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Bluegrass, Aggregates USA deals speak to healthy Martin Marietta, Vulcan rivalry

The top two U.S. aggregate producers are pacing each other in building annual production volumes and long-term limestone and granite reserves. Predictable in most any economic cycle, their strategy takes on new dimensions in 2017, as investors see U.S. crushed stone and sand & gravel shipments netting some of the best returns or future earnings prospects in heavy building materials.

Martin Marietta Materials Inc. and Vulcan Materials Co. announced post-Memorial Day deals totaling $2.5 billion—a sum they can comfortably cover thanks to lofty stock valuations each has enjoyed for more than a year. The deals’ common threads include aggregate operations in South Carolina, Georgia and Tennessee; among the Census Bureau’s recent gauge of population growth, the states rank 11, 13 and 16, respectively, and exhibit near- and long-term promise for construction interests.

Martin Marietta anticipates a fourth quarter closing on Bluegrass Materials Co., billed as the largest privately held aggregates producer in the U.S., with 23 active sites across Georgia, Kentucky, Maryland, South Carolina and Tennessee. “Bluegrass’ strategic assets, combined with the depth and strength of its personnel, are a natural fit,” says Martin Marietta CEO Ward Nye. “Through its significant operational investments, Bluegrass has achieved leading positions in some of the nation’s highest growth markets while maintaining an impressive cost profile.”

The Georgia and South Carolina operations complement Martin Marietta’s Southeastern footprint and expand product range. As Maryland’s leading aggregates producer, Bluegrass nets a new growth platform—spanning Baltimore, Frederick, Hagerstown and Maryland Eastern Shore metropolitan areas as well as Delaware—in the southern portion of the Martin Marietta Northeast region. With aggregates shipments currently 20-30 percent below peak levels, management notes, all of the markets tied to Bluegrass assets are expected to benefit from the accelerating economic recovery in the eastern United States.

Beyond Maryland, Georgia and South Carolina, Bluegrass has leading aggregate market positions in Bowling Green and eastern Kentucky, and parts of Tennessee. Operations in those markets were the charter properties for Jacksonville, Fla.-based Bluegrass Materials, which launched in 2010 through a deal with Cemex USA. Backed by a New York private equity firm, Lindsay Goldberg LLC, Florida Rock Industries veteran Ted Baker II and business partners pursued a series of targets, topped by former Lafarge North America aggregate production and distribution sites in Georgia, Maryland and South Carolina.

Martin Marietta-Bluegrass follows Vulcan Materials’ agreement with Mill Valley, Calif., investor SPO Partners to acquire Aggregates USA LLC for $900 million. The deal brings 15 quarries and 16 aggregate distribution facilities serving Florida, Georgia, South Carolina, Tennessee and Virginia markets. “With the addition of these assets, [we] will be able to capitalize on continuing increases in state highway funding programs and private sector growth across the region,” notes Vulcan CEO Tom Hill. “This transaction will provide Vulcan with long-term high quality reserves across the entire portfolio. Aggregates USA operates efficient, high productivity facilities run by strong teams.”

The acquisition complements Vulcan service offerings in Georgia through three granite quarries, two with rail capabilities extending its reach into important markets. It also includes Florida, Georgia and South Carolina rail distribution yards, plus 12 limestone quarries in eastern Tennessee and southwest Virginia.

A June report in sister publication Rock Products shows the underpinnings of the Aggregates USA and Bluegrass Materials investments. Prepared by Denver-based Headwaters AB, it summarizes heavy building materials deal making and stock valuations of global and North American producers. Vulcan Materials’ and Martin Marietta’s combined valuation, hovering $30 billion, is in the range of global cement, concrete and aggregates peers CRH Plc, Cemex SAB de CV and HeidelbergCement AG—all major U.S. crushed stone and sand & gravel producers in their own right.