September 2001
U.S.
Bancorp Piper Jaffray
(Download PDF)
Census Supplement Shows Commute Times are Increasing. Congestion trends should spark elected leaders to action.
CSR America, Moline Consumers Co. Unveil New Identities. What’s in a name? Better branding according to these two producers.
Studt Provides Guidance on the Tulloch Rule. Corps chief says vague definition of incidental fallback is the problem.
Democrats Contemplate Asbestos Regs. Senate leaders pontificate, but Lauriski says the Mine Act is enough.
A Fresh Perspective on Aggregate Industry Economics. A new editorial partnership enhances economic coverage of the market.
Census Supplement Shows Commute Times are Increasing
WASHINGTON—Over the last 10 years, American workers
are spending more time driving to work and more of them are making that
trip alone, the most recent Census Bureau survey shows.
The figures from the wide-ranging nationwide survey are considered to
be estimates of data yet to be released from the 2000 census. It is not
considered a substitute for 2000 census results.
Yet for many demographers, it provided the broadest socioeconomic look
at America since the 1990 census.
The survey found that the average one-way trip to work lasted 24.3 minutes.
Though not directly comparable, the 1990 census placed it at 22.4 minutes.
“The census data highlights that about the only thing to change for
commuters since 1990 is the unfortunate fact that they’re stuck in
ever-worsening congestion,” said Bill Fay, president of the American
Highway Users Alliance.
Not only are people traveling longer distances to work, but more people
are driving solo to get there. Nationally, 76 percent of workers 16 and
older drove alone to work, up from the 1990 census figure of 73 percent.
And more Americans have access to a car, whether they own it or share
it with others: people in 91 percent of occupied homes had a car available
to them, the survey found, up from 88 percent in 1990.
Cheaper gas prices, more disposable income and farther-out suburbs all
contributed to the trend despite continued efforts to push public transportation
and carpooling, analysts said.
“These alarming congestion trends should be a call to action for
our elected leaders. Instead of continuing to think public policy can
‘get people out of their cars,’ it’s time to reduce the
time it takes to drive by car,” said Fay. “The federal government
should make congestion relief a national priority and should start by
improving traffic flow at our nation’s worst bottlenecks.”
Compiled from staff and wire reports.
CSR America, Moline Consumers Co. Unveil New Identities
Better branding and name recognition were the goals behind
the new names for two aggregate producers.
CSR America, Inc. changed its name to Rinker Materials Corp. to build
a strong national brand awareness, according to Chief Executive Officer
David Clarke.
“Since 1998, CSR America has grown through acquisitions, from a $20
million business to one now with sales over $2 billion. As a result, CSR
America accounts for more than half of all revenue for our Australian
parent company, CSR Limited,” said Clarke. “However, we have
many local and regional businesses that have retained their own brand
identities under the CSR mark. As a result, national recognition of the
CSR brand in the U.S. has been slow to be realized. The strength and national
recognition of the Rinker name, originally used only for our Florida operations,
made it an ideal fit for the company.”
Goals of the new corporate identity include:
• To more effectively build strong national brand awareness and customer
preference under one identity.
• To further demonstrate a strong commitment to the U.S. market.
• To position the company for future growth in the United States.
Moline Consumers Co., a privately held company, is also operating under
a new name—RiverStone Group, Inc.
“Our new name better describes our core business, the production
of crushed stone products for construction, environmental, agricultural
and erosion control applications,” said Oscar Ellis, president of
the newly named company and a third-generation member of the family business.
“While we have chosen to change the name of our company, the high
standards by which we conduct our business will remain unchanged, as will
the ownership and management of our company.”
Studt Provides Guidance on the Tulloch Rule
Marco Island, Fla.—The current status of the Tulloch
Rule was the focus of one presentation at the National Stone, Sand and
Gravel Association’s (NSSGA) Board of Directors Meeting on July 24.
John Studt, chief of the U.S. Army Corps of Engineers’ regulatory
branch, offered attendees some guidance on enforcement of the Tulloch
Rule, which took effect in April.
The rule resurfaced in the final days of the Clinton Administration and
became an environmental rallying point for the Bush Administration, which
has been criticized for being “soft” on environmental protection
policies.
Despite producer concerns, Studt said that incidental fallback should
not require a permit under the published rule. “If there is incidental
fallback only, you don’t need a permit,” said Studt. “It’s
defining incidental fallback that is the problem. We haven’t defined
incidental fallback in a meaningful way. A lot of confusion is going to
remain there. Our problem now is getting out good guidance.”
Studt did offer some guidance to producers, saying that the use of backhoes
does not trigger the need for a permit, but use of earthmoving equipment
such as a bulldozer has and will continue to trigger the requirement.
“The bottom line with Tulloch is that if you’re digging only
and there’s not a lot of fallback, you don’t need a permit,”
said Studt.
