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Aggregate Industry Market Report


In This Exclusive Report Prepared for Rock Products, Capstone Headwaters Discusses Market Trends Including Mergers and Acquisitions, Aggregate Production and Pricing.

By Darin Good and Brian Krehbiel

In this quarterly report, provided exclusively for Rock Products, Capstone Headwaters provides insight into merger aqnd acquisitions (M&A), capital markets trends, aggregate production and pricing through Q1 2018.

Capstone Headwaters' Building Products & Construction Services Team advises industry business owners, entrepreneurs, executives and investors in the areas of merger and acquisitions, capital raising and various special situations advisory. Due to its background and laser focus within the industry, Capstone Headwaters is uniquely qualified and has an unparalleled track record of successfully representing Building Products and Construction companies.

PUBLIC VALUATION COMMENTARY
Figure 1 includes the constituents of Capstone Headwaters Aggregates Materials Index as of 3/31/2018. Average EBITDA multiples decreased from 12.9x as of 12/31/17 to 12.1x at the end of Q1 2018.

Figure 1: Public Valuation Multiples

US Dollars in Millions

EBITDA

Enterprise Value/

Company Name

TEV

Revenue

EBITDA

Margin

Revenue

EBITDA

LafargeHolcim Ltd.

50,782

26,547

5,328

20.1%

1.91x

9.5x

CRH Plc

35,995

28,447

3,571

12.6%

1.27x

10.1x

Cemex SAB de CV

24,181

13,928

2,553

18.3%

1.74x

9.5x

HeidelbergCement AG

33,356

19,899

3,070

15.4%

1.68x

10.9x

MDU Resources Group, Inc.

7,240

4,482

634

14.1%

1.62x

11.4x

Vulcan Materials Company

18,269

3,957

950

24.0%

4.62x

19.2x

Martin Marietta Materials, Inc.

14,715

3,924

965

24.6%

3.75x

15.3x

Buzzi Unicem S.p.A.

5,953

3,165

616

19.5%

1.88x

9.7x

Summit Materials, Inc.

5,020

1,963

404

20.6%

2.56x

12.4x

Eagle Materials Inc.

5,586

1,387

412

29.7%

4.03x

13.6x

U.S. Concrete, Inc.

1,733

1,365

151

11.1%

1.27x

11.4x

Mean

18,439

9,915

1,696

19.1%

2.4x

12.1x

Median

14,715

3,957

950

19.5%

1.9x

11.4x

*TEV = Total Enterprise Value (Market Capitalization + Net Debt)

Source: FactSet    


AIR Figure2Aggregates Performance

2018 YTD Total Returns (Figure 2)
• Aggregate Materials Index – (8.1%)
• S&P 500 – (0.8%)
• Dow Jones Industrial Average – (2.5%)

Our Aggregates Materials Index significantly underperformed the S&P 500 and the DJIA, declining by 8.1 percent during Q1 2018.

M&A OVERVIEW

Preliminary estimates of total acquisition activity (Figure 3) in Q1 2018 indicate a decrease of 34.1 percent compared to the same period in 2017 in terms of the number of aggregates related transactions completed (27) in the United States and Canada. Transaction activity was also down 15.6 percent compared to Q4 2017. It is common for transaction activity to dip in Q1 after a large transaction push at year-end. Publicly traded aggregates producers were notably active during the quarter, including Summit Materials, US Concrete, and Vulcan Materials.

Figure 3: Select Q1 2018 Industry M&A Activity

Transaction Date

Target/Issuer

Buyers/Investors

Transaction  Value ($mm)

03/29/18

Lehigh White Cement Co.

Cemex Inc.

$140.6

03/28/18

McCartney Construction Co, Inc.

Vulcan Materials Co.

-

03/28/18

Hormigones Independencia S.A.

Unión Andina de Cementos S.A.A.

$22.2

02/28/18

McAsphalt Industries Limited

Colas Canada Inc.

$728.5

02/14/18

Metro Readymix, LLC

Summit Materials Inc.

-

02/14/18

Price Construction Co.

Summit Materials Inc.

-

02/14/18

Mertens Construction Co.

Summit Materials Inc.

-

01/17/18

Halla Cement Corp.

Asia Cement Co. Ltd.

$532.2

01/10/18

On Time Ready-Mix Inc.

U.S. Concrete Inc.

-

01/03/18

A.H. Harris & Sons Inc.

