November 1, 2010
AggMan Index: Moving in the Right Direction
After a rough couple of months, the AggMan Index seemingly had nowhere to go but up, which is just what it managed to do. For the month, the Index was up over 8 percent, increasing from 83.2 to 91.3. Without any major company announcements in the past few weeks, the movement appears to be based on the belief that the industry was oversold after a series of disappointing earnings releases, and investors stepped in to buy on the perceived opportunity. The Index also appears to be moving in tandem with the overall markets as the S&P 500 was up nearly 8 percent over the same period. As we head through the fourth quarter, there are a variety of factors — economic and political — that will influence the Index and the overall market. As noted in last month’s article, the political campaigning leading up to the November elections will likely paint a positive picture for the industry as construction spending plays to the notion of improving our infrastructure and creating jobs. While it will be difficult to know the tangible impact from the elections for several months (or years), the Index will likely see a near-term impact as the markets price in the expected impact of the election results. Additionally, investors continue to look for signs of recovery in the overall economy and rays of hope that 2011 will be stronger than 2010. As we’ve seen during the past couple months, the market signals will continue to be mixed as we work through the economic recovery, but we appear to be moving in the right direction — albeit a little slower than initially hoped.
Deal Activity Remains Slow, but Steady
The third quarter ended without much fanfare on the merger and acquisition front. Activity remains slow and continues to be dominated by corporate divestitures, distressed situations, and small strategic bolt-on deals. Deal momentum remains in a holding pattern with sellers still questioning if the time is right and buyers content to slow-play the market.
The exception to this remains the interest in the construction materials sector by private equity companies. Private equity firms raised significant capital from 2005 to 2009; however, the downturn in the economy and the near collapse of the credit markets left a significant amount of this capital available for investing. According to PitchBook Data, these companies raised in excess of a trillion dollars during this period, with more than $400 billion in committed capital yet to be invested. Most of these private equity funds are structured with a limited lifetime of 10 years, with most of the investment activity in portfolio companies taking place in the early years. In order to prevent having to return this capital, private equity firms will be aggressively pursuing deals, some of which should find their way to the construction materials sector.
September deal activity
Summit Materials, LLC acquired Altaview Concrete, Inc. in Salt Lake City, Utah, and Con-Agg of MO LLC in Columbia, Mo. The financial terms of the transaction were not disclosed. Summit will include Altaview in the concrete operations of its recently formed concrete and construction division, Harper-Kilgore, and will assume responsibility for the Harper ready-mixed concrete operations. Con-Agg, which operates Boone Quarries and Columbia Ready Mix, marks another acquisition for Summit in the Kansas-Missouri market.
U.S. Concrete Inc. acquired three ready-mixed concrete plants and related assets in west Texas, which will be integrated into U.S. Concrete’s existing concrete operations under Ingram Enterprises. The purchase of these assets in the west Texas market supports U.S. Concrete’s emphasis on markets vertically integrated in aggregates. U.S. Concrete also exited the Michigan market with the divestiture of its interest in Superior Materials Holding LLC, a joint venture in Michigan with Levy Co. Levy Co. and its new partner, VCNA Prairie, have entered a 50/50 joint venture to own and manage Superior Material Holding LLC. U.S. Concrete had been in partnership with Levy since 2007, when the business spanned 28 ready-mixed plants and a fleet of nearly 300 mixers prior to the downturn in the Michigan economy.