Opportunities & risks in scrap metal business?

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July 14, 2021

by a searcher from Xavier University of Louisiana in Houston, TX, USA

I'm engaged with a broker to buy a scrap metal pick up and drop off company in the Houston, TX MSA. It passed my initial filtering and the next step is to tour the facility and talk to the owner.

Any opportunities & risks with this type of business in your experience?

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Reply by a searcher
from Xavier University of Louisiana in Houston, TX, USA
Thanks guys! This business does not own a scrap yard. They simply purchase bins and trucks and they "sell" to companies that generate scrap metal. The pitch is - use my bins and I'll get you the highest price for your scrap. Customers obliged and this company drops off an empty bin. Once it's full, customer calls this company. This company picks up the full bin, drops off an empty bin, takes the full bin to a scrap yard same day and makes 30% gross margin after paying driver and fuel costs. He takes no risk on the scrap metal price and there's little to no working capital requirements (he gets paid before has to pay for the scrap metal).
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Reply by a professional
from Washington State University in Seattle, WA, USA
I have some of these as clients. I would perform a due diligence on their entire risk, safety and insurance program as well as look into Environmental due diligence reports (Phase I to start). These facilities typically have long term environmental issues and the property may be contaminated and require a remediation in the coming years.

Also, qualified Drivers are extremely hard to find right now and many are forced to hire unqualifed drivers which leads to more problems.
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