United they stand: scrap industry consolidation meets the “friends and family” plan

“Recycling Today” published Jul 1, 2007

When business managers and analysts refer to consolidation, what they often have in mind is an effort by investment bankers and large, public companies to acquire market share rapidly.

In the scrap recycling industry the term has certainly been used that way and applied to the efforts of several such companies. But mergers and acquisitions are not carried out only by large investment banks, as the story of United Milwaukee Scrap LLC serves to demonstrate.

The company was formed in 2003, but its roots trace back to several family companies with long-time scrap experience. Today, the company continues to grow–sometimes through acquisition–and is guided by a group of friends and family members who are eager to compete vigorously in their regional market.

BUYING BACK IN. The principals of United Milwaukee Scrap–Art Arntein, Steve Lewinsky and Rick Mechanic–are familiar with mergers and consolidation from several angles.

Each of the three, either as individuals or as parts of family businesses, has been involved in mergers, buyouts and partnerships in the Milwaukee area’s scrap industry since the 1970s.

Rick and his father Morrie helped build two separate Milwaukee scrap businesses, Standard Scrap Metal and Milwaukee Scrap Metal. Standard Scrap handled enough volume to have outgrown several smaller locations before settling into a large former potato chip factory in central Milwaukee.

Art and Steve had been in partnership in the 1990s with Pro Recycling, a business they sold to the former Recycling Industries Inc. in 1998.

By the time Recycling Industries closed and its assets were liquidated, Art and Steve had re-entered the recycling business and were even able to re-acquire some of their former assets through the liquidation process.

By the early part of this decade, Rick’s established scrap company (Standard Scrap Metal) was competing with the company formed by Art and Steve, known as Start Recycling (the “St” derived from Steve and the “art” from Art).

The two companies were by no means the only ones operating in southern Wisconsin, a region served by several other large scrap companies and one that also draws the attention of scrap recyclers in Chicago and northern Illinois.

“Rick’s father had passed away, and Rick was running the nonferrous business by himself, so we started having conversations in 2002,” recalls Art.

For Rick, a partnership was a new idea, but eventually all three were comfortable with the notion of combining businesses to form United Milwaukee Scrap in February of 2003.

The timing of the merger has been good, as markets strengthened in 2003, and the new partners had the energy and capital to begin taking advantage of healthy business conditions.

RAMPING UP. Since forming in 2003, United Milwaukee has been kept busy with a whirlwind of activity involving new personnel, new equipment and new operating locations.

On the personnel front, the additions include Art’s sons David and Daniel Arnstein. “I grew up around the business with my dad, but my degree and work experience is in business and finance,” says David. “I was able to help advise on the merger, and in August of 2003 my dad asked if I wanted to move back to Milwaukee and help grow the company and expand its infrastructure,” adds David. In late 2003, he moved from Madison back to Milwaukee to join the United team.

Daniel Arnstein studied journalism at the University of Kansas and had been working in Chicago for a tech company. He joined United in 2005 and has focused on scrap export sales.

Other key people have also been brought on board in the past four years as United Milwaukee has grown from roughly 45 employees when it began to 120 as of mid-2007. “We’ve acquired some very good people,” notes David.

Some of the new employees have been added as a result of acquisitions that United has made. United has expanded through acquisition by purchasing the former Wolin Co. in November of 2003; the former Auer Scrap Metal in April of 2004; and most recently the former Donahue Iron & Metal in March of this year.

According to Art, the purchases of these companies–all of them in Milwaukee-was done “without any venture capital or investment bankers.”

Steve has been at the forefront of another major United Milwaukee growth initiative–the installation of a new shredding plant to help expand the company’s capabilities on the ferrous side of the business.

The company’s 2,000-hp Magnatech 60/60 shredder is located on a 10-acre parcel of land adjacent to one of its nonferrous operations and another retail feeder yard location.

