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Aggregate Industry Market Report


In This Quarterly Report, Provided Exclusively For Rock Products, Capstone Headwaters Provides Insight Into Mergers & Acquisitions (M&A), Capital Markets Trends, Aggregates Production and Pricing Through the Second Quarter of 2019.

By Darin Good and Brian Krehbiel

Capstone Headwaters' Building Products & Construction Services Team advises industry business owners, entrepreneurs, executives, and investors in the areas of M&A, capital raising, and various special situations advisory. Due to our extensive background and laser focus within the industry, Capstone Headwaters is uniquely qualified and has an unparalleled track record of successfully representing Building Products & Construction companies.

Public Valuation Commentary
Capstone Headwaters’ Aggregates Materials Index indicates that average public company EBITDA multiples increased 7.8% in Q2 2019 to reach 11.1x EBITDA.

Public Valuation Multiples

US Dollars in Millions

EBITDA

Enterprise Value/

Company Name

TEV

Revenue

EBITDA

Margin

Revenue

EBITDA

LafargeHolcim Ltd.

$45,173

$27,384

$5,457

19.9%

1.6x

8.3x

CRH Plc

$38,851

$32,089

$4,353

13.6%

1.2x

8.9x

HeidelbergCement AG

$29,663

$19,984

$3,077

15.4%

1.5x

9.6x

Cemex SAB de CV

$20,689

$14,110

$2,391

16.9%

1.5x

8.7x

Vulcan Materials Company

$21,203

$4,652

$1,191

25.6%

4.6x

17.8x

Martin Marietta Materials, Inc.

$17,509

$4,458

$1,125

25.2%

3.9x

15.6x

MDU Resources Group, Inc.

$7,514

$4,885

$661

13.5%

1.5x

11.4x

Buzzi Unicem S.p.A.

$5,001

$3,180

$628

19.7%

1.6x

8.0x

Eagle Materials Inc.

$4,950

$1,370

$380

27.8%

3.6x

13.0x

Summit Materials, Inc.

$3,637

$2,119

$360

17.0%

1.7x

10.1x

U.S. Concrete, Inc.

$1,532

$1,475

$152

10.3%

1.0x

10.1x

Mean

$17,824

$10,519

$1,798

18.7%

2.2x

11.1x

Median

$17,509

$4,652

$1,125

17.3%

1.6x

10.1x

*TEV = Total Enterprise Value (Market Capitalization + Net Debt)

Sources: FactSet and Capstone Headwaters Research

Aggregates Performance
Q2 2019 Total Returns
•    Aggregate Materials Index – 34.8%
•    S&P 500 – 18.5%
•    Dow Jones Industrial Average – 14.0%

Capstone Headwaters’ Aggregates Materials Index displayed strong growth, increasing 34.8% through Q2 2019 and outperforming the S&P 500 and Dow Jones Industrial Average.         

Picture1

Source: FactSet and Capstone Headwaters Research
 

M&A Overview
The aggregates industry has experienced slightly lower year-over-year transaction activity with 85 deals announced or completed through Q2, compared to a record year in 2018 that saw 108 deals through Q2 of 2018. However, the merger and acquisition (M&A) environment in the aggregates industry remains robust on account of strong performance among notable industry players. CRH plc (NYSE:CRH) and Cemex (NYSE:CX), benefiting from ample cash flow and a healthy balance sheet, have continued on their respective share buyback programs, while LafargeHolcim (OTC:HCMLY) expects to resume acquisitions in the near future on account of its strengthened financial position, according to its recent press release.1

