Merger and acquisition activity continued to plug along at a snail’s pace as 2011 closed. For the year, merger and acquisition activity resembled overall movement in the construction materials sector — slow and disappointing. With producers anticipating more of the same or even further declines in 2012, buyers remain on the sidelines waiting for more uncertainty to be removed from the equation.

Recent merger and acquisition activity continues to highlight strategic, bolt-on, acquisitions and corporate divestitures. Oldcastle Materials, Inc. and Summit Materials continue to set the pace of small- to medium-sized strategic acquisitions as they pursue consolidation strategies in existing markets. Cemex and Lafarge continue to lead the way in corporate divestitures as they seek to reduce debt and improve liquidity.

Recent transactions

Oldcastle Materials, Inc. has acquired the assets of Powers Stone, Inc. in Susquehanna County, Pa. The company consists of three aggregate quarries. The operations will join Oldcastle Materials’ Mid-Atlantic Division under Pennsy Supply. Powers Stone, Inc. enhances Oldcastle’s ability to better service the growing demand for aggregate, asphalt, and contracting services in the heart of the Marcellus Shale gas market.

Summit Materials has acquired Industrial Asphalt, Inc., Asphalt Paving Co. of Austin, Inc., and Ramming Paving Co., Ltd. in Austin, Texas. Industrial Asphalt, Inc. is based in south Austin and operates a quarry and two asphalt plants. Asphalt Paving is also based in Austin and is a longstanding paving business. Ramming Paving Co. is a quarry, asphalt, and paving services company with operations in Austin and San Antonio.

Cemex has sold its Russell Roof Tiles business to Russell Building Products, backed by investors from Mexico. Cemex announced this year it was seeking to dispose of all non-core assets, such as Russell Roof Tiles, in order to pay down debt.

George H. Reddin is a principal in FMI’s Investment Banking practice. He can be reached at 919-785-9286 or at greddin@fminet.com.

George Reddin

The number of merger and acquisition transactions in North America was up 13 percent for the three quarters ending Sept. 30, 2011, while the total value of these transactions was up 28 percent from the prior year. The construction materials sector, on the other hand, has been flat in 2011, with small- to medium-sized deals dominating.

At the end of October, the outlook for construction materials remained cloudy. The Federal Transportation Bill was funded until March of 2012; however, the overall outlook for federal and state funding remained gloomy. President Obama was promoting the American Jobs Act without much success. There appeared to be some light at the end of the tunnel in Europe until Greece decided to seek a referendum on the debt plan. Third quarter earnings reports were coming in with year-to-date shipments of aggregates below 2010 levels. Major companies were beginning their budgeting and business planning efforts for 2012, and the outlook was not positive. These factors continue to keep a damper on merger and acquisition activity in the construction materials sector.

Recent transactions

Aggregate Industries completed its acquisition of Ennstone, Inc., a vertically integrated construction materials company headquartered in Falmouth, Va., with ready mix, sand and gravel, and limestone. (See story below.)

Martin Marietta Materials, Inc. and Lafarge North America Inc. have agreed to an asset swap. Under the terms of the agreement, Martin Marietta Materials, Inc. will receive Lafarge’s aggregates quarry sites, ready-mixed concrete and asphalt plants, and a road paving business in the Colorado Front Range and Wyoming markets. In exchange, Lafarge will receive aggregates sites located along the Mississippi River in Mississippi, Tennessee, Kentucky, and Missouri, as well as distribution yards along the lower Mississippi River, associated barging equipment, and a cash payment.

Other news

Cemex has announced that it will reduce its debt by the end of the year to comply with debt agreements. The company has promised to cut debt to no more than 7.0 times earnings before interest, taxes, depreciation, and amortization (EBITDA) by the end of the year. At the end of September, Cemex had debt amounting to 7.2 times EBITDA. Asset disposal will be a major part of the strategy to reduce debt. Cemex raised U.S. $80 million in asset sales during the first nine months of this year and expects to raise an additional U.S. $100 million to U.S. $200 million during the fourth quarter, with total proceeds from asset sales reaching U.S. $1 billion by the end of 2012.

Aggregate Industries Ennstone buyout finalized

Aggregate Industries U.S., part of the Holcim Group, on Nov. 1 closed its asset purchase agreement with Ennstone Inc., a vertically integrated construction materials company headquartered in Falmouth, Va.

“The closing of this transaction is a good fit strategically for Aggregate Industries, in particular, Aggregate Industries’ Mid-Atlantic business, and will maximize value for our stakeholders – employees, customers, and shareholders alike,” Bernard Terver, president and CEO of Aggregate Industries U.S., said in a press release. “In addition, this transaction will enable Aggregate Industries to strengthen its presence in the region.”

– by Tina Grady Barbaccia, News and Digital Editor

The number of merger and acquisition transactions in North America was up 13 percent for the three quarters ending Sept. 30, 2011, while the total value of these transactions was up 28 percent from the prior year. The construction materials sector, on the other hand, has been flat in 2011, with small- to medium-sized deals dominating.

George H. Reddin is a principal in FMI’s Investment Banking practice. He can be reached at 919-785-9286 or at greddin@fminet.com.

The construction materials sector is dependent on the housing market and highway funding. Both continue to be major disappointments. Housing construction put in place peaked in 2006 at a level of approximately $435 billion and is expected to be slightly more than $110 billion for 2011. This, together with the lack of a long-term federal transportation bill and troubled state departments of transportation, has led to a significant drop in stock prices for the sector’s publicly traded stocks in recent months. At the end of September, the construction materials peer group members were trading at nearly 50 percent of their 52-week highs, while, at the same time, the market indexes were only off by approximately 15 percent.

For example, Cemex stock fell to a 13-year low on concerns of its ability to meet debt obligations. At the end of September, Cemex shares had lost three-quarters of their value. Trading in shares of Cemex was temporarily suspended on Oct. 2 after the shares fell 15 percent from their previous close. Cemex’s debt is now 7.2 times the company’s EBITDA at the end of June. The peer group for construction materials producers has a median Debt/EBITDA ratio of approximately 4.6 times, which is up from only 2.0 times in 2006. The company is expected to sell $1 billion in non-core assets to appease creditors.

Recent transactions

Lafarge continues to divest of its assets in the United States and is expected to sell its Calera, Citadel, and Lakeshore operations in Birmingham, Ala., to Vulcan Materials Co. Earlier this year, Lafarge realized $760 million from the sale of assets to Cementos Argos. That transaction consisted of 79 ready-mixed plants in Georgia, Alabama, and Louisiana, cement plants in Harleyville, S.C., and Roberta, Ala., plus an Atlanta-area clinker grinding mill and six cement terminals. Aggregate Industries, a subsidiary of Holcim, is rumored to have purchased Ennstone, Inc. of Virginia. Ennstone operates three sand and gravel pits, one limestone quarry, and 17 Ready Mix Concrete Co. plants.

Other news

The House Committee on Transportation and Infrastructure has instructions to find the resources for a larger surface transportation reauthorization bill, but one that will not include an increase in the gas user fee. The committee will be working on a $350 billion, six-year surface transportation bill. This is up from the $230 billion, six-year bill outlined by the committee in July that would have represented a 34-percent cut from current funding levels. The committee will have to find about $100 billion in additional resources. This development boosts optimism for increased funding, which had recently hit rock bottom. The Senate Appropriations Committee has approved a draft FY12 appropriations bill for the Department of Transportation and Housing and Urban Development (THUD). The Senate bill maintains current funding levels for program obligation limitations of $41.1 billion for highways. This news provides optimism for highway funding, which is encouraging for merger and acquisition activity.

By George H. Reddin

George H. Reddin is a principal in FMI’s Investment Banking practice. He can be reached at 919-785-9286 or at greddin@fminet.com.

August was an interesting month, with many economic and political issues adding to the uncertainty surrounding the outlook for the construction materials sector. During the last month, we saw the debt ceiling debate; a significant drop in the stock market; unrest in Libya, Syria, and other countries; and the official beginning of the 2012 presidential campaign that provided a well-publicized podium for Republican candidates to point out the problems facing our country. Job growth continued to disappoint, setting the stage for what will most likely be the issue on center stage for the 2012 presidential campaign. August also saw a major hurricane on the East Coast, as well as continued talk about sovereign debt concerns with a number of countries in the European Union.

