Headwaters MB Aggregates Market Report

In This Exclusive Analysis Prepared For Rock Products, Headwaters MB Looks At Current Market Trends Such As Mergers And Acquisitions, Aggregate Production and Pricing.

By Brian Krehbiel

In Q3 2016, average EBITDA multiples for the publicly traded aggregates industry increased 0.8 percent and average EBITDA margins during the period increased from 19.3 percent to 20.0 percent compared to Q2 2016 (Figure 1, includes the constituents of Headwaters Aggregates Materials Index). Year over year, EBITDA multiples were 6.2 percent lower than in Q3 2015 but that is an improvement from Q2 and multiples are trending up. What is interesting is while EBITDA margins have expanded by 3.0 percent over the past year, valuations have tightened reflecting investor’s conservativism in predicting the length of the current construction cycle. The publicly traded aggregates industry was trading at an average EBITDA multiple of 11.1x at the end of Q3 2016.

Aggregates Performance

In 2016, publicly traded aggregates producers are outperforming the S&P 500 and the Dow Jones Industrial Average (Figure 2) with a 33.0 percent YTD return as of Sept. 30, 2016. As of Nov. 30, publicly traded aggregate producers had a YTD return of 47.6 percent with 12.9 percent of the YTD return coming in the wake of Donald Trump’s election and the resulting shock to financial markets. Vulcan Materials experienced a 10.0 percent rise on Wednesday, Nov. 9, the largest one-day increase since the stock debuted in 1972 and Martin Marietta Materials posted a 12.0 percent gain Wednesday, its largest since going public in 1994.

Picture2Select Merger and Acquisition Activity

Acquisition activity increased in Q3 2016 as aggregate producers acquired mineral reserves and completed strategic acquisitions to increase vertical integration and geographic expansion (Figure 3). HeidelbergCement and U.S. Concrete were active consolidators during the quarter while LafargeHolcim divested of several large international assets.

Figure 3: Q3 Industry M&A Activity
Transaction Date Target/Issuer Buyers/Investors Transaction Value ($mm)
09/30/2016 Granite Source Inc. Clio Holdings, LLC Undisclosed
09/30/2016 Italcementi SpA HeidelbergCement AG (DB:HEI)                                             (acquired remaining 55% stake)           6,473.4
09/16/2016 Swenson Granite Company LLC Polycor Inc. Undisclosed
9/12/2016 (Announced) Cemex Construction Materials Atlantic, LLC, Fairborn Cement Plant and Related Assets Eagle Materials Inc. (NYSE:EXP)              400.0
09/06/2016 Fabcon Incorporated Platinum Equity, LLC Undisclosed
08/23/2016 C & A Paving Co., Inc. Clements Concrete Co Undisclosed
08/22/2016 Kings Ready Mix Inc. U.S. Concrete, Inc. (NasdaqCM:USCR) Undisclosed
08/19/2016 H.C. Rustin Corp. Summit Materials LLC Undisclosed
08/18/2016 HeidelbergCement, Cement plants in the US Cementos Argos S.A. (BVC:CEMARGOS)              660.0
08/10/2016 Jenna Concrete Corporation U.S. Concrete, Inc. (NasdaqCM:USCR) Undisclosed
8/4/2016  (Announced) LafartgeHolcim Vietnam Siam City Cement Public Company Limited (SET:SCCC)              535.7
08/01/2016 Hope Construction Materials Limited Breedon Group plc (AIM:BREE)              544.8
07/27/2016 Breedon Aggregates Limited, 14 Ready-Mixed Concrete Plants Tarmac Trading Limited; The Concrete Company Limited Undisclosed
07/27/2016 DC Co., Ltd. Taiheiyo Cement Corp. (TSE:5233)              135.0
07/27/2016 Granite City Tool Co., Inc. Harbour Group Industries, Inc.; GranQuartz LP Undisclosed
7/11/2016 (Announced) LafargeHolcim India Nirma Ltd.           1,400.0
07/01/2016 Italcementi SpA HeidelbergCement AG (DB:HEI)                                                     (acquired 45% stake)           1,820.3
Sources: S&P Capital IQ & FactSet    

Private Equity Transaction Activity & Valuations
GF Data Resources, a provider of detailed information on business transactions ranging in size from $10 million to $250 million, provides quarterly data from more than 200 private equity firm contributors on the number of completed transactions. Figure 4 provides the number of completed transactions from GF Data 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, shows valuations consistent with prior periods but the number of transactions were significantly down from the prior quarter and the same period in 2015.

Figure 4: Private Equity Valuations & Leverage
All Transactions Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016
# of Transactions 68 54 45 68 49 69 30
TEV/EBITDA 6.9x 6.3x 7.0x 6.6x 6.6x 7.2x 7.0x
Total Debt/EBITDA 3.9x 3.9x 4.0x 3.9x 4.0x 4.1x 4.0x
Senior Debt/EBITDA 3.3x 2.9x 3.1x 2.7x 2.8x 3.3x 3.5x
Source: GF Data              

Industry Spotlight
LafargeHolcim analyzed historical and projected cement supply and demand in its recent Capital Markets Day 2016 Market report delivered on Nov. 18 (Figure 5). Demand for cement in the United States is expected to exceed supply by 3 million metric tons in 2018 with demand further outpacing supply by 13 million metric tons in 2020.