HD Supply Construction Supply Ltd.

$380.0

01/02/18

Cementir Italia SpA

Italcementi SpA

$377.1

Sources: FactSet and Capital IQ

Private Equity Transaction Activity and Valuations

GF Data Resources, a provider of detailed information on business transactions ranging in size from $10.0 million to $250.0 million, provides quarterly data from over 201 private equity firm contributors on the number of completed transactions. Figure 4 provides the number of completed transactions from GF Data contributors, the average Total Enterprise Value (TEV)/EBITDA multiple, and the average amount of debt utilized in the transaction computed as a multiple of EBITDA. The data, although not industry specific, shows valuations declining sharply from record levels achieved during the prior quarter.

Figure 4: Private Equity Valuations & Leverage

Q1 2016

Q2 2016

Q3 2016

Q4 2016

Q1 2017

Q2 2017

Q3 2017

Q4 2017

Q1 2018

# of Transactions

50

76

36

58

64

52

51

69

52

TEV/EBITDA

6.5x

7.1x

6.6x

6.7x

6.6x

7.4x

7.5x

8.0x

6.9x

Total Debt/EBITDA

4.4x

4.0x

3.8x

3.7x

4.0x

4.4x

4.5x

4.3x

4.2x

Senior Debt/EBITDA

2.8x

3.3x

3.2x

2.8x

3.0x

3.6x

3.7x


3.5x

3.4x

 

Source: GFData

Notable Transactions

Several notable transactions were completed or announced in the industry during Q1 2018. One of the more notable aggregates industry transactions is highlighted below.

AIR Colas

Acquires
AIR MillerPaving

Colas Canada, Inc. acquired Miller Paving Limited and McAsphalt Industries Limited (Feb. 28, 2018, $728.0 million).

Colas Canada has acquired the Miller McAsphalt Group for $728.0 million. The Miller McAsphalt Group is a major player in road construction and bitumen distribution in Canada, with a strong foothold in Ontario.

The acquisition is part of Colas’ long-term strategy to continue its development in North America. The acquisition will allow Colas to expand its Canadian geographic coverage, strengthening its presence in Ontario.

“This acquisition, once closed, will be a great opportunity for two groups of dedicated employees to merge their knowledge and experience and to continue to deliver, in a safe manner, exceptional work quality and excellence for overall customer satisfaction across Canada.” - Louis Gabanna, Colas North America Managing Director, Colas press release at time of announcement, Aug. 31, 2017

COMPANY SPOTLIGHT

AIR MartinMariettaMartin Marietta experienced a 5.0 percent decrease in total revenue in Q1 2018 when compared to the prior year period. Aggregates volume also declined 8.0 percent when compared to the prior year period. The quarterly decrease in aggregates volume was due to winter weather limiting outdoor construction activity in key geographies. Railroad inefficiencies also contributed to the decline in aggregates volume, reducing shipments in the Southeast and West Groups.

Ward Nye, chairman, president and CEO of Martin Marietta, stated, “As we start the year, we are encouraged by ongoing customer optimism and our first-quarter results, both of which are consistent with our expectations. Additionally, while we remain on track to achieve our original 2018 guidance, we are updating and increasing that outlook to reflect the contribution we expect from our acquisition of Bluegrass Materials Company… We believe the United States is in the midst of a steady, multi-year construction recovery. Our leading positions in attractive, high-growth markets allow us to benefit from anticipated increased demand for both public and private construction activity in 2018 and beyond. Long term, we remain focused on elevating Martin Marietta from an aggregates industry leader to a globally recognized world-class organization, allowing us to further enhance shareholder value.”2

AIR SummitNet revenue for Summit Materials increased by 12 percent to $289.9 million in Q1 2018 compared to the prior year period. The increase in revenue was primarily due to acquisition-related contributions. Adjusted EBITDA declined to $5.5 million in the first quarter 2018, versus $13.6 million in the prior year period.

“On a year-to-date basis, we have completed seven acquisitions for total invested capital of $154 million,” stated Tom Hill, CEO of Summit Materials. “Recent acquisitions have served to further establish our leadership in well-structured, materials-based markets in Utah, Texas, Oklahoma, Kansas, Kentucky and Missouri. The acquisition pipeline remains very active as we look ahead to the remainder of the year, with multiple transactions currently in various stages of diligence.”

