In This Exclusive Third-Quarter Analysis Prepared For Rock Products, Headwaters MB Looks At Current Market Trends Such As Mergers And Acquisitions, Aggregate Production And Pricing.
By Brian Krehbiel
A handful of large publicly traded companies control the worldwide aggregates industry. Valuation multiples (Figure 1, includes the constituents of Headwaters Aggregates Materials Index) remained high in Q3, 2015 and average gross profit margins and average EBITDA margins increased 2.1 percent and 2.3 percent, respectively compared to the same period in 2014. The publicly traded aggregates industry as a whole was trading at an average EBITDA multiple of 11.6x at the end of Q3, 2015.
|Figure 1: Public Valuation Multiples|
|All $’s in Millions||EBITDA||Enterprise Value/|
|CEMEX, S.A.B. de C.V.||23,893||13,396||2,456||18.3%||1.84x||9.7x|
|MDU Resources Group, Inc.||5,772||4,733||874||18.5%||1.24x||6.7x|
|Vulcan Materials Company||13,852||3,320||746||22.5%||4.39x||20.4x|
|Martin Marietta Materials, Inc.||11,796||3,267||766||23.4%||3.71x||16.7x|
|Buzzi Unicem SpA||4,440||2,912||441||15.1%||1.55x||8.9x|
|Summit Materials, Inc.||1,923||1,365||231||16.9%||1.49x||11.0x|
|Eagle Materials, Inc.||3,963||1,129||315||27.9%||3.65x||11.1x|
|U.S. Concrete, Inc.||962||891||107||12.0%||1.21x||11.4x|
|*TEV = Total Enterprise Value (Market Capitalization + Net Debt)|
Aggregate Materials Index – Company Spotlight
U.S. based aggregates providers experienced growth in volume, pricing and margins in Q3, 2015.
Vulcan Materials’ announcement of Q3 results included an increase in revenue of $165 million, or 19 percent, to $1.038 billion and adjusted EBITDA grew 31 percent as margins improved when compared to the same period in 2014. Total aggregates shipments increased 10 percent, or 4.8 million tons, to 52.6 million tons. In its core aggregates segment, Vulcan delivered its ninth consecutive quarter of year-over-year improvements in both shipments and per-ton margins. No material acquisitions or divestitures were completed in Q3 by Vulcan Materials.
Martin Marietta recently reported record Q3 results with net sales of $1.0 billion, an increase of 9.5 percent over the same period in 2014 while gross margins improved by 4.8 percent. Both aggregates volume and product line price increased 5.4 percent during the quarter. On Sept. 30, 2015, Martin Marietta completed the sale of its California cement business to CalPortland Cement Co. for $420 million. Proceeds from the sale are being used to repurchase shares of the company’s stock.
Summit Materials announced Q3 results of operations, which far exceeded totals for the same period in 2014. Net revenue increased 22.4 percent and revenue and volume increased for all product lines and in all U.S. regions. The acquisition of Davenport Assets, a cement plant and a quarry in Davenport, Iowa, and seven cement terminals along the Mississippi River, in July and LeGrand Johnson Construction Co., a vertically integrated construction materials company based in Utah, in August helped to bolster Summit’s Western and Central region territory coverage and revenue growth in Q3.
Merger and Acquisition Activity
Acquisition activity continued in Q3 as aggregate producers made strategic acquisitions of mineral reserves and completed divestitures of non-core business assets (Figure 2). A large portion of the U.S. M&A activity in Q3, 2015 stemmed from acquisitions and divestures associated with regulatory approval of the Holcim/Lafarge merger, which closed on July 10, 2015.