Democrats Contemplate Asbestos Regs
WASHINGTON (AP)—Senate Democrats had harsh words for
officials of the Environmental Protection Agency (EPA) and the Mine Safety
and Health Administration (MSHA) as a Senate panel reviewed the asbestos
situation in Libby, Mont., where asbestos from a nearby vermiculite mine
has been linked to some 200 deaths.
During a hearing, Sen. Max Baucus (D-Mont.) accused officials from the
EPA, the Department of Labor and the Department of Health and Human Services
of “hiding” from what he said were the fatal affects of lax
regulation of asbestos.
Senate Democrats, including Sens. Patty Murray (D-Wash.) and Paul Wellstone
(D-Minn.), said they are considering legislation to renew a complete ban
on commercial uses of asbestos.
Officials with the EPA, Labor and the National Institute for Occupational
Safety and Health said they did not support such a strong measure.
“I don’t know how much more you folks need,” an angry Baucus
told a panel of federal public and workplace safety officials that testified
before the Senate’s Health, Education, Labor and Pensions Committee.
“These are people who are dying. I want all four of you to come to
Libby, Montana and look in their faces,” said Baucus.
Libby is the site of the now-closed W.R. Grace & Co. vermiculite mine.
Dust from the mine contained asbestos, which workers breathed in and carried
home to their families on their clothes.
Vermiculite from the mine also was spread on school running tracks and
in gardens, and offered free to homeowners to spread in their attics as
insulation. Children were known to play in giant piles of the vermiculite.
Published reports have linked the deaths of 200 people in Libby to the
asbestos from the mine. Grace recently filed for bankruptcy protection,
citing the cost of defending itself from lawsuits filed by the families
of the sick.
Dr. Alan Whitehouse, a physician in Spokane, Wash., said he has 396 cases
of people from Libby—all of whom have some form of sickness he said
was caused by asbestos contamination. A quarter of those people, he said,
had no connection to the mine other than having lived in Libby, leading
him to believe that there was an enormous amount of dust in the air around
the town.
In the past three years, he said 24 of his patients have died from asbestosis,
a sickness that scars the lungs and leads to fatal pneumonia, lung cancer
or even suffocation.
“It is clear from this data that people can obtain severe asbestosis
with what would appear to be relatively minimal exposures,” said
Whitehouse.
“Americans think asbestos is no longer a danger. But today asbestos
fibers are still used in manufacturing and are still ruining the health
of workers like myself,” said George Biekkolaa 67-year-old retired
mine worker from L’Anse, Mich. “Companies will tell you asbestos
is not a problem—just like they told me. Senators, they lied.”
However, the Labor Department does not believe any new workplace regulation
is needed to protect workers, particularly miners, from the risk of getting
sick from asbestos, said David Lauriski, assistant Labor Secretary.
Some mines actively dig for asbestos, but the mineral is also discovered
in the course of other mining operations.
“The Mine Act, in my view, gives (the Mine Safety and Health Administration)
all the tools necessary to protect miners’ safety and health,”
said Lauriski. “The Libby experience is, of course, troubling.”
Since the spring of 2000, MSHA has taken almost 700 samples at more than
40 mines in the country to identify the level of miners’ exposure
to asbestos, Lauriski said.
“Why do we need more studies?” shot Baucus. “It’s
pretty clear what’s happened in Libby.”
The EPA is considering naming Libby to the federal government’s National Priorities List for long-term Superfund cleanup. No final decision has been made.
A Fresh Perspective on Aggregate Industry Economics
By Bill
Watkins and Steven Bernard, CFA
You’ll notice some changes in this month’s coverage
of the industry and its leading economic indicators. The enhanced information
is the result of an editorial partnership between AggMan and the Middle
Market Mergers & Acquisitions Group of U.S. Bancorp Piper Jaffray.
In this issue, we are launching our monthly financial coverage of the
construction materials industry.
Each month, we will provide commentary and analysis on both public company
activity and mergers and acquisitions within the industry. In addition,
industry executives can rely on our insightful reports on various financial
topics relevant to this industry.
New and expanded coverage will include the U.S. Bancorp Piper Jaffray/AggMan
stock index, which represents current stock price trends within the construction
materials industry. The index is a relative price index, which is designed
to track the relative percentage change from this starting point. The
S&P index is also graphed to gauge the market performance of the two
groups relative to the overall market.
The Public Market Analysis is an expanded version of what was formerly
reported in AggMan Exchange. It includes many of the leading construction
materials firms in the United States. In an effort to also capture the
interest and growth of international companies in the domestic market,
we have included global construction materials companies that trade American
Depositary Receipts (ADRs).
Many public companies in the construction materials business operate various
business lines. For example, a company may operate quarries and produce
asphalt, cement and other downstream products. We have organized the companies
into two groups based on their primary line of business. We based the
distinction on either segment revenue or profitability. For example, if
the aggregates segment represented more than 50 percent of estimated revenue
or operating income for the entire company, the firm was characterized
as “Aggregates.” The first group represents companies primarily
involved in aggregates and the second group represents companies that
operate more broadly in the construction materials industry. In the past,
we have observed that these two groups do not necessarily trade in parity
and believe that it is useful to track the two groups as separate and
distinct.
Keeping up-to-date with industry trends and transaction activity is critical
for business executives in today’s marketplace. This is why U.S.
Bancorp Piper Jaffray has placed a priority on providing in-depth, timely
analyses on the fragmented and consolidating construction materials industry
through these reports.
About U.S. Bancorp Piper Jaffray
For background, U.S. Bancorp Piper Jaffray is a full service
investment bank, and a subsidiary of U.S. Bancorp, the eighth largest
commercial bank in the United States with over $160 billion in assets
under management. The authors are senior members of the Middle Market
Mergers & Acquisitions Group and lead its investment banking and research
coverage of the construction materials industry.
Our investment bankers and research analysts have unlimited access to
the capital markets, and our in-depth industry knowledge gives us the
pulse on current activity. With this, we publish value-added research
for our clients. Our research is frequently covered by industry leading
publications and used at industry conferences and trade shows. We have
built a platform reputation of helping clients maximize shareholder value—the
ultimate goal for a business owner.
In recent years, our M&A group has advised clients in more than 400
buy-side and sell-side advisory transactions for public and private companies,
representing over $30 billion in transaction value. Mergers & Acquisitions
magazine named us “M&A Middle Market Bank of the Year” in
2000—an award given to us in recognition of the expert nature of
our advisory work, the quality of our mergers and acquisitions research,
and the growth in our cross-border transaction activity.
About the Industry
We are extremely excited about the long-term prospects for
the construction materials industry. The industry is one of the largest
segments of the domestic economy. Aggregates and related downstream products
represent over $60 billion in annual dollar volume or 12.4 percent of
total construction spending. Since the last recession in 1991, aggregate
production has grown at an annual rate of 5.7 percent versus a 4.5 percent
per annum growth rate in gross domestic product (“GDP”). In
particular, during the last four years the aggregate industry has experienced
volume and price increases enabling sales growth to surpass growth in
the GDP.
The share price performance of the publicly traded aggregate and construction
companies reflects the strong operating performance in the sector. The
majority of the companies highlighted in the Public Market Analysis coverage
have performed well relative to the major market indices. We believe that
this performance reflects the long-term positive outlook for the construction
market and recent investor attention to companies with solid earnings
prospects, stable cash flow and tangible assets.
In addition, we believe investors view industry fragmentation as a compelling
growth opportunity, particularly since consolidation has led to greater
production efficiency and technological innovation (e.g., asphalt mix
designs).
Industry Mergers and Acquisitions
Many companies have augmented their stable internal growth
via acquisitions. In a mature industry with relatively stable demand and
profitability, many of these companies generate more cash than necessary
to support internal growth. This excess cash flow is increasingly being
used to fund acquisitions, as the potential revenue and cost synergies
from acquisitions can lead to stronger cash flow. Other factors driving
consolidation include the need to replace scarce aggregate reserves, geographic
expansion and the ability to leverage mining and distribution facilities
(particularly rail) with higher volumes.
Approximately 50 such transactions were reported in 2000, a number similar
to that of 1999. So far through fiscal 2001 the pace of acquisitions remains
on par with last year, although the number of larger transactions has
declined, even after adjusting for the Lafarge/Blue Circle combination.
The most active purchasers remain larger public companies that continue
to strengthen their geographic presence and expand their product and service
offerings. Well-capitalized international firms continue to target acquisitions
in the United States, since its economy has stronger and more consistent
long-term growth potential. It is interesting to note that recent purchase
prices represent higher cash flow multiples than what many of the larger
construction material companies are trading for in the public markets.
Strong stock market valuations and the relatively low cost of capital
also provide a strong foundation for further consolidation. We do not
believe that the volatile equity markets will have a significant impact
on the pace of consolidation. Most of the acquisitions have been financed
with cash, and the large acquirers still have solid balance sheets. Given
all of these trends, we expect the construction materials industry to
continue to exhibit a fairly high level of consolidation. While the fortunes
of the industry are obviously tied closely to the domestic economy, we
believe that industry consolidation has spurred growth.
Bill Watkins is a vice president in U.S. Bancorp Piper Jaffray’s Chicago-based Middle Market Mergers & Acquisitions Group. He is focused on providing mergers and acquisitions advisory services and leads all execution efforts for each transaction. Steven Bernard, CFA, is a vice president in the Middle Market Mergers & Acquisitions Group and directs the mergers & acquisitions research effort.