Brian Harris, CFO of Summit Materials said, “As of March 31, 2018, we had $397.9 million in cash and availability under our revolving credit facility to support our acquisition strategy and the general growth of the business. We anticipate net leverage to remain between approximately 3.0x and 4.0x for the duration of the year, assuming the mid-point of our upwardly revised Adjusted EBITDA guidance and subject to the pace of acquisitions.”

Summit’s aggregates business experienced an increase of 10 percent in net revenues while its cement business experienced a 14 percent decrease compared to the prior year period. 3

CONSTRUCTION MATERIALS UPDATE

Construction input prices increased 0.8 percent in March and are up 6.0 percent on a year-over-year basis, according to an Associated Builders and Contractors (ABC) analysis of data recently released by the US Bureau of Labor Statistics.

AIR Figure5

Aggregates Materials

Industry results in Q1 2018 showed decreases in volume compared to the same period in 2017 for cement (0.7 percent) and crushed stone (2.3 percent), while sand & gravel volume increased (6.5 percent). Additionally, ready-mix concrete and asphalt both experienced increases in prices when compared to the prior year period.

AIR CementCement

• Portland cement consumption (16.8 million metric tons) decreased by 0.7 percent in Q1 2018 compared to Q1 2017.
• The average net selling price per ton for Martin Marietta and Eagle Materials in Q1 was $107.90, an increase of 0.4 percent over the prior quarter and a 3.4 percent increase over the same period in 2017.

Source: US Geological Survey

AIR ReadyMix
Ready-Mix Concrete (RMC)

• RMC prices increased 1.4 percent in Q1 2018 and were up 2.2 percent when compared to Q1 2017. Price data is computed from the average RMC net selling prices of US Concrete, Vulcan Materials, Martin Marietta and Eagle Materials.
• Ready-mix concrete volume is not tracked on a quarterly basis.

Sources: NRMCA Industry Data Survey, Average RMC selling price of U.S. Concrete, Vulcan Materials, Martin Marietta Materials & Eagle Materials

 

AIR CrushedStoneCrushed Stone

• An estimated 256 million metric tons of crushed stone was produced and shipped for consumption in the US in Q1 2018.
• Crushed stone production in Q1 2018 declined 2.3 percent compared to Q1 2017.
• Pricing data specific to crushed stone production is not available on a quarterly basis.

Source: U.S. Geological Survey

 

AIR SandGravelSand & Gravel

• Sand & gravel production in Q1 2018 increased 6.5 percent compared to Q1 2017, the third consecutive quarterly increase when compared to the prior year period.
• Pricing data specific to sand & gravel production is not available on a quarterly basis.

Source: U.S. Geological Survey

 

AIR AsphaltAsphalt

• Asphalt prices decreased 1.2 percent in Q1 2018 as measured by the average net asphalt selling prices of Vulcan Materials and Martin Marietta. Asphalt prices increased 7.7 percent when compared to Q1 2017.
• Asphalt volume is not tracked on a quarterly basis.

Sources: EAPA Asphalt in Figures, NAPA, Vulcan Materials & Martin Marietta Materials average of net asphalt selling prices

 

Citations

• Colas, “Colas signs an agreement to acquire the Miller and McAsphalt group, a major road construction player in Ontario and a leader in bitumen distribution in Canada,” https://www.colas.com/en/press/press-release/colas-signs-agreement-acquire-miller-and-mcasphalt-group-major-road-construction-player-ontario-and-leader-bitumen-distribution-Canada, accessed June 14, 2018.
• Martin Marietta reports first quarter 2018 results, http://ir.martinmarietta.com/news-releases/news-release-details/martin-marietta-reports-first-quarter-2018-results, accessed June 12, 2018.
• Summit Materials, Inc. reports first quarter 2018 results, http://investors.summit-materials.com/file/Index?KeyFile=393385286, accessed June 12, 2018.
• US Geological Survey, https://www.usgs.gov/, accessed June 12, 2018.

Capstone Headwaters is an investment banking firm dedicated to serving the corporate finance needs of middle market business owners, investors and creditors. Capstone Headwaters provides merger and acquisition, private placement, corporate restructuring and financial advisory services across 16 industry verticals to meet the lifecycle needs of emerging enterprises. Headquartered in Boston and Denver Capstone Headwaters has 20 offices in the United States, UK and Brazil with a global reach that includes more than 300 professionals in 34 countries. For more information, visit www.capstoneheadwaters.com.

To discuss any information contