| AggBeat |
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June 2007
by , Senior Editor |
As the National Commission on Surface Transportation prepares to develop recommendations for a new transportation policy slated to be released in December, dozens of experts — including those from the aggregates industry — have been testifying around the country.
One of the most recent hearings at Aggregates Manager press time took place in Chicago. Mike Stanczak, regional president of Hanson Material Service Corp., testified on April 19 in Chicago before the National Surface Transportation Policy and Revenue Study Commission on behalf of the National Stone, Sand & Gravel Association (NSSGA). Aggregates Manager attended the hearing.
“The task before the Revenue Commission is critically important because the growth of the national’s economy, the country’s national security, American’s personal safety, and the way of life they enjoy is inextricably linked to the state of our national surface transportation infrastructure,” Stanczak testified. He noted that all stakeholders need to work together to develop a 21st century vision for surface transportation, saying that the current system is old and has reached its current capacity.
Former President Dwight D. Eisenhower’s signing of the Federal-Aid Highway Act more than 50 years ago was “a bold and innovative vision...but we have entered a new century that demands a new vision, no less bold or innovative than the last,” he said.
When creating this new vision, Stanczak points out that the issue of aggregate availability — a natural resource that’s critical for the construction of a 21st century transportation vision — needs to be considered.
“Every small town or big city and every road connecting them were built with aggregates,” he testified. Ninety-four percent of asphalt pavement is aggregate, 80 percent of concrete is aggregate, and every lane mile of interstate contains 38,000 tons of aggregate, he pointed out. “We must have the natural resources to build and maintain the nation’s surface transportation system,” Stanczak told the commission. “Natural aggregates are the foundation of America’s surface transportation infrastructure and will be the foundation of the surface transportation infrastructure of the future.”
However, this means large volumes of natural aggregate are required, and this can be problematic. Considered in their entirety, aggregate reserves are abundant and sufficiently meet future needs. But on the local level, it poses challenges. The local-level shortages result primarily from geology, environmental regulation, and land development that precludes access to the resource deposit, he said. Overly restrictive environmental, zoning, or operational regulations are additional obstacles. As the Revenue Commission deliberates and develops its new vision for the U.S. surface transportation infrastructure, protection of and access to the nation’s aggregate resources must be factored in.
“Aggregates are essential to American’s growth and development,” Stanczak said. “Because the demand for aggregates will continue and will grow in the future, provisions to assure adequate supplies will have to be made.”
Click here to view copies of Stanczak’s written and oral testimony.
Did You Know?
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More than 3 billion tons of aggregate were produced in 2006 at a value of approximately $21 billion, contributing nearly $40 billion annually to the United State’s GDP.
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Every $1 million in aggregate sales creates 19.5 jobs, and every dollar of industry output returns $1.58 to the economy.
Source: Mike Stanczak, regional president of Hanson Material Service Corp.
Mergers & Acquisitions
M&A activity in the construction materials activity has remained strong. Similar to recent months, large international cement companies continued to acquire aggregates and ready-mixed concrete companies to consolidate the entire supply chain. For example, Titan America LLC, the subsidiary of Greek-based Titan Cement Co., announced three acquisitions. On March 23, Titan acquired S&W Ready Mix Concrete Co., a leading ready-mixed concrete supplier for the coastal North and South Carolina markets. The cash purchase price of $235 million approximates 4.9x EBITDA. S&W operates 26 plants principally in the Myrtle Beach, S.C., and Wilmington, N.C., markets. Titan also announced the acquisition of Mechanicsville Concrete, Inc. (d/b/a Powhatan Ready Mix), an operator of five concrete plants in the Richmond, Va., area. Transaction terms and conditions were not provided. With the Powhatan acquisition, Titan now operates more than 20 ready-mixed concrete plants in Virginia as well as its Roanoke cement plant. Lastly, Titan continued its acquisition spree with the early April 2007 purchase of Cumberland Quarry in Kentucky for $36 million. Cumberland Quarry, with more than 1 billion tons of reserves, produces limestone in the Salem, Ky., region and also has important river access on the Mississippi River.
Another major global cement company, Italcementi Group, announced the acquisition of two North American ready-mixed concrete businesses through its U.S. subsidiary Essroc. The two acquired companies include Arrow Concrete Co. and Cambridge, for total transaction consideration of $70 million. Arrow, primarily based in West Virginia with other locations in Ohio, Western Pennsylvania, and South Carolina, produced approximately 560 thousand cubic meters of ready-mixed concrete in 2006 from its 17 stationary and four mobile plants. Total revenues for Arrow approximated $66 million in its most recent reporting period. Cambridge, based near Toronto, sold approximately 270 thousand cubic meters of ready-mixed concrete from its five plants, yielding roughly $25 million in annual revenue. With these two acquisitions, Essroc has began to vertically-integrate in North America to leverage its three cement plants in the eastern U.S. (total U.S. cement capacity of 6.5 million metric tons) as well as its cement plant near Toronto.
Bolt-on acquisitions also continued in the industry. On April 4, 2007, privately owned National Lime and Stone Co. purchased certain assets of the Suever Stone Co., including quarries in Delphos and Landeck, Ohio; an asphalt plant in Landeck; asphalt paving equipment; and the Suever trucking operation. Transaction terms and conditions were not disclosed. In addition, on April 11, Trinity Industries, through its Transit Mix Concrete & Materials Co. subsidiary, acquired Armor Materials, a group of East Texas-based asphalt, ready-mix concrete, and aggregates businesses. Combined revenues for the businesses approximated $55 million. No transaction terms were disclosed.
In addition to ongoing vertical integration and bolt-ons, private equity investors resurfaced in the construction materials industry. On April 3, New York-based Park Avenue Equity Partners acquired Coastal Concrete, Inc. The purchase price approximated $177 million. Based in South Carolina with other operations in Georgia, Coastal produced in excess of 600,000 cubic yards of ready-mixed concrete from ten plant locations in 2006. The company also operates two sand pits located in Savannah, Ga., and Columbia, S.C., which supply approximately 35 percent of internal consumption needs for the company.
The most significant M&A news during the past month was the recommendation by the Board of Directors of Rinker Group Ltd. to accept the revised offer by Cemex SA to acquire the company. The revised offer approximates $15.3 billion (including debt assumption), a 22-percent increase over the original offer. The acquisition will increase Cemex’s annual sales by approximately 32 percent to $24 billion and add production in the fast-growing markets of Florida, Arizona, and Nevada. The revised agreement ends a five-month discussion after Rinker rejected the initial offer as too low. However, with the continued pressure in the U.S. residential markets, Rinker’s performance softened, leading to a decline in share price. Of note, in order to receive U.S. regulatory approval, Cemex has agreed to divest 32 ready-mixed concrete and concrete block plants in Florida and seven ready-mixed concrete and gravel facilities in Arizona valued in the range of $300 million to $500 million. Cemex’s revised offer has also received Australian regulatory approval, and should close by mid-May 2007. Even with the prognosis for the acquisition high, Rinker remained acquisitive with the bolt-on acquisition of JR & Sons Ready Mix of St. George, Utah, on April 10. The acquisition includes four concrete plants, a quarry, and other aggregates assets. It serves as a bolt-on to its existing Las-Vegas regional assets and enables Rinker to enter a new market in one of the fastest-growing regions of Utah.
— by Bill Watkins, managing director National City Capital Markets. Watkins is a contributing editor and may be reached at 216-222-7134 or william.watkins@nationalcity.com .
