible,” he says, adding that the company will seek to protect its operating margin. “We are not putting in a shredder simply to be a shredder but rather to add value for customers and enhance the MetalX bottom line. We are a scrap business, not a shredder company,” Danny Rifkin continues, “and we should only be shredding if we’re adding value in the process.”

The shredder’s flexibility is key, he says. “Larger companies are overcapitalized for current volumes and are trying hard to unwind what we see as a capacity-driven model that cannot work in this kind of environment,” Danny Rifkin says. “It is all too common to see those situations where volumes have diminished significantly while the proliferation of shredders has continued, thus creating too much capacity. This is naturally followed by increasing margin compression. Unfortunately, this may last for quite some time. It takes a long time to cycle away from overcapacity. The scrap business is squarely lodged in that type of midcycle compression.”

MetalX’ executive leadership team says it sees opportunity in restoring a proven model and expects to gain an advantage through a philosophy that promotes the development of long-term relationships on both sides of the scrap equation combined with superior execution.

While the relationships many senior executives of MetalX have with customers are critical, Danny Rifkin says other key elements also will drive the company, which will focus on the basics, or what he calls “blocking and tackling,” first. “We have to make sure that our foundation is solid, that our base is well-established. From there, we can effect fairly rapid growth, with strategy that balances organic growth with customers, greenfield expansion and strategic acquisitions.”

Danny Rifkin says he sees great opportunities for MetalX going forward. However, the company won’t chase hot technology trends until they are proven, even though he says he believes research and development and a willingness to innovate keep people sharp and, if managed properly, can contribute to future growth.

“We believe that our focus on generators and suppliers of scrap will fill a void that developed during the consolidation. That approach is natural for us—It doesn’t have to be taught. That will take care of the organic growth,” Danny Rifkin says.

“We also will grow through acquisitions, although we realize it is important to be highly selective and very disciplined. Given the current environment and the ‘oversupply’ of sellers, it’s more important than ever to make sure that everything we do in M&A (mergers and acquisitions) will be strategic. At this point, we anticipate completing a few acquisitions by the end of 2013, but will only consider those opportunities that can be effectively integrated into our business and can be additive to the whole,” he adds.
 

Wearing Different Hats

North River Capital is a private equity firm founded in 2008 by Danny Rifkin, other members of the Rifkin family and former executives of OmniSource Corp.

Rifkin says the firm is different from many other private equity firms in that it only invests its own capital and places no arbitrary limits on the duration of the investment, which allows North River greater flexibility.

“There is no specific time when the company has to be flipped,” says Paul Everett, a partner in North River Capital and executive vice president and CFO of MetalX, the new scrap metal recycling firm that Danny Rifkin started in Waterloo, Ind. “That has allowed us to maintain the same type of view of portfolio companies as we used in our own operating company. We were able to apply our philosophy that you take a long view of business. That is why North River Capital’s portfolio is doing so well.”

Everett says the efforts with North River’s portfolio companies “validated in our minds that sound principles transcend both industries and sectors.” He adds, “If you are focused on the right values and right principles, you can translate that into success in any business.”

The development of North River Capital also has helped hone the management staff’s skill set.

“North River gave us the opportunity to evaluate and learn about any number of businesses and a variety of sectors from the standpoint of ascertaining value and determining strategic growth opportunities, determining potential growth for a number of businesses. It broadened our perspective quite a bit,” Rifkin points out.

Companies in the North River portfolio include:

  • Premium Supply Inc., a supplier and distributor of material for the commercial and industrial sector;
  • Runnels Builders Products LLC, a distributor of commercial doors, hardware and other products for new construction;
  • T-E Inc., a civil engineering and site development firm;
  • Wayne Manufacturing LLC, a designer and manufacturer of axle products for the transportation industry;
  • ARC Alabama LLC, a company that has been contracted to operate a landfill that reclaims recyclables from auto shredder fluff;
  • Coldwater Machine Company LLC, which provides engineering solutions for challenging manufacturing applications;
  • Arctic Fox LLC, a manufacturer and supplier of fluid and fuel heating systems for the trucking and off-highway equipment market;
  • White Hat Entertainment LLC, a company that has partnered with Park Pictures to finances independent films;
  • North River Oil Investments LLC, a company that invests in oil and gas exploration and production operations in conjunction with Midwest Energy Partners LLC; and
  • Independence Sun Valley, a real estate investment fund specifically related to an 850-acre mountain site near Triumph, Idaho.

 

As for what the future holds, Danny Rifkin says he does not see a single Holy Grail driving the company’s growth. “I don’t see any single area of opportunity or even trends that are so compelling that immediate action is required,” he says. “Rather, I see smaller opportunities that, in and of themselves, are not monumental; but, we prefer to build on one unremarkable success after another. Before you know it, we’ll have developed something pretty significant.”

 

The author is senior editor of Recycling Today and can be contacted via email at dsandoval@gie.net.

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