Company Spotlight
International and domestic aggregates providers experienced mixed results in revenue and margins in Q3 2016.

LHLogoLafargeHolcim reported Q3 2016 financial results. During the quarter, the North American region experienced a sales decline of 4.8 percent compared to the same period in 2015 but delivered a 4.5 percent improvement in Adjusted EBITDA margin achieved through successful implementation of new pricing strategies, synergies and cost reduction measures. Adjusted EBITDA on a like-for-like basis for Q3 was up 9.2 percent despite softened materials demand.

LafargeHolcim Vietnam, August 2016 – LafargeHolcim announced the signing of an agreement with Siam City Cement Public Co. Ltd. (SCCC) to divest its entire 65.0 percent stake in the LafargeHolcim Vietnam joint venture for an enterprise value of CHF 867 million. LafargeHolcim Vietnam operates one integrated plant and four grinding plants with an annual cement grinding capacity of 6.3 million tonnes. The company is also a leading ready-mix concrete producer operating seven plants in southern Vietnam.1+

LafargeHolcim India, July 2016 – LafargeHolcim announced a letter agreement with Nirma Ltd. for the divestment of its interest in Lafarge India for an enterprise value of approximately $1.4 billion. Lafarge India operates three cement plants and two grinding stations with a total capacity of around 11 million tonnes per annum. The company also markets aggregates and is one of India’s leading ready-mix concrete manufacturers.1

MDULogoThe MDU Resources Group construction materials business reported record third quarter earnings of $69.5 million, up from $68.8 million for the same period in 2015. This business saw higher construction margins with increased construction activity in the Pacific and Northwestern U.S. and lower selling, general and administrative expense. Backlog in the construction materials business is $580 million, which is up 9.0 percent from last year. “We have streamlined our company and our two primary business lines, construction materials and services and regulated energy delivery, are providing solid results,” said David L. Goodin, president and CEO of MDU Resources. “Our construction businesses continue to experience strong momentum as the country turns more attention to needed infrastructure improvements.”

Transaction Spotlight
Argos USA Corp., a subsidiary of Cementos Argos, entered into a definitive agreement to acquire a plant and eight related terminals from Lehigh Hanson, Inc. and Essroc Corp., subsidiaries of HeidelbergCement, for $660 million in cash on Aug. 17, 2016. The sale was required by the Federal Trade Commission (FTC) to address competition concerns arising from HeidelbergCement’s Italcementi acquisition. The transaction is expected to close in the fourth quarter of 2016 and received FTC approval in November. Transaction financing has been arranged by J.P. Morgan through a bridge loan.

Construction Materials
Construction material prices increased 0.3 percent in September, but are nearly flat year-over-year, according to an Associated Builders and Contractors analysis of Bureau of Labor Statistics data. As has been the story in recent months, the monthly price gain was driven mainly by natural gas and crude petroleum prices, which expanded 10.2 percent and 9.1 percent, respectively, for the month. It is important to note that nonresidential input construction prices are now higher on a year-over-year basis for the first time since November 2014.

Aggregates Materials
Industry results in Q3 2016 showed quarterly declines in volume compared to the same period in 2015 for cement, crushed stone and sand & gravel. Asphalt prices have declined in the first half of 2016 but stabilized and rose slightly in Q3.

• Portland cement consumption, 23.2 million metric tons (Mt), decreased by 5.0 percent in Q3 2016 compared to Q3 2015.
• Year-to-date consumption compared to the prior year is up 1.9 percent.


Picture5Ready-Mix Concrete (RMC)
• RMC prices rose 2.1 percent in Q3 2016 as measured by the average RMC net selling prices of U.S. Concrete, Vulcan Materials, Martin Marietta and Eagle Materials.
• Quarterly RMC volume data is not reported.


Picture6Crushed Stone
• An estimated 397 Mt of crushed stone was produced and shipped for consumption in the United States in Q3 2016.
• A 6.0 percent increase YTD compared to the same period in 2015.
• Production for consumption decreased in 24 of the 46 states for which estimates were made.


Picture6Sand & Gravel
• The estimated U.S. output of construction sand and gravel produced and shipped for consumption in Q3 2016 was 290 Mt.
• This represents a decrease of 0.7 percent compared to the same period in 2015 but an increase of 8.6 percent compared to the prior quarter.
• Production for consumption decreased in 24 of the 45 states for which estimates were made.


• Asphalt prices rose 1.3 percent during Q3 as measured by the average net asphalt selling prices of Vulcan Materials and Martin Marietta Materials
• Asphalt prices are down 4.2 percent compared to Q3 2015 but rebounded 1.3 percent in Q3 2016


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 Atlas Awards in 2015, 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.

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