Canada’s Armtec

Armtec Infrastructure Income Fund, a Guelph, Ontario, consolidation catalyst unlike any Canadian precast producers have encountered, closed in early August

Don Marsh

Armtec Infrastructure Income Fund, a Guelph, Ontario, consolidation catalyst unlike any Canadian precast producers have encountered, closed in early August on its latest target: Burnco Concrete Products Ltd., with four plants in Calgary and Edmonton. It capped a 10-month, C$275 million buying spree in concrete production for an investor tailored to Canadian tax code and pursuing transportation construction opportunities throughout the lower provinces.

Toronto Stock Exchange-traded Armtec entered concrete in October 2007, acquiring a giant in North American precast/prestressed, Con-Force Structures, with Calgary headquarters plant, plus British Columbia and Manitoba satellites. Burnco Concrete is another important step in our strategic growth plan, says Armtec President and CEO Charles Phillips. [It] significantly expands the Con-Force division’s standard product offering in Alberta and extends our product diversity. This acquisition is a key part of our strategy to develop a stronger precast product base and expand offerings across markets we serve.

The Burno Concrete sites will operate under the Con-Force brand; seller Burnco Rock Products remains an independent aggregate and ready mixed operator in Alberta. The $50 million transaction occurred eight days after Armtec closed on Ontario’s four-plant Brooklin Concrete and two-plant Boucher Pre-cast Concrete Ltd., deals valued at $43 million and $22 million, respectively. Those transactions followed, by just over a month, Armtec’s acquisition of A.E. Concrete, Surrey, B.C., for $19 million. In an early-June, $18.5 million transaction, the firm acquired Durisol Inc., a Mitchell, Ontario, highway sound barrier and precast retaining wall producer.

Armtec notes production synergy between eastern and western Canadian operations to be gained under the Con-Force division umbrella. Certain product formerly confined to fabrication in Ontario, for example, can be made at the Con-Force sites, and vice versa. Along with the former Burnco Concrete plants, the Brooklin, Boucher and A.E. Concrete properties have joined the Con-Force division, headed by Ron Adams, president and Armtec executive vice president. Durisol has become a third division for the fund, with former principal Hans Rerup continuing at the helm.


Separate from Durisol and the Con-Force operations, the Armtec division is Canada’s only national, multi-material manufacturer specializing in high-density polyethylene pipe, corrugated steel pipe for drainage applications, and engineered structures for short-span bridges and water-management systems. Its major market is publicly financed roadbuilding and related infrastructure assets, plus three key private drainage-product markets: homebuilding, agricultural, and natural resources Û the latter including logging roads, new mines and oil & gas production.

Armtec has operated for much of its 100-year history as part of a larger public company. In 2001, it was acquired by Oncap, a small cap fund within publicly traded Onex. Armtec Infrastructure Fund launched with a July 2004 initial public offering as an income trust, one of about 140 such entities trading on the Toronto Stock Exchange. Under Canadian income tax code provisions adopted in 1996, income trusts enable small- to medium-sized companies to go public. They do not incur taxes on earnings, but are required to pay shareholders monthly distributions, which are then taxed as regular income.

Leading up to the Con-Force acquisition, says Charles Phillips, The fund determined there was strong demand for bridges and bridge technology, but Armtec was in a position to serve only about 5 percent of the market. Precast concrete was the ticket to a much broader stake in bridges, he adds, and as western Canada’s leader in prestressed girders, Con-Force represented a strong platform target.

We have had enthusiastic response to our growth strategy, Phillips affirms. Every time we have gone to the market, our equity offers have been oversubscribed.

In early 2007, Armtec officials entered lengthy negotiation with TriWest, a Calgary private equity firm that had only recently acquired Con-Force. The potential Con-Force offered and the complementary nature of the business’ operation and culture convinced Armtec that the investment was a great vehicle to increase its participation in the growing energy and mining markets, and attendant infrastructure ramp up. Western Canada’s tight labor market has helped boost precast prospects as well, as contractors recognize labor savings from having finished product delivered to sites versus using cast-in-place methods.

After the $122 million Con-Force transaction, Armtec sought to balance production schedules and plant utilization, and create stable revenue streams conducive to the monthly distributions required of an income trust.

Con-Force bids on $40 million projects that might be one year out, resulting in a lumpy revenue stream. A greater emphasis on smaller, standard products shipped in more predictable patterns will stabilize cash flow from the Con-Force plants, says Ron Adams. The plants have so far expanded production of utility vaults, stairs, and traffic barriers, he adds, complementing conventional and longer-span prestressed girder fabrication.

In western Canada, infrastructure investment has been running 20-30 percent above levels of recent years, a trend best reflected in major road projects underway in key Alberta and British Columbia population centers. Included on the Con-Force order log are bridges for Sea To Sky Highway, linking Vancouver to the 2010 Winter Olympics-hosting Whistler, B.C.

The emergence of private capital sources in infrastructure investment is helping advance construction activity, says Phillips. Transportation officials in Ontario, Quebec and the Atlantic Provinces are taking note of the success public-private infrastructure developments have shown in the west.

Agencies in eastern Canada have had positive public-private project experiences of their own during the past decade, most notably the Highway 407 in Toronto, and the 12-km Confederation Bridge, an all precast link between New Brunswick and Prince Edward Island.