The shredding plant, which features a downstream system that is located indoors within a metal building behind the shredder, began operating in early 2005. Steve says white goods and ferrous sheet metal are the primary feed-stocks, while the finished product is often foundry grades of scrap prepared for regional consumers. The plant is also used to shred aluminum scrap for customers in that segment as well.

For ferrous scrap consumers who prefer to have their scrap baled, an Al-jon unit works from the same site.

The shredding plant is the biggest ticket investment United Milwaukee has made, but it is not the only one.

“We’re investing to turn inventory,” Art remarks. “We have bought better equipment throughout the operation. It’s not just the shredder, but better forklifts, better cranes–we’ve invested from $8 to $10 million in operations in the last three years. Rick and I spend a lot of time on that. Our goal is to turn our inventory over 12 to 18 times per year.”

Adds Rick, “You don’t want to speculate in this market, so we’ve learned a lot and invested a lot in operations since 2003.”

MAJOR LEAGUE. Like many Milwaukee business owners, the Arnsteins, Steve and Rick enjoy entertaining customers and prospective customers at Miller Park, the new ballpark with a retractable roof that is home to the Milwaukee Brewers.

But the Brewers are not the only major league game in town for scrap dealers, as the consolidation and globalization of the manufacturing sector has brought ever-larger companies into the scrap generation, scrap processing and scrap consuming sectors.

On the international front, becoming familiar with the export markets has been one of the company’s important objectives. By having Daniel dive into the export market, the company is now shipping some 50 overseas containers per month compared to just five to 10 two years ago.

But local advantages include knowing local customers and staying close to them and being able to reach quick decisions. “We don’t need to sit around and discuss things endlessly,” says Rick.

The significant investments in equipment and locations have put United Milwaukee Scrap into the big leagues, handling some 9 to 12 million pounds of nonferrous metals and some 10,000 to 15,000 tons of ferrous scrap monthly.

The other important investment will continue to be in people, says Art, who also emphasizes the United of Milwaukee’s management style.

“If you bring good people into an organization, your object is not to micro-manage them,” he states. “In order to keep the pulse going, you need people who can think for themselves. We are the kind of ownership who can do that.”

The author is editor in chief of Recycling Today and can be contacted at btaylor@gie.net

AT A GLANCE: UNITED MILWAUKEE SCRAP

PRINCIPALS: Steve Lewinsky, Art Arnstein and Rick Mechanic (pictured from left)

LOCATIONS: Headquarters and several facilities all in Milwaukee

NO. OF EMPLOYEES: 120

EQUIPMENT: Shredding plant manufactured and designed by Magnatech Engineering Inc., Tonganoxie, Kan.; baling equipment made by Harris Waste Management Group, Peachtree City, Ga., and Logemann Brothers Co., Milwaukee; ferrous baler made by Al-jon Inc., Ottumwa, Iowa; other equipment includes can densifiers, alligator shears and fleets of hydraulic scrap handlers, wheel loaders and forklifts

SERVICES PROVIDED: Recycling of ferrous and nonferrous metals, including purchase and pickup from industrial and small dealer customers; retail scrap operations; brokerage

A WINNING BID

The headquarters of United Milwaukee Scrap, as well as much of its operating equipment and retail business, is located in a north central Milwaukee neighborhood centered on West 30th Street.

The company’s location has placed it within a Business Improvement District (BID) known as the 30th Street Industrial Corridor, and United Milwaukee has been eager to take part in what the BID district is doing.

“They’re really trying to bring jobs into a depressed area that was once very vibrant,” says United Milwaukee Scrap’s Art Arnstein. “We were very much in favor of the BID district; we’re active with them to try to make this a better area.”

United can play a part by offering upgraded landscaping and signage, notes Art, but most importantly by providing jobs to neighborhood residents.

In turn, the company received a “Business of the Year” award from the neighborhood Sherman Park Association. “We’ve been very proactive about hiring people from within the neighborhood,” says Art.