All of these factors and events added to the already high level of uncertainty, and people, once again, are talking about a global slowdown and even a double-dip recession. Stock prices in the construction materials sectors were down 30 percent or more during the month from their 52-week highs, which is a far greater drop than the market as a whole.

This uncertainty has many of the traditional buyers on the sidelines, with a number of deals recently postponed or cancelled altogether. The United States will continue to struggle to attract capital in merger and acquisition transactions, as the multinational firms will continue to emphasize deals in emerging markets.

Recent transactions

Cemex finalized its deal with Ready Mix USA and fulfilled a year-old acquisition plan. The purchase price for Ready Mix USA was roughly $350 million and in line with the price announced last October. Cemex and Ready Mix began their partnership in 2005 and had shared assets in the Southeast. When the deal was first announced, Cemex already owned two U.S. cement plants under the joint venture and agreed to buy sand and gravel pits and concrete plants from Ready Mix USA, increasing its operations in Arkansas, Mississippi, Tennessee, Alabama, Georgia, and Florida.

Winn Materials, LLC, owned by VantaCore Partners LP, has acquired the Cherry Grove limestone quarry from North American Limestone Corp. This operation, located in Todd County, Ky., has an estimated 39 million tons of limestone reserves and serves the southwestern Kentucky and northwestern Tennessee markets. This represents VantaCore’s fifth acquisition, expanding its operational presence to four states in the southeastern United States. The company will be renamed Winn Materials of Kentucky. This purchase follows the April 2011 announcement that Winn Marine intends to undertake a major expansion of its Clarksville port operations, positioning Montgomery County to become the largest commercial water port on the Cumberland River.

Analysts and investors were busy recently with the U.S. debt ceiling crisis and a steady stream of disappointing economic indicators. The result was a continued drop in stock prices for construction materials producers. This, together with poor quarterly earnings reports, could pose a threat to the pace of merger and acquisition activity as additional uncertainty creeps into the equation. These developments seem unlikely to change the desire of buyers and sellers to buy and sell, but there is concern that the increased uncertainty and absence of a clear recovery will affect deal pricing and the deal approval process.

Recent transactions

Texas Industries, Inc. (TXI) has acquired the aggregate and ready-mix operations from Cemex serving the Austin market and the ready-mix operations serving the Houston market. TXI continues to operate aggregate, cement, and packaged materials facilities in the Houston market.

George H. Reddin is a principal in FMI’s Investment Banking practice. He can be reached at 919-785-9286 or at greddin@fminet.com.

Oldcastle Materials, Inc. has acquired the assets of Everett Quarries. Everett Quarries operates five quarries serving northwest Missouri. The Everett Quarries will become part of Oldcastle’s Central West Division.

Rockydale Quarries Corporation, headquartered in Roanoke, Va., has acquired two quarry locations from C.S. Mundy Quarries Inc. The new locations will operate as the Rockydale-Flatrock Quarry located in Shenandoah County, Va., and the Rockydale-Broadway Quarry located outside of Harrisonburg, Va. Rockydale now operates seven quarry locations as well as a lime processing facility.

Pine Bluff Sand and Gravel Co., based in Pine Bluff, Ark., has acquired Ingram Materials LLC, based in Nashville, Tenn., from Ingram Industries Inc. As part of this transaction, Pine Bluff and Ingram Barge Company will enter into a long-term towage agreement under which Ingram Barge and Pine Bluff will tow Pine Bluff’s sand and gravel barges on the Cumberland and Tennessee Rivers. Pine Bluff Sand and Gravel Company provides marine contract and construction services, and manufactures and delivers sand and gravel, ready-mixed concrete, and asphalt. In addition, it owns and operates barges and towboats on the Arkansas, Missouri, Mississippi, Red, Ouachita, Black, and Pearl rivers and on the Gulf Intracoastal Waterway.

By George H. Reddin

Momentum for merger and acquisition activity cannot catch a break, and comments from the recent Federal Reserve Board meetings will not help spur on any additional activity.

George H. Reddin is a principal in FMI’s Investment Banking practice. He can be reached at 919-785-9286 or at greddin@fminet.com.