Total construction put in place increased in July in the midst of headwinds such as a contraction of manufacturing activity and geopolitical uncertainty. Frictions in trade relations and recent volatility in oil prices have presented challenges for certain aggregate materials, especially those that are heavily petroleum based, such as asphalt. Despite mixed market signals, the backlog of projects remains consistent with healthy construction activity, with housing starts attaining 12-year highs in August (U.S. Census Bureau)2 and industry employment expanding by 2.4% year-over-year, according to ABC.3 Overall construction starts have been fueled by persistent demand for street and bridge projects, which experienced a 10% increase in August, according to Dodge Data & Analytics.4 Commercial construction starts also rose 7%, stimulated by demand for data centers and warehouse infrastructure. Advancements in favorable legislation have been highlighted by America’s Transportation Infrastructure Act, as lawmakers work to replace the FAST Act that expires in less than a year. The bill would authorize $287 billion over the next five years to maintain and repair America’s roads and bridges and marks the largest funding provided for highway reauthorization in history.5  

Picture2

Picture3

Source: Capital IQ, Pitchbook, FactSet, and Capstone Headwaters Research
 

PRIVATE EQUITY TRANSACTION ACTIVITY & VALUATIONS
GF Data Resources, a provider of detailed information on business transactions ranging in size from $10 to $250 million, provides quarterly data from over 200 private equity firm contributors on the number of completed transactions. The following chart provides the number of completed transactions from GF Data contributors, the average Total Enterprise Value (TEV)/EBITDA multiples, and the average amount of debt utilized in the transaction computed as a multiple of EBITDA. The data, although not industry specific, showed that the number of transactions declined while average EBITDA and total debt multiples increased compared to Q1 2019, with senior debt multiples remaining unchanged.

Private Equity Valuations & Leverage

 

Q2 2017

Q3 2017

Q4 2017

Q1 2018

Q2 2018

Q3 2018

Q4 2018

Q1 2019

Q2 2019

# of Transactions

58

53

71

77

50

71

63

75

51

TEV/EBITDA

7.2x

7.5x

8.0x

6.9x

7.3x

7.2x

7.8x

6.9x

7.6x

Total Debt/EBITDA

4.2x

4.4x

4.3x

4.1x

3.8x

3.7x

3.8x

4.1x

4.2x

Senior Debt/EBITDA

3.6x

3.6x

3.4x

3.3x

3.2x

2.7x

2.9x

3.4x

3.4x

Source: GF Data®

NOTABLE TRANSACTIONS

Oldcastle

AQUIRES
Allied

Oldcastle Architectural, Inc. acquires Allied Concrete Products LLC
(April 2019, Undisclosed)

Oldcastle Architectural, a subsidiary of CRH plc (NYSE:CRH) and member of its Building Products division, has acquired Allied Concrete Products for an undisclosed sum. Founded in 1945, Virginia-based Allied is a premier hardscapes products manufacturer and provides concrete products, bricks, pavers, mortars, and stone veneer.  Allied also offers a line of environmentally-friendly products including “Ecocrete” concrete mixes and insulated concrete forms.

The acquisition enhances Oldcastle’s geographic footprint and expands its hardscape and masonry product offerings to its network of contractors, leveraging its newly acquired paving and concrete masonry manufacturing facilities. Allied’s paving and concrete solutions will be additive to Oldcastle’s Belgard and Echelon Masonry brands, providing a more robust and integrated service platform.

 
Sika

AQUIRES
King

Sika AG acquires King Packaged Materials
(March 2019, Undisclosed)

Sika has acquired leading manufacturer of construction and mining products, King Packaged Materials. Terms of the deal were not disclosed. King’s product portfolio includes shotcrete solutions, grouts, and masonry mortars with a workforce of 180 employees operating through three production plants. The acquisition significantly expands Sika’s footprint in Canada and provides further penetration into the Mining and Tunneling markets. King generates approximately $60 million in annual revenue, according to a press release.6

“With the acquisition of King and its broad and highly complementary product offering we will further strengthen our presence in Canada and open up exciting new cross-selling opportunities.  Especially in the Home Improvement market and in the growing Tunneling and Mining market segments, the acquisition of King Packaged Materials will make Sika one of the leading suppliers of concrete solutions in Canada,” commented Christoph Ganz, regional manager of Americas at Sika.  

