| AggBeat |
July 2007
What You Need to Know about the Construction Industry’s Political Outlook
With elections coming down the pike, it’s essential to know the politics of Congress and how they will affect your business.
by , Senior Editor
With the switch from a Republican-controlled to the current Democrat-controlled Congress in January and next year’s upcoming presidential election, there are major hot-button issues that affect the nation as a whole as well as the political outlook for the construction industry.
Several of these major issues — including immigration, healthcare, the economy, the death tax, and the surface transportation bill — directly affect the aggregates industry and the way producers run their businesses.
Sen. Ray LaHood (R-Ill.) gave a keynote address to construction industry writers, editors, communicators, and marketers, providing an “insider’s view” on the upcoming presidential election, the current Congress, and how these matters could affect the construction industry, at the Construction Writers Association Annual Meeting, held May 2-4 in Washington, D.C. Three government relations panelists — Carin Nersesian, director of legislative affairs for the Associated Builders and Contractors (ABC); Pam Whitted, vice president of government affairs for the National Stone, Sand & Gravel Association; and Christian Klein, vice president of government affairs for the Associated Equipment Distributors (AED) — also gave a non-partisan political outlook for the construction industry.
Comprehensive immigration reform is underway, including 22,000 new border patrollers that have been put in place, says LaHood. This reform also includes tougher laws with tougher penalties for employers who knowingly give jobs to illegal immigrants, he says.
The death tax is also a major issue in D.C. that will affect the industry, especially because many operations are family businesses, and it is capital intensive. The death tax is being phased out, will be repealed in 2010, and then return at a 55-percent rate in 2011. “It’s coming back at an incredibly onerous level,” Klein point out. “It’s a nightmare for planning purposes. This makes estate planning for companies very important in anticipation of the tax coming back.”
In what’s currently viewed by many as a tough job market, according to AED survey findings, Klein says the outlook for the construction industry is generally positive. Workforce plans show that 58 percent of employers plan to hire new workers or add positions, 38 percent don’t plan any changes, and 5 percent plan layoffs. Klein says according to the survey, business prospects for the coming year show that 65 percent are optimistic, 14 percent are pessimistic, and 20 percent are ambivalent. Two percent didn’t give an answer.
The Safe, Accountable, Flexible, Efficient Transportation Equity Act — A Legacy for Users (SAFETEA-LU) highway bill will continue to play a major role in construction industry politics. Beginning with FY 2007, when newer projections of receipts and actual receipts become available, the highway category firewall is adjusted accordingly. To smooth out the effects of any adjustments, the calculated adjustment will be split over two years. When the firewall is adjusted, equal adjustments are made to highway contract authority, known as Revenue Aligned Budget Authority (RABA) and the federal-aid highway obligation limitation. However, RABA funding “isn’t on the backburner — it’s not even on the stove,” NSSGA’s Whitted says.
Mergers & Acquisitions
The most significant M&A announcement in the U.S. construction materials industry during the past few months (at least at Aggregates Manager press time) occurred on May 15, when following some speculation, the boards of HeidelbergCement AG and Hanson PLC announced terms of an acquisition.
Under the proposal, Heidelberg will acquire the shares of Hanson for an approximate 29-percent price premium compared to when early intentions of a bid surfaced. The price represents an enterprise value of approximately $16 billion, trumping the recently announced Cemex/Rinker transaction as the largest transaction in the construction materials industry. Based on recent financial results, the purchase price approximates 12.8x EBITDA, one of the largest multiples ever in the industry. The combined operation will be the second largest and most geographically diversified producer of construction materials in the world (pro forma revenue and net income of $21 billion and $2.1 billion, respectively).
In total, the business will hold leading worldwide positions, including being the largest producer of aggregates, the second largest producer of readymixed concrete, and the fourth-largest producer of cement. In addition, numerous synergies exist between the businesses, particularly along vertical integration strategies. Regarding vertical integration within the U.S. market, Heidelberg will maintain strong positions in the Southeast, Northeast, northern California, and Texas.
In addition to the most recent mega-merger in the construction materials industry, an interesting new buyer class emerged. VantaCore Partners LP announced its formation and the acquisition on May 24 of Winn Materials and Winn Marine (collectively known as Winn) and McIntosh Construction and McAsphalt (collectively known as McIntosh). The Winn business includes a limestone quarry and dock facility, and McIntosh has two asphalt plants and an associated construction/paving business. Both companies are located in Clarksville, Tenn., and will be operated as an integrated business.
Winn, which sold nearly 1.3 million tons of crushed stone in 2006, has nearly 40 million tons of permitted surface reserves. Although a transaction multiple was not provided, VantaCore did raise approximately $41 million of financing to consummate the transactions. VantaCore is a non-traded, private limited partnership focused on acquiring aggregate and related businesses. As a financial investor, VantaCore can offer some advantages over pure strategic acquirers, including management retention. Since its focus is on growth through acquisition and capital remains in surplus, expectations are that VantaCore (and potentially other similar groups) will emerge as more serious acquirers of construction materials’ businesses.
— 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.
Knife River begins branding campaign
Bismarck, N.D.-based Knife River Corp. has completed the first phase of its branding campaign for the companies that operate under the corporation’s name.
The companies included in branding campaign include the following: Bauerly Bros. Inc; Becker Sand & Gravel; Buffalo Bituminous Inc.; Brower Construction Co.; Irving F. Jensen Co.; Fred Carlson Co. LLC; Granite City Ready-Mix Inc; Hap Taylor & Sons Inc.; Morse Bros. Inc.; Masco Inc.; Norm’s Utility Contractors; Pederson Bros.; Roverud Construction; Valley Asphalt & Paving; Winkler Materials and Construction; and Young Contractors Inc. Knife River is now the ninth largest aggregates producer in the United States.
Total aggregates consumption down in Q4 2006
Crushed stone consumption was down 12.8 percent in the fourth quarter of 2006 compared to the same quarter the previous year, according to the “Mineral Industry Surveys” released by the U.S. Geological Survey.
The report, released in May, notes that an estimated 364 million metric tons of crushed stone was produced and shipped for consumption in the United States in the fourth quarter of 2006. The estimated annual production of crushed stone shipped for consumption in 2006 was 1.52 billion metric tons, a decrease of 9.5 percent when compared to the same time period in 2005.
The estimated output of construction sand and gravel that was produced for consumption in the fourth quarter of 2006 was 282 million metric tons, a decrease of 10.5 percent when compared to the fourth quarter in 2005. The estimated annual production of construction sand and gravel shipped for consumption in 2006 was 1.21 billion metric tons, a decrease of 4.7 percent when compared to the fourth period in 2005, according to the USGS report. An estimated 643 million metric tons of total aggregates was produced and shipped for consumption in the United States in the fourth quarter of 2006, compared with 735 million metric tons in the same period of 2005. According to the report, the estimated 2006 total annual production of aggregates production for consumption was 2.69 billion metric tons, a decrease of 9.1 percent compared with that time period in 2005.
