Wellspring Capital Management LLC is already
looking to the future after re-acquiring JW Aluminum Co. But
this time around, the future involves acquisitions rather than
Back in 2003, Wellspring purchased JW
Aluminum from Walter Industries Inc. for $125 million. Three
years later, it sold JW to Superior Plus Inc., Calgary,
Alberta, for $350 million.
William F. Dawson Jr., a partner at
Wellspring, said it was both the opportunity to make a handsome
profit combined with the fact that Wellspring at the time was
drawing on a smaller investment fund and did not have the
capital to expand the business.
Fate brought them back together, however. At
the end of 2006, Wellspring had a much larger warchest that
could provide the capital needed to expand JW Aluminum just as
Superior was experiencing liquidity problems. "The timing was
purely coincidental," Dawson said. Wellspring got JW back for
Now, Wellspring has shifted to bulking up JW
Aluminum. "Absolutely," Dawson said when asked if he expects
Wellspring and JW to acquire further aluminum assets. "We feel
there will be significant consolidation opportunities for
downstream assets going forward."
In fact, since Wellspring's December purchase
of JW Aluminum, the company has made two acquisitions Rollex
Aluminum LLC's Jackson, Tenn., rolling mill in May, and Coastal
Aluminum Rolling Mills Inc. in Williamsport, Pa., adding
another mill and related coatings operations, in June.
More opportunities may be on the way. "Given
what is happening with Alcoa and Alcan, there is likely to be
some downstream assets becoming available," Dawson said,
referring to Alcoa Inc.'s $33-billion hostile bid for rival
Alcan Inc. and the likelihood that any such deal would result
in divestitures to meet antitrust concerns.
Future Wellspring acquisitions will be in
North America and Europe, according to Dawson, who sees the
markets as similar. "Europe is slightly different because
consolidation hasn't yet begun, but in time it will."
Dawson sees a future dominated by larger
downstream players. "I think eventually there will be three or
four large rolling companies in North America," he said, with
the larger, better-capitalized players driving the
He pointed to India's Hindalco Industries
Ltd., which recently acquired Novelis Inc. for $6 billion;
Texas Pacific Group, which last year bought Aleris
International Inc.; and Apollo Management LP, which recently
purchased the former Noranda Aluminum Inc. from Xstrata Plc for
$1.6 billion. "With this group, you have three well-capitalized
players who will drive consolidation," Dawson said.
"Consolidation is going to happen. There really isn't a reason
for single-mill operations to exist anymore. You don't get
economies of scale and other manufacturing synergies. One-mill
operators will gradually sell out."
Dawson expects many of the changes to occur
over the next three years, and said he wouldn't be surprised to
see some facilities close amid the consolidation and
The pace and form of consolidation will to
some extent be shaped by the eventual disposition of the Alcoa
bid for Alcan. "There will be some high-quality downstream
assets coming onto the market," Dawson said.
Dawson believes that private equity funds
will play a significant role in the reshaping of the North
American downstream aluminum sector. "Private equity will
definitely have a presence," he said, pointing not only to
Texas Pacific and Apollo but also to Wellspring, noting that
strategic buyers are few and far between. "There really aren't
that many strategic buyers. Hindalco is the only obvious
strategic buyer of North American assets." He believes that
Hindalco, which currently is still digesting its purchase of
Novelis, will ultimately be a buyer of more assets.
Dawson sees four main markets for Mt. Holly,
S.C.,-based JW Aluminum building sheet, fin stock, aerospace
and converter foil. "Our goal is to be a significant player in
each market," he said. "We're very opportunistic, and would
take a look at all markets." Having a presence in multiple
end-use markets also diversifies exposure to any single end-use
Another factor contributing to JW's success
is its ability to respond quickly to market conditions. "Our
manufacturing capacity is very flexible," Dawson said. "If
there is a downturn in building sheet, we can shift production
to another end-use sector."
Right now, the aerospace and converter foil
sectors seem the most ripe and ready for expansion. "We're not
as we would like to be in converter foil," he said.
The aerospace sector has certainly captured
Wellspring's attention. "We would definitely look to expand our
aerospace presence," he said. "Clearly, aerospace is very
attractive. That's one of the reasons we bought Coastal, to get
into the aerospace market. It's a great market but very
cyclical, so you must play the cycles correctly."
Given that most observers agree the main area
of overlap in any Alcoa-Alcan combination would be aerospace,
such a deal could create great opportunity for a buyer looking
to overcome the significant barriers to entry, including the
high cost of a greenfield project and an extremely rigorous
qualifying process. "You definitely want to buy your way in (to
aerospace)," Dawson said. "You don't want to take a greenfield
Dawson also sees promise in the automotive
sector. "Automotive will still be a big growth area as the
aluminum content in cars goes up over time. A lot of auto
manufacturers will accelerate their use of aluminum because of
the price of fuel. Yes, aluminum is more expensive, but it