Tempered cement supplies, fleet management-related cost controls, and rationalization of producers in many medium-sized and larger markets appear to have a lasting, positive impact on ready mixed concrete pricing. Investors in public and private companies continue to take note of a business once subject to cyclical swings, but now known for sustained profitability.

Among public companies with U.S. operations, a positive investment climate is underscored by Cemex's planned acquisition of RMC Group, whose major franchises include RMC USA Inc. A top player in ready mixed production, RMC USA will be one indicator for investors evaluating New York Stock Exchange-traded Cemex.

Scheduled to be finalized early in the new year, the RMC takeover will be felt around the world. Domestically, it will affect markets spanning the Carolinas to California. In the former states, home to 40-plus-plant RMC Metromont Materials, the $5.8 billion acquisition will overshadow a more subdued deal attesting to a large investor's confidence in ready mixed. It centers on Ready Mixed Concrete Co. of Raleigh, N.C., where company president Jay Loftin is leading a management and investor team to acquire the business from longtime principal and current chairman George Turner. The transaction entails a leveraged buyout, a financing method reminiscent of 1980's Wall Street.

An article posted Oct. 19 on TheDeal.com noted the buyout would total $222 million cash and assumption of debt. Citing Moody's Investor Service data, TheDeal.com reported that Audax Private Equity Fund LLP will lead the buyout with a $60 million investment, while Ready Mixed Concrete issues $150 million of senior notes and obtains a $30 million term loan and $25 million revolving credit facility. Upon a closing anticipated by early this month, the transaction will leave the new ownership carrying a $162 million debt load.

Ready Mixed Concrete serves the Carolinas and southern Virginia with upwards of 90 plants and an estimated fleet of 600-700 mixers. It has emerged among the industry's top private producers through acquisitions, the largest occurring two years ago and involving the assets of Danish-owned Unicon Concrete in the Carolinas. Moody's Investor Service data suggest that present management has maintained EBITDA — the Wall Street benchmark measuring earnings before interest, taxes, depreciation and amortization — in excess of 15 percent. The fact that Ready Mixed Concrete can report Ebitda on par with publicly traded operators is likely one reason it can attract equity investors. Audux Private Equity, part of three-fund operator Audax Group in Boston, targets middle-market companies ($25 million to $350 million revenues) with annual free cash flow of at least $5 million. Moody's Investor Service indicates that Ready Mixed Concrete has yielded more than double that figure during each of the past four years.

The leveraged buyout marks the second transaction in 15 months involving a major concrete producer and a suitor with no construction materials holdings. In August 2003, Hanson Aggregates sold its Dallas and Houston ready mixed operations to private equity fund manager Texas Growth Management Fund Corp., which renamed the business Southern Star Concrete. Ironically, Southern Star and Ready Mixed Concrete encompass plant operations under former giant Gifford-Hill, which during the 1980s seemed as much a part of the construction materials industry as leveraged buyouts were of investment banking.

Concrete Products has been covering Ready Mixed Concrete since the 1960s. From what we have observed, the company can prove to a firm like Audax Private Equity that the road to good investment opportunities and returns in this business does not always travel through Wall Street.

e-mail: dmarsh@primediabusiness.com