The Federal Reserve has grown more pessimistic about the state of the U.S. economy. The Fed said that, while the recovery is continuing at a moderate pace, growth is somewhat slower than expected, and the jobs market is weaker than anticipated. The Fed is now calling for slower economic growth, and higher unemployment and inflation for 2011 and 2012 than in its previous forecast. The Fed projects that it will take years to get back to full employment.

These views have raised fears of the economy falling into another recession, which the Fed has downplayed as it expects the pace of recovery to pick up over coming quarters and the unemployment rate to resume its gradual decline. 0:00 / 3:11 Why Greece won’t default

The Fed also left the fed funds rate near 0 percent, where it has been since December 2008.

Investors thrive on a vision of predictable earnings and an expectation of growth — the market is not there yet.

Recent transactions

Jobe Materials, L.P. has acquired the Las Cruces assets and operations of Certified Concrete Products and Rio Grande Rock, which have been operating in Las Cruces more than 45 years. Jobe Materials, L.P. of El Paso, Texas, was started in 2005 and provides ready-mix concrete, hot-mix asphalt, and aggregates to the construction building industry in the Las Cruces market.

Summit Materials, LLC has acquired Elam Construction, Inc.; Grand Junction Concrete Pipe Co., Inc.; Fischer Quarries, LLC; B&B Resources, Inc.; Triple C Concrete, Inc.; and Wind River Materials, LLC. Combined, the acquisitions add 2 million tons of aggregate, 500,000 cubic yards of ready-mix concrete, and 200,000 tons of asphalt, and contribute about 65 million tons of aggregate reserves to the Summit portfolio.

Elam Construction, based in Grand Junction, Colo., is an aggregates, asphalt, and paving business with operations across the Western Slope of Colorado. Grand Junction Concrete Pipe is an aggregates, ready-mix concrete, precast products, and pipe distribution company also based in Grand Junction. Fischer Quarries operates a quarry in Sedalia, Mo., while B&B Resources is an aggregates and ready-mix concrete producer in Salt Lake City, Utah. Triple C is an integrated ready-mix concrete, aggregates, and precast products business located in southern Idaho. Wind River Materials (formerly Enercrest Products, Inc.) produces aggregates and ready-mix concrete in southwest Wyoming.

Other news

Ozinga Bros., Inc., is considering building a cement plant on Chicago’s Southeast side. Building a plant would create jobs and secure a more reliable supply of cement for Ozinga. Consolidation among cement and concrete producers has made it more difficult for firms without their own source of cement to compete. Ozinga Bros., Inc. has 20 ready-mix plants in Illinois and seven in Indiana.

AGC reports a double-digit decrease in construction spending

Census Bureau data shows that May construction spending totaled $753 billion at a seasonally adjusted annual rate, the sixth consecutive monthly decrease and the lowest figure since 1999, according to a report from The Associated General Contractors of America’s (AGC) Ken Simonson. The May total was 0.6 percent lower than April and 7.1 percent less than a year prior. Public construction fell 0.8 percent for the month and 9.3 percent for the year.

Reports indicate that public investment outlays under the American Recovery and Reinvestment Act of 2009 (ARRA) prevented more dramatic decreases in construction. The Council of Economic Advisors indicated that first-quarter outlays totaled $20 billion, with little direct spending remaining to be obligated. In a May report, the Congressional Budget Office estimated that the ARRA “increased the number of people employed by 1.2 million and 3.3 million.”

While the Bureau of Labor Statistics shows May unemployment rates were lower in 274 of the 372 metropolitan areas, construction employment was up in only 120 of the 337 metro areas for which data is available, down in 162, and level in 55, according to an AGC analysis.

By George H. Reddin

Merger and acquisition activity continues to plod along with the theme of strategic bolt-on and corporate divestitures continuing to lead the way. Publicly traded companies continue efforts to repair balance sheets and raise capital.

Recent activity

Lafarge sold its cement and concrete assets in the southeast United States to Colombia-based Cementos Argos for an enterprise value of $760 million. The cement assets sold include the Harleyville cement plant in South Carolina, the Roberta cement plant in Alabama, a cement grinding station in Atlanta, and associated supporting cement terminals. Lafarge is also selling its ready-mix concrete units in this area of the United States. The total revenues of these divested businesses were approximately $240 million in 2010.

George H. Reddin is a principal in FMI’s Investment Banking practice. He can be reached at 919-785-9286 or at greddin@fminet.com.

