May 1, 2010
Agg Man Index
The AggMan Index showed signs of life during the month posting an increase of 8 percent to 109.4 as compared to a 5-percent increase for the S&P 500. While the index is down from 122.1 at the end of 2009, the industry has been in a seasonally slower period and weathering the lack of a long-term transportation funding plan. However, the latter was addressed during the month with the Senate passing a $28 billion jobs bill that will inject $19.5 billion in new and $8.7 billion in restored funding for state highway projects. The day the bill passed, the index had an immediate pop of 5 percent as the market priced the benefits of the bill into industry valuations. With nine months to deploy the capital, the attention quickly turned to the “shovel ready” projects and trying to determine how much of the funding could be employed during the year. The funding bill is welcome relief for the industry, but may be too little, too late for some industry players. During the month, several companies have been working through restructuring plans and bankruptcies as they try to manage over-leveraged balance sheets. The difficulties for the industry are not quite in the rear view mirror, but the jobs bill and the beginning of the season should help on the road to recovery.
Things appear to be returning to normal (?)
The first quarter of 2010 showed modest signs of a return to normalcy for the deal business. A mix of corporate divestitures and sponsor-backed deals dominated the headlines in the United States. Overseas transactions were more popular than deals in the United States as buyers looked to consolidate positions in developing markets and took advantage of strong outlooks for growth in those markets.
Improving balance sheets, refinancing debt, and raising cash have been common themes for the last year and a half. The industry has done a good job dealing with capital structure issues brought on in 2008-2009 with the decline in earnings, equity values, and availability of credit. Since the last issue of Aggregates Manager, all the announced merger and acquisition transactions took place outside the United States.
Titan Cement Co. recently sold a 16-percent interest in Alexandria Portland Cement Co. to International Finance Corp., raising $108.26 million. International Finance Corp. is a private equity arm of World Bank specializing in providing various financial products to private sector projects in emerging markets in developing countries. The firm also makes fund investments in a wide range of funds, such as private equity funds and venture capital funds, and debt funds that invest in emerging-market securities.
Cemex announced a private placement of convertible subordinated notes due 2015 for gross proceeds of $500 million on March 23. Cemex will use the proceeds to fund the purchase of a capped call transaction, for general corporate purposes, and to repay indebtedness.
Our sense is that activity is picking up, and we expect this activity to result in significant deal closings in the second half of the year.
VantaCore nets significant investment capital
VantaCore Partners LP completed an acquisition financing package consisting of $100 million of equity funding from Trilantic Capital Partners and a $15 million acquisition facility from PNC. PNC also provided VantaCore with a $27 million senior secured credit facility.
“We are excited about this significant new source of acquisition financing and adding these two great new partners to our team,” said Colin Oerton, VantaCore’s CEO. “These financings provide us with the capital to continue our strategy of purchasing high-quality aggregate businesses in the United States, following the three successful acquisitions that we have made in Tennessee and Louisiana since mid-2007. We look forward to working with Trilantic and are also pleased that PNC Bank has decided to not only support our existing business, but to also fund our growth plans. PNC’s facility will be used to refinance our existing senior debt and provide $15 million to fund future investments.”
“VantaCore represents an exciting opportunity for us combining three attractive characteristics of an excellent management team, solid industry fundamentals, and a well-run operating business with substantial growth prospects,” noted Trilantic’s Chris Manning. “We believe that this is an excellent time to be making this investment and are pleased to provide VantaCore with the funding, which will enable them to take advantage of the significant expansion opportunities in its industry including acquisitions of, and investments in, other aggregate companies, as well as internal growth projects.”
VantaCore is a private company focused on acquiring competitively advantaged aggregates and related businesses in the domestic U.S. market. With approximately 150 employees, its operations consist of an integrated limestone quarry (with permitted surface reserves of about 49 million tons), dock facility, two asphalt plants, a commercial asphalt lay down business located in Clarksville, Tenn., and a sand and gravel business (with approximately 67 million tons of sand and gravel reserves) located near Baton Rouge, La.