|Figure 2: Recent Industry M&A Activity|
|Transaction Date||Target/Issuer||Buyers/Investors||Transaction Value ($mm)||Sellers|
|10/9/2015 (Announced 09/25/2015)||CEMEX, Inc., Gypsum Wallboard Business||US LBM Holdings, LLC||Undisclosed||CEMEX, Inc.|
|09/28/2015||The Wantage Stone||U.S. Concrete, Inc. (NasdaqCM:USCR)||Undisclosed||–|
|09/10/2015||North Jay White Quarry, Boreal Quartz Quarry and St. Clair Quarry||Polycor, Inc.||Undisclosed||–|
|09/04/2015||Ashmore Bros||Rogers Group, Inc.||Undisclosed||Ashmore Family|
|08/04/2015||Martin Marietta Materials, Inc., California Cement Business Assets||CalPortland Company, Inc.||420.0||Martin Marietta Materials, Inc. (NYSE:MLM)|
|08/28/2015||E&A Materials, Inc., Select Assets; & Pitts Sand & Gravel, Inc., Select Assets||U.S. Concrete, Inc. (NasdaqCM:USCR)||Undisclosed||E & A Materials, Inc.|
|08/24/2015||LeGrand Johnson Construction Co||Kilgore Companies (Summit Materials)||Undisclosed||Johnson Family|
|08/05/2015||Art Wilson Company||ACG Materials||Undisclosed||–|
|7/28/2015 (Announced)||Italcementi SpA (BIT:IT)||HeidelbergCement AG (DB:HEI)||6,448.5||First Eagle Investment Management, LLC|
|07/24/2015||Holcim Ltd., Cement Facilities in USA||ESSROC Cement Corp.||Undisclosed||Holcim Ltd. (SWX:HOLN)|
|Lafarge North America, Inc., Cement Assets||Continental Cement Company, LLC||Undisclosed||Lafarge North America, Inc.|
|07/13/2015||KSA Limited Partnership||Rocla Concrete Tie, Inc.||Undisclosed||Koppers Inc.; Lehigh Hanson, Inc.|
|07/01/2015||Addiment Italia S.r.l.||Sika AG (SWX:SIK)||Undisclosed||Buzzi Unicem SpA (BIT:BZU)|
Private Equity Transaction Activity & Valuations
GF Data, a provider of detailed information on business transactions ranging in size from $10 million to $250 million, provides quarterly data from over 200 private equity firm contributors on the number of completed transactions. Figure 3 provides the number of completed transactions from GF Data’s contributors, the average EBITDA multiple and the average amount of debt utilized in the transaction computed as a multiple of EBITDA. The data, although not industry specific, does show that valuations and leverage are on the rise but the number of transactions completed in Q3, 2015 is substantially lower than the prior quarter and the same period last year.
|Figure 3: Private Equity Valuations & Leverage|
|All Transactions||Q1 2014||Q2 2014||Q3 2014||Q4 2014||Q1 2015||Q2 2015||Q3 2015|
|# of Transactions||41||53||50||64||63||51||37|
|Source: GF Data|
Over the past 10 years, major market indices outpaced growth in the aggregates industry (Figure 4), due in large part to the recession, but thus far in 2015 publicly traded aggregates producers are outperforming the S&P 500 and the Dow Jones Industrial Average (DJIA) (Figure 5). Publicly traded aggregates producers were performing well in early 2015 but returns for the Aggregate Materials Index recently turned negative for the year while annual returns have been negative for the DJIA and S&P 500 since August.
|Source: S&P Capital IQ|
|Source: S&P Capital IQ|
The U.S. House of Representatives and Senate recently voted to approve the Fixing America’s Surface Transportation (FAST) act. On Dec. 4, 2015, President Obama signed the bill into law. The five year, $305 billion highway and transit bill is the first long-term transportation legislation to be passed in a decade. There have been dozens of extensions since the last four year bill expired in 2009.1 Although the funding totals will not change drastically from prior years (11 percent increase over five years), the uncertainty around the U.S. commitment to future infrastructure funding has ended.
Aggregates Material Trends
Average industry pricing data shows cement, ready-mix concrete, sand and gravel and crushed stone prices increasing while asphalt prices plateaued and have begun to decline as a result of lower oil prices. Volumes have generally been increasing with the exception of asphalt which has been flat the last several years. The recently passed FAST act should bolster demand for asphalt over the next five years. Year-to-date cement, crushed stone and sand & gravel volumes have increased over the prior year.
Total shipments of portland and blended cement in the United States and Puerto Rico including imports for 2015 through September totaled 68.2 million tons, up by 3.2 percent from the same period in 2014.2
In the third quarter 2015, an estimated 406 million metric tons of crushed stone was produced and shipped for consumption in the U.S., an increase of 7.0 percent compared to the third quarter of 2014.2
Sand and Gravel
Sand and gravel production in the third quarter of 2015 was estimated at 291 million metric tons, an increase of 2.0 percent compared to the third quarter of 2014.2
1 House, Senate Pass Five-Year Highway Bill, Rock Product News, December 4, 2015
2 U.S. Geological Survey
|Source: U.S. Geological Survey|
|Sources: NRMCA Industry Data Survey, Average RMC selling price of U.S. Concrete, Vulcan Materials, Martin Marietta Materials & Eagle Materials|
|Sources: EAPA Asphalt in Figures, Vulcan Materials & Martin Marietta Materials average of net asphalt selling prices|
|Source: U.S. Geological Survey|
|Source: U.S. Geological Survey|
Headwaters MB is an independent, middle-market investment banking firm providing strategic merger and acquisition, corporate finance, and merchant banking services through proprietary sources of capital. Named “Investment Bank of the Year” by the M&A Advisor in 2014, Headwaters MB is headquartered in Denver, with six regional offices across the United States and partnerships with 18 firms covering 30 countries. For more information, visit www.headwatersmb.com. To discuss any information contained in this report, contact the Headwaters MB team: Darin Good, managing director, [email protected], 303-549-5674; Brian Krehbiel, vice president, [email protected], 303-531-5008 and Charlotte Franson, vice president, [email protected], 303-809-8980.