Hancock Concrete Products, LLC, based in Hancock, Minn., has acquired the Hanson Pipe & Precast plant in Sioux Falls, S.D. Hancock Concrete Products manufactures infrastructure products including precast concrete box culverts, concrete round and arch pipes, manhole structures, three-sided bridges, flat storage solutions, and block products.

Natural Resource Partners L.P. (NRP) has acquired a royalty interest in frac sand reserves near Tyler, Texas, for a purchase price of $16.5 million. The reserves are strategically located near several shale gas basins in Texas, Louisiana, Oklahoma, and Arkansas. NRP is a master limited partnership headquartered in Houston, Texas, with its operations headquarters in Huntington, W.Va., which is principally engaged in the business of owning and managing mineral reserve properties.

Breckenridge Material Co. has acquired an interest in Ready Mix Concrete, Inc., based in San Juan, Puerto Rico. Breckenridge Material Co., based in St. Louis, produces and supplies ready-mix concrete, construction aggregates, and a variety of building materials and accessories.

Dolese Bros. Co. has acquired Rainbow Concrete Co., based in Tulsa, Okla. Rainbow owns and operates five ready-mix concrete plants and approximately 60 concrete mixing trucks. Dolese Bros. Co., based in Oklahoma City, produces and supplies construction materials in Oklahoma and Louisiana.

Coco Paving Inc., based in Windsor, Canada, has acquired Ron Robinson Ltd., based in Bowmanville, Canada, and Kovacs Sand & Gravel Ltd., based in Hampton, Canada. Ron Robinson Ltd. offers construction services, and Kovacs Sand & Gravel Ltd. owns and operates quarries and distributes crushed stone, sand, and gravel.

Other activity

Vulcan Materials Co. has announced that it intends to offer $1 billion of senior unsecured notes. Vulcan intends to use the net proceeds to refinance existing debt, fund a partial tender offer for its existing senior notes, reduce borrowings under its credit facility, and for general corporate purposes.

Merger and acquisition activity on the rise

By George Reddin

Deal activity is picking up in the construction materials sector, although it has yet to be reflected in announced done deals. The gestation period for a typical deal — the time from a prospective seller deciding to sell and actually selling — can be six months to a year or more. We are seeing a definite rise in deal activity and, with any luck, this should mean increased done-deal announcements in the third and fourth quarters of this year.

Recent transactions

Monarch Cement Co., based in Humboldt, Kan., has acquired Kay Concrete Materials Co. Inc., based in Monett, Mo. Kay Concrete Materials Co., Inc. supplies concrete/pre-mixed reinforcement fibers used in concrete paving, streets, patching, parking lots, driveways, paths, trails, and sidewalks.

Main Street Capital Corp., a Houston-based business development company specializing in equity, equity-related, and debt investments in small and lower-middle market companies, has made an investment in River Aggregates, LLC, based in Porter, Texas. River Aggregates, LLC, incorporated in 2011, processes and sells sand and gravel products.

Texas Industries, Inc. (TXI), has acquired the ready-mix operations of Transit Mix Concrete and Materials Co., a subsidiary of Trinity Industries, Inc., that serves the central Texas market stretching from north of San Antonio to Hillsboro. This investment allows TXI to optimize the company‘s growing resources in this region, including the expansion of the Hunter cement plant, which is currently underway. It also enhances TXI’s Austin aggregates operations. As a part of the transaction, TXI transferred existing aggregate operations to Trinity Materials, Inc., also a subsidiary of Trinity Industries, Inc., including the Anacoco Sand and Gravel Plant, which serves the Texas and Louisiana markets, and the Paradise and Beckett Sand and Gravel Plants, which both serve the north Texas marketplace.

LoJac Materials Inc., a subsidiary of LoJac Holdings Corp., has acquired Brown’s Concrete and Block Co., Inc. Brown’s Concrete and Block Co., Inc. manufactures and distributes concrete masonry products. The company was founded in 1950 and is based in Dickson, Tenn. LoJac Materials, Inc. manufactures and distributes concrete blocks. The company was founded in 1987 and is based in Lebanon, Tenn.

George H. Reddin is a principal in FMI’s Investment Banking practice. He can be reached at 919-785-9286 or at greddin@fminet.com.

