The first quarter of 2015 proved a lively financial period for public and would-be public heavy building materials operators, who commanded investor attention the world over.
In Switzerland and France, financial media fixated on Holcim Ltd. shareholder demands for sweetened terms in their company’s merger with Lafarge Group. Germany’s HeidelbergCement AG cited a major milestone—bringing debt below $7 billion—by unloading the last of its key non-core holdings, Hanson Building Products Ltd. That $1.2 billion transaction brought an affiliate of Lone Star Funds, a private equity operator with offices in Dallas and Frankfurt, a business with 2013 sales of $1.1 billion from 107 concrete and steel pipe, precast, concrete roof tile and clay brick operations, plus 11 distribution sites, in the U.S., Canada and the United Kingdom.
In Canada, Toronto Stock Exchange-traded Armtec Infrastructure Inc. reported reasonable 2014 performance in its Precast Concrete Solutions business, which logged $313 million in 2014 sales—nearly two-thirds of the company’s overall business. Although confident in long-term market prospects, Armtec management is confronting heavy debt and delisting of shares with a “sale and investment process.” It invites a recapitalization partner or transfer of all assets and most liabilities to a senior debt holder, Brookfield Capital, a Toronto private equity firm.
A shift from private equity to the public securities arena was the plan all along for the newest major player in U.S. concrete, cement and aggregate production. Denver-based Summit Materials, LLC completed a 22-million share initial public offering last month on the New York Stock Exchange. Trading under the symbol SUM, the stock climbed about 5 percent toward month’s end from an $18/share opening.
Summit Materials was founded in 2009 with an acquisition-driven business plan and commitments approaching $800 million, led by New York private equity giant Blackstone Group. It spans 200-plus plants in 17 states and British Columbia under East, Central and West Regions, and counts as its top asset a majority stake in Missouri’s Continental Cement. Summit Materials closed 2014, its fifth full year of operation, reporting sales of $1.2 billion from 2.8 million yd. of ready mixed, 1 million tons of cement, 25.4 million tons of aggregates, and 4.3 million tons of asphalt.
Founder and CEO Tom Hill is using a proven acquisition and integration model. Through 20-plus years in Oldcastle Materials senior management, he likely oversaw more acquisitions than any counterparts from deal-driven Hanson Aggregates, Martin Marietta Materials, Rinker Materials and Vulcan Materials. He and the Summit Materials executive team are positioning key aggregate, concrete and asphalt businesses as platform or operating companies; most, if not all, are among the top three players in their markets. Major businesses with ready mixed production include Alleyton Resource, Houston; Con-Agg, Missouri; Cornejo & Sons, Kansas; and, Kilgore Cos., Utah.
“Our acquisition strategy has helped us to achieve scale and rapid growth, and we believe significant opportunities remain for growth through acquisition [with] approximately 65 percent of the U.S. construction materials market privately owned,” Summit Materials notes in prospective-investor guidance. “Our senior management team maintains contact with over 300 private companies … Long-standing relationships have been the primary source for our past acquisitions and, we believe, will be a key driver of our future growth.”
The larger the Rolodex of acquisition candidate contacts the better: Summit Materials will be competing with mainstays Martin Marietta and Vulcan for deals that expand their aggregate reserves and, where market numbers fit, build scale with integrated ready mixed and asphalt production. A recap of 2015 Q1 would not be complete without noting how Martin Marietta and Vulcan saw their shares reach levels last seen before the recession.