Select Transactions

 

Enterprise

EV / LTM

Date

Target

Acquirer

Target Business Description

Value (mm)

Revenue

EBITDA

06/27/19

BlueSky Paving

Ferrandino & Son

Offers pavement, maintenance, and               concrete services.

-

-

-

06/12/19

Columbus Coal

& Lime

Reading Rock

Supplies brick and masonry materials.

-

-

-

06/11/19

Granite Precasting

Oldcastle

Manufactures concrete products including manholes, catch basins, and storm water solutions.

-

-

-

06/11/19

Paving Division of Dayton Superior

Simplex Construction Supplies

Manufactures concrete construction supplies.

-

-

-

06/11/19

McCloskey

Metso

Provides screening and crushing equipment for aggregates, landscaping, and construction industries.

$420.0

-

-

06/10/19

United Materials

Construction Resources

Distributed surfacing materials including marble, limestone, porcelain, and onyx.

-

-

-

06/05/19

Assets of Granite

& Marble

Cosmos Granite

Designs and manufactures precast concrete products.

-

-

-

05/30/19

Go Green

American

Empire Diversified Energy

Manufactures aggregates and provides handling and logistics services.

-

-

-

05/22/19

Stone and Soil Depot

SiteOne

Distributes hardscapes and landscape products and materials.

-

-

-

05/20/19

GF Technologies

Groundworks

Provides foundation repair services including concrete levelling.

-

-

-

05/16/19

Wilkins Concrete

Great Western Concrete

Offers concrete contracting services.

-

-

-

05/14/19

Marble of the World

Stone Collection

Distributes natural stone and man-made surfaces.

-

-

-

05/13/19

Leonard Masonry

Alberici

Provides stone installation masonry construction, repair, and restoration.

-

-

-

05/07/19

Fastener Acquisition

Kyocera

Offers concrete products, fasteners, tool accessories, safety and maintenance products.

$815.3

1.5x

-

05/07/19

Best Materials

Construction Supply

Supplies construction and building materials including concrete accessories.

-

-

-

05/01/19

Coots Materials

Wendling Quarries

Provides sand and quarry products.

-

-

-

04/23/19

Alliance Designer

Wynnchurch Capital

Manufactures polymeric sand and installation products used in hardscaping.

-

-

-

04/23/19

Fisher’s Landscape Depot

SiteOne

Distributed hardscapes and landscape supplies.

-

-

-

04/15/19

Atlas Concrete Pumping

Concrete Pumping

Provides concrete pumping services.

$3.4

-

-

04/12/19

Easmunt Paving

Dubin Clark

Provides asphalt paving, grading, and milling.

-

-

-

04/02/19

Allied Concrete

Oldcastle

Manufactures concrete masonry products for the Design and Construction industry.

-

-

-

04/01/19

PCS Holdings

Chaney

Manufactures and supplies concrete.

-

-

-

04/01/19

Drake Group

Affiliated Distributors

Distributes construction materials.

-

-

-

Source: Capital IQ, Pitchbook, FactSet, and Capstone Headwaters Research

COMPANY SPOTLIGHT

MDUMDU Resources Group, Inc. posted strong Q2 2019 results, led by the Construction Services segment which reported record earnings of $22.8 million, a year-over-year increase of nearly 62%.7  The Construction Services segment has benefited from a healthy backlog of projects with heavy demand for data center and utility construction.  Strong operational performance and acquisition growth drove the 41% increase in year-over-year Q2 earnings, leading MDU to increase its combined construction revenue guidance by over $200 million for the year.     

"Our construction services business continues to have exceptional results, with year-to-date earnings 47% higher through June compared to last year, and our construction materials business increased second quarter earnings by approximately 20% over last year.  We also had an all-time record backlog of nearly $2.2 billion at our combined construction businesses at the end of the quarter,” David L. Goodin, President and CEO of MDU Resources, commented in the press release.