By George H. Reddin

George H. Reddin is a principal in FMI’s Investment Banking practice. He can be reached at 919-785-9286 or at greddin@fminet.com.

The construction materials sector has not had much to cheer about over the last few years. Congress did pass a short-term extension to the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU), the expired surface transportation bill, on March 4, 2011. However, the necessary extension has not solved what the nation and the industry need in the long term. The industry is working hard to encourage Congress to pass a six-year bill with adequate funding to meet infrastructure needs. The construction aggregates industry depends heavily on highway construction, and a new six-year bill would give the industry a needed boost, as it does not appear that the residential recovery will contribute in any meaningful way until 2012 or beyond.

Recent transactions

Oldcastle Materials, Inc. acquired an asphalt plant and sand and gravel operation in Greenwood and Black Hawk, Miss., respectively, from J. J. Ferguson Sand & Gravel, Inc.

The Rogers Group, Inc. acquired two asphalt plants from Carolina Material Sales, Inc., located in Burnsville, Minn., and Hendersonville, Tenn. In a related transaction, Rogers Group acquired paving divisions of Moore & Son Site Contractors, Inc. in Mills River, N.C., and Young & McQueen Grading Co. Inc. in Burnsville, N.C.

Other news

Holcim reported a decrease in net profit of 19.6 percent to $1.3 billion, due to weaknesses in Europe and North America’s construction sectors, with sales falling 10.7 and 6.9 percent, respectively. However, Holcim issued a positive outlook for 2011, saying that demand in mature markets will recover and growth in emerging markets will continue.

CRH plc reported a decrease in pre-tax profits of 27 percent to approximately $598 million and a decrease in like-for-like sales of 7 percent. However, the company anticipates revenue growth for 2011 based on improving trends in the second half of 2010, as well as year-to-date results in 2011.

The story on mergers and acquisitions in the construction materials sector continues in its holding pattern. Until it sees relief from some combination of residential construction, highway funding, and improvement in the economy as a whole, the market can expect a continuation of the slow, but steady, pace of strategic bolt-on acquisitions.

By George H. Reddin

Merger and acquisition activity in the first quarter continues at a slow pace. The themes of balance sheet management, investment in emerging markets, and challenges in meeting the gap between buyer and seller price expectations continue to be visible in the construction materials sector. That said, earnings reports are starting to show modest increases in shipments with prices holding steady. These early signs of an improving market are good news for the mergers and acquisitions business and should lead to increased activity in the remainder of the year.

Recent transactions

Tarmac and France’s Lafarge have announced that they will merge their cement, aggregates, ready-mixed concrete, and asphalt operations in the United Kingdom (U.K.) into a new construction materials firm. The joint venture will have its own board of directors and will be led by an independent chairperson and executive management teams drawn from both businesses. Lafarge employs 2,800 people in the U.K. and supplies approximately 40 percent of the cement market, while Tarmac, the U.K.’s largest quarrying company, employs 4,500 people and operates 118 quarries, 69 asphalt plants, and 180 ready-mixed concrete sites. Tarmac has been for sale since 2007 and still plans to exit U.K. construction materials and sell its interest in the joint venture.

George H. Reddin is a principal in FMI’s Investment Banking practice. He can be reached at 919-785-9286 or at greddin@fminet.com.

Oldcastle Materials, Inc. announced that APAC-Texas Inc. acquired the assets of two independent sand and gravel companies operating in Austin, Texas. Oldcastle acquired three sand and gravel plants from Shumaker Enterprises, Inc., and one location from Austin Reclaimed Materials.

Other news

Cemex has swapped bonds due in 2020 for some of its outstanding perpetual debentures to cut its debt load, which will reduce its total liabilities by $41 million. Cemex must reduce debt by $2.3 billion this year to avoid a $200 million jump in its annual interest costs under the terms of its financing agreements.

Martin Marietta Materials, Inc. exceeded expectations with a fourth quarter profit of $14.8 million, compared to a loss of $3.2 million during the same period of the previous year. The fourth quarter results were impacted positively by a 14-percent increase in heritage aggregates shipment.

Vulcan Materials Company announced that it lost $47 million in the fourth quarter; however, trailing 12-month aggregates shipments have increased modestly since February of last year.