October 2002 AGGMAN Management

Getting a Bigger Piece of the Pie

International companies look to the U.S. market for growth

By Therese Dunphy

Despite the bear market in the U.S. economy and nearly flat aggregates production statistics this year, the U.S. aggregates industry continues to attract hungry international investors. In recent months, Ireland’s CRH and Australia’s CSR have made major investments in the U.S. aggregates market through Oldcastle Material Group’s acquisition of assets formerly owned by U.S. Aggregates and Rinker Materials Corp.’s purchase of Kiewit Materials Co., respectively.
What continues to draw international players to the United States? One answer may be the relatively fragmented market. Although the industry has undergone a period of seemingly intense consolidation during the last decade, it offers many more opportunities than the European market. For example, while the top five aggregates companies in the United States are responsible for approximately 25.8 percent of domestic aggregates production, the top five companies in England control more than 75 percent of the aggregate market there.
The United States is also a world leader in construction spending — with aggregate companies reaping the benefits. In 2001, the U.S. Geological Survey estimated that crushed stone and sand and gravel production totaled 3.01 billion short tons, with an estimated value of $14.5 billion. Compared to Europe, where construction spending is relatively flat, the U.S. market looks even more attractive.
“There really isn’t much more room for growth in the European countries. A lot of people have invested in the third world countries, but the economies aren’t as stable as the United States. When you combine the stability of the U.S. economy with the fragmentation of the industry, it makes the dynamics for an acquisition program pretty compelling,” said Bill Watkins, vice president of Brown, Gibbons, Lang & Co., L.P., Cleveland.

Strategic planning and profits
Despite the economic downturn during the last year, most foreign-owned companies continue to believe that the United States is a land of opportunity.
“The slowdown of the global economy and the terrible events of Sept. 11 had a relatively limited impact on our markets,” said Bertrand Collomb, chairman and chief executive officer of Lafarge, S.A., in the company’s 2001 annual report. “Most of our markets experienced stability, or even growth in the case of North America…”
While aggregates account for approximately 15 percent of Lafarge North America’s gross revenue, that may increase in the future.
“What has worked for us is choosing businesses that are the right fit and then integrating them swiftly. This has been the key to our growth strategy,” said Phillippe Rollier, president and chief executive officer of Lafarge North America. “Over the long term, we anticipate aggregates will play a major role in the continued growth of Lafarge.”
Since Hanson PLC’s demerger in 1997, the company has been focused on heavy building materials. The company has made more than 50 acquisitions since that time, including its largest — Pioneer International in 2000 — which made the company the world’s largest producer of aggregates and the third largest aggregates producer in the United States.
In its 2002 interim report, the company noted that Hanson Building Materials America contributed 57.1 percent of trading profit for the period, despite reduced aggregates and reserve depletion in northern California.
Although Hanson slowed the pace of its acquisitions during 2001, the company announced in May that further investment in North America was a priority, noting that “medium-term economic prospects are good in spite of recent volatility…”
While the company has remained cautious about its U.S. outlook, it plans to focus on its key objectives of improving margins and cost control “providing scope for Hanson to continue its targeted bolt-on acquisition strategy.”
In late August, Hanson launched a $1.25 billion debt securities initiative that will provide it with the capital it needs for future acquisitions.
Like Hanson, CSR Limited has focused on the heavy building materials business. Over the past four years, the once largely diversified company has sold 22 businesses in industries such as timber and contract mining to reinvest in heavy building materials businesses.
“What is our strategy? In short, our focus is to reshape and grow the group around the core business of heavy building materials…,” said John Morschel, chairman of CSR Limited in an address to shareholders.
In 2001, Rinker completed $712.2 million ($1.3 billion) in acquisitions. This year, its acquisitions included the $540 million deal for Kiewit Materials.
“Major effort in recent years has been focused on growth, particularly by Rinker in North America,” added Peter Kirby, managing director. “The acquisition of Kiewit would increase Rinker’s aggregates production by 50 percent.”
While Rinker Materials Corp., contributed 18 percent of CSR’s profit in 1995, it now generates approximately two-thirds of the company’s profit.
A potential move in the first half of next year would position Rinker for even greater growth in the United States. One of CSR’s major initiatives for that period is a demerger of the group into two distinct companies. The company is waiting for approval from the Australian government and its stockholders before proceeding.
An Australian-based financial analyst speculated that the demerger could be the first step toward Rinker embarking on a large-scale merger with another construction materials heavyweight.
Through Oldcastle Materials, CRH continued its expansion drive in 2002 with 10 deals — worth $236.2 million (242 million Euro) — completed in the United States. Although many companies have pulled back acquisition investments in recent months, CRH has been on a comparative spending spree. According to the Financial Times (London), acquisition-hungry CRH takes its strategy so seriously that it has formed 14 international teams of “in-house investment bankers” to search for and negotiate deals.
Speaking to a local newspaper about the company’s acquisitions, CRH Chief Executive Liam O’Mahony said the deals “demonstrate the continued success of our development strategy in securing strategic mid-size deals and in undertaking capacity enhancements to drive growth and consolidate market leadership positions across all divisions of the group.”