MDU has continued to utilize inorganic growth to expand its presence in the Construction Materials industry, which has been highlighted by recent add-on acquisitions.  MDU subsidiary Knife River Corporation, a premier national aggregates producer, completed acquisitions of Texas Aggregate Deposits (February, undisclosed) and Viesko Redi-Mix (March, undisclosed) in order to enhance its offerings of high quality construction materials.  Knife River has completed six acquisitions since 2018 and expects to achieve $2.0 to $2.5 billion in revenue at the conclusion of  2019.8  

CRHCRH plc posted record EBITDA through the first half of 2019, increasing 36% year-over-year, benefiting from a positive backdrop of demand in North American and European markets.9  Total aggregates volumes experienced a 6% increase from 2018, with ready-mixed concrete volumes recording a 22% increase, largely fueled by the additive integration of Ash Grove Cement Company (September 2017, undisclosed).

“Pricing momentum continued to be strong with good price increases achieved across all products during the first half of the year, more than offsetting higher input costs.  As a result, our EBITDA margin increased by 20 basis points on a like-for-like basis, a good outcome in the context of the weather-related headwinds we experienced across parts of our footprint during the period.  As we look ahead to the second half of the year, we’re pleased to see good momentum in our order books, both in terms of volumes and margins, pointing towards continuation of positive underlying demand environment in both our markets,” Albert Manifold, CEO and executive director of CRH, commented in the earnings call.10

CRH has remained acquisitive in order to strengthen its footprint in high growth markets with 36 bolt-on acquisitions through the first half of 2019, totaling approximately $470 million.  The Building Products segment accounted for eight of these acquisitions, most notably the purchase of Allied Concrete (April 2019, undisclosed) which significantly enhanced its service offerings to mid-Atlantic hardscape and masonry installers.  CRH expects continued positive momentum across most of its major markets with second half EBITDA to advance in line with metrics achieved through Q2 2019.

CONSTRUCTION MATERIALS UPDATE
Construction input prices decreased 1.3% in June on a monthly and yearly basis according to an Associated Builders and Contractors (ABC) analysis of data recently released by the U.S. Bureau of Labor Statistics.

Picture4

Source: U.S. Bureau of Labor Statistics

AGGREGATES MATERIALS
Industry results in Q2 2019 showed year-over-year increases in volume for cement (14.7%), crushed stone (3.3%) and sand & gravel (2.6%). Additionally, ready-mix concrete, cement, and asphalt experienced year-over-year increases in prices.

CementCement

•    Portland cement consumption (27.1 million metric tons) increased 14.7% year-over-year during Q2 2019.

•    The average net selling price per ton for Martin Marietta and Eagle Materials in Q2 2019 was $111.90, an increase of 1.7% over the prior quarter. Compared to Q2 2018, average net selling price increased by 2.8% in Q2 2019.

 

ReadyMixReady-Mix Concrete

•    Ready-mix concrete (RMC) prices increased 0.7% in Q2 2019 when compared to Q1 2019 and 3.4% year-over-year.  Price data is computed from the average RMC net selling prices of U.S. Concrete, Vulcan Materials, Martin Marietta, and Eagle Materials.

•    Ready-mix concrete volume for Q2 2019 amounted to 99.4 million cubic yards, a slight increase compared to the same period in 2018.

 

AsphaltAsphalt
•    Asphalt prices increased 6.2% year-over-year in Q2 2019, as measured by the average net asphalt selling prices of Vulcan Materials and Martin Marietta.  Asphalt prices increased 8.8% during Q2 2019 when compared to the previous quarter.
•    Asphalt volume is reported on an annual basis.

