In the last couple of months, I have written about the housing boom, as well as an economy on fire, which coupled with the prospects for an infrastructure bill just adds optimism to the outlook for our industry. But as we look out toward the last remaining months of the year, it has been remarkable to witness the growth spurt in mergers and acquisitions within the broad construction materials industry in general, and aggregates in particular.
It has been since 2006-2007 that the industry has witnessed this level of activity. Coming out of the brief 2001 economic recession, brought about by the plunge in sentiment after the September 11th terrorist attacks, mergers and acquisition activity picked up and reached a frenzied peak by 2005-2006.
It was only the one-two punch of the slowdown in the overheated housing market in 2007, followed by the financial crisis in 2008 that made the music stop. Deal activity stayed relatively moribund into the mid-teens years, excepting the distressed-situation-sales that were often forced on small and medium size producers.
But since the start of the pandemic, an unusual turn of events primed the deal flow pump: expansive stimulus passed by Congress injected record amounts of money into the economy, followed by the Biden election and the prospect of even greater stimulus through a number of programs, including infrastructure spending. This gave rise to two very large transactions, among the biggest since before the Great Recession: Martin Marietta’s purchase of the western assets of Lehigh Hanson, and Vulcan’s purchase of U.S. Concrete. Here is an overview of both:
Martin Marietta. The company’s purchase of the Lehigh Hanson assets had a price tag of $2.3 billion, which includes the net present value of certain tax benefits pegged at $300 million. This expanded Martin Marietta’s footprint coast-to-coast by adding assets in California and Arizona.
The acquired assets are expected to contribute $150 million in EBITDA, which would imply a 15.3 times multiple, but the complete deal economics have not been disclosed; the transaction is expected to be accretive to earnings-per-share in the first full year after closing.
The transaction includes 13 million tons of aggregates production from 17 aggregate sites with an average reserve life of 30 years, 2.3 million cu. yd. of concrete from 29 ready mix plants, 2.8 million tons of asphalt production from 15 asphalt plants, and 1.5 million tons of cement from two cement plants.
Vulcan Materials. Vulcan’s purchase of U.S. Concrete was pegged at $1.294 billion, but the enterprise value, which is defined as equity plus debt, comes to $2.06 billion, so it closely mirrors the size of the Martin Marietta transaction. Like the Martin Marietta deal, it expands Vulcan’s aggregates footprint, including in the attractive New York and New Jersey metropolitan areas.
With adjusted EBITDA of $192.9 million, this translates into a multiple 10.68 times. The transaction is expected to increase Vulcan’s EBITDA by approximately $190 million before synergies, which will be accretive to Vulcan’s earnings-per-share in the first full year following closing.
The transaction included 27 aggregate operations in California, Texas, and the Northeast that shipped 12.6 million tons in 2020, increasing Vulcan’s locations from 228 to 255 aggregate operations.
It also includes 8.2 million cu. yd. from 150 ready mix operations in 2020. This is significant, as it dramatically increases Vulcan’s presence in the ready mixed concrete business, bringing it up from 2.9 million cu. yd. to more than 11 million cu. yd., and adds 150 plants to Vulcan’s existing 46 plants.
Because the transactions have not closed, limited information is available on both deals. We will know much more once the transactions are completed, and in the two or three quarters thereafter, and I will report with an update at that time that contains much more detail. In the meantime, as the deal market stays strong – expect more activity over at least the next couple of years.
Pierre G. Villere serves as president and senior managing partner of Allen-Villere Partners, an investment banking firm with a national practice in the construction materials industry that specializes in mergers and acquisitions. He has a career spanning almost five decades, and volunteers his time to educate the industry as a regular columnist in publications and through presentations at numerous industry events. Contact Pierre via email at [email protected]. Follow him on Twitter @allenvillere.