Prospects
As long as the U.S. aggregates market continues to remain fairly fragmented, many construction materials companies — domestic and foreign owned — are likely to continue to acquire companies and operations that fit with existing assets. Many companies are assessing the market for the favorable trading conditions and the availability of attractively priced propositions.
“It’s only going to increase because there just aren’t as many investment opportunities in the rest of the world that generate the same kinds of returns that the United States do,” said Watkins. “Compared to where they were 18 to 24 months ago, most companies have cleaned up their balance sheets. Rather than being as aggressive with acquisitions as they had been in the late ’90s, they decided to rein that in and spend some time digesting those acquisitions. They’ve used their cash flow to pay down their debt and now they’re ready to start the cycle again.”
Aggregate Industries provides a recent example of this theory. The company, which has been paying down debt and reducing interest payments, announced the acquisition of Wakefield Materials on Sept. 10.
While the mergers and acquisitions market has never truly taken a hiatus, the next round of consolidation appears to be gaining momentum as the U.S. market leaves aggregate producers hungry for a bigger piece of the pie.

October 2002 Management Getting a Bigger Piece of the Pie State by State				Getting a Bigger Piece of the Pie International companies look to the U.S. market for growth By Therese Dunphy Despite the bear market in the U.S. economy and nearly flat aggregates production statistics this year, the U.S. aggregates industry continues to attract hungry international investors. In recent months, Ireland’s CRH and Australia’s CSR have made major investments in the U.S. aggregates market through Oldcastle Material Group’s acquisition of assets formerly owned by U.S. Aggregates and Rinker Materials Corp.’s purchase of Kiewit Materials Co., respectively. What continues to draw international players to the United States? One answer may be the relatively fragmented market. Although the industry has undergone a period of seemingly intense consolidation during the last decade, it offers many more opportunities than the European market. For example, while the top five aggregates companies in the United States are responsible for approximately 25.8 percent of domestic aggregates production, the top five companies in England control more than 75 percent of the aggregate market there. The United States is also a world leader in construction spending — with aggregate companies reaping the benefits. In 2001, the U.S. Geological Survey estimated that crushed stone and sand and gravel production totaled 3.01 billion short tons, with an estimated value of $14.5 billion. Compared to Europe, where construction spending is relatively flat, the U.S. market looks even more attractive. “There really isn’t much more room for growth in the European countries. A lot of people have invested in the third world countries, but the economies aren’t as stable as the United States. When you combine the stability of the U.S. economy with the fragmentation of the industry, it makes the dynamics for an acquisition program pretty compelling,” said Bill Watkins, vice president of Brown, Gibbons, Lang & Co., L.P., Cleveland. Strategic planning and profits Despite the economic downturn during the last year, most foreign-owned companies continue to believe that the United States is a land of opportunity. “The slowdown of the global economy and the terrible events of Sept. 11 had a relatively limited impact on our markets,” said Bertrand Collomb, chairman and chief executive officer of Lafarge, S.A., in the company’s 2001 annual report. “Most of our markets experienced stability, or even growth in the case of North America…” While aggregates account for approximately 15 percent of Lafarge North America’s gross revenue, that may increase in the future. “What has worked for us is choosing businesses that are the right fit and then integrating them swiftly. This has been the key to our growth strategy,” said Phillippe Rollier, president and chief executive officer of Lafarge North America. “Over the long term, we anticipate aggregates will play a major role in the continued growth of Lafarge.” Since Hanson PLC’s demerger in 1997, the company has been focused on heavy building materials. The company has made more than 50 acquisitions since that time, including its largest — Pioneer International in 2000 — which made the company the world’s largest producer of aggregates and the third largest aggregates producer in the United States. In its 2002 interim report, the company noted that Hanson Building Materials America contributed 57.1 percent of trading profit for the period, despite reduced aggregates and reserve depletion in northern California. Although Hanson slowed the pace of its acquisitions during 2001, the company announced in May that further investment in North America was a priority, noting that “medium-term economic prospects are good in spite of recent volatility…” While the company has remained cautious about its U.S. outlook, it plans to focus on its key objectives of improving margins and cost control “providing scope for Hanson to continue its targeted bolt-on acquisition strategy.” In late August, Hanson launched a $1.25 billion debt securities initiative that will provide it with the capital it needs for future acquisitions. Like Hanson, CSR Limited has focused on the heavy building materials business. Over the past four years, the once largely diversified company has sold 22 businesses in industries such as timber and contract mining to reinvest in heavy building materials businesses. “What is our strategy? In short, our focus is to reshape and grow the group around the core business of heavy building materials…,” said John Morschel, chairman of CSR Limited in an address to shareholders. In 2001, Rinker completed $712.2 million ($1.3 billion) in acquisitions. This year, its acquisitions included the $540 million deal for Kiewit Materials. “Major effort in recent years has been focused on growth, particularly by Rinker in North America,” added Peter Kirby, managing director. “The acquisition of Kiewit would increase Rinker’s aggregates production by 50 percent.” While Rinker Materials Corp., contributed 18 percent of CSR’s profit in 1995, it now generates approximately two-thirds of the company’s profit. A potential move in the first half of next year would position Rinker for even greater growth in the United States. One of CSR’s major initiatives for that period is a demerger of the group into two distinct companies. The company is waiting for approval from the Australian government and its stockholders before proceeding. An Australian-based financial analyst speculated that the demerger could be the first step toward Rinker embarking on a large-scale merger with another construction materials heavyweight. Through Oldcastle Materials, CRH continued its expansion drive in 2002 with 10 deals — worth $236.2 million (242 million Euro) — completed in the United States. Although many companies have pulled back acquisition investments in recent months, CRH has been on a comparative spending spree. According to the Financial Times (London), acquisition-hungry CRH takes its strategy so seriously that it has formed 14 international teams of “in-house investment bankers” to search for and negotiate deals. Speaking to a local newspaper about the company’s acquisitions, CRH Chief Executive Liam O’Mahony said the deals “demonstrate the continued success of our development strategy in securing strategic mid-size deals and in undertaking capacity enhancements to drive growth and consolidate market leadership positions across all divisions of the group.” Prospects As long as the U.S. aggregates market continues to remain fairly fragmented, many construction materials companies — domestic and foreign owned — are likely to continue to acquire companies and operations that fit with existing assets. Many companies are assessing the market for the favorable trading conditions and the availability of attractively priced propositions. “It’s only going to increase because there just aren’t as many investment opportunities in the rest of the world that generate the same kinds of returns that the United States do,” said Watkins. “Compared to where they were 18 to 24 months ago, most companies have cleaned up their balance sheets. Rather than being as aggressive with acquisitions as they had been in the late ’90s, they decided to rein that in and spend some time digesting those acquisitions. They’ve used their cash flow to pay down their debt and now they’re ready to start the cycle again.” Aggregate Industries provides a recent example of this theory. The company, which has been paying down debt and reducing interest payments, announced the acquisition of Wakefield Materials on Sept. 10. While the mergers and acquisitions market has never truly taken a hiatus, the next round of consolidation appears to be gaining momentum as the U.S. market leaves aggregate producers hungry for a bigger piece of the pie.