 

CrushedStoneCrushed Stone

•    An estimated 406 million metric tons of crushed stone  were produced and shipped to the U.S. for consumption in Q2 2019, the highest quarterly level since Q3  2015.
•    Crushed stone production increased 3.3% in Q2 2019 when compared to Q2 2018. Production volume increased by 44.5% compared to the previous quarter.
•    Crushed stone prices are reported on an annual basis.

 

SandGravelSand & Gravel

•    An estimated 273.0 million metric tons of sand & gravel were produced and shipped  to the U.S. for consumption in Q2 2019.
•    Sand & gravel production in Q2 2019 increased 2.6% year-over-year, the eighth consecutive quarterly increase when compared to the same period the prior year.
•    Sand & gravel prices are reported on an annual basis.

 

CITATIONS
1.    Bloomberg, “LafargeHolcim Chief Sees Opening for Deals After Painful Revamp,” https://www.bloomberg.com/news/articles/2019-09-09/lafargeholcim-chief-sees-opening-for-deals-after-painful-revamp, accessed September 23, 2019.
2.    U.S. Census Bureau, “Monthly New Residential Construction, August 2019,” https://www.census.gov/construction/nrc/pdf/newresconst.pdf, accessed September 25, 2019.
3.    Associated Builders and Contractors, “Nonresidential Construction Employment Expands in August, Says ABC,” https://www.abc.org/News-Media/News-Releases/entryid/16673/nonresidential-construction-employment-expands-in-august-says-abc, accessed September 23, 2019.
4.    Dodge Data & Analytics, “August Construction Starts Decrease 6%,” https://www.construction.com/news/august-construction-starts-decrease-6-percent-september-2019, accessed September 23, 2019.
5.    Senate Environment and Public Works Committee, “America’s Transportation Infrastructure Act,” https://www.epw.senate.gov/public/_cache/files/6/2/625bacd0-b17c-4416-8620-e5ff055b2988/371A1DFB7DCFCE38D52F6E05114599C3.atia-one-pager.pdf, accessed September 23, 2019.
6.    Mining Magazine, “Sika acquires King Packaged Materials,” https://www.miningmagazine.com/development/news/1358214/sika-acquires-king-packaged-materials, accessed September 20, 2019.
7.    MDU Resources, “MDU Resources Reports Increased Second Quarter Earnings, Increases 2019 Guidance,” https://www.mdu.com/file/Index?KeyFile=398967721, accessed September 17, 2019.
8.    Knife River Corporation, “About Us,” https://www.kniferiver.com/about-us, accessed September 23, 2019.
9.    CRH plc, “2019 Interim Results,” https://www.crh.com/media/2936/crh-plc-2019-interim-results-announcement.pdf, accessed September 25, 2019.
10.    CRH plc, “Half Year 2019 CRH PLC Earnings Call,” https://seekingalpha.com/article/4287475-crh-plc-crh-ceo-albert-manifold-q2-2019-results-earnings-call-transcript, accessed September 25, 2019.

Capstone Headwaters is an elite investment banking firm dedicated to serving the corporate finance needs of middle market business owners, investors and creditors. Capstone Headwaters provides merger & acquisition, private placement, corporate restructuring and financial advisory services across 16 industry verticals to meet the lifecycle needs of emerging enterprises. Headquartered in Boston, MA and Denver, CO, Capstone Headwaters has 19 offices in the United States, UK and Brazil with a global reach that includes more than 450 professionals in 40 countries. For more information, visit www.capstoneheadwaters.com. To discuss any information contained in this report, contact the Capstone Headwaters team: Darin Good, managing director, This email address is being protected from spambots. You need JavaScript enabled to view it., 303-549-5674; Brian Krehbiel, senior vice president, This email address is being protected from spambots. You need JavaScript enabled to view it., 970-215-9572; Crista Gilmore, vice president, This email address is being protected from spambots. You need JavaScript enabled to view it., 303-531-5013; and, Dominic Cervi, vice president, This email address is being protected from spambots. You need JavaScript enabled to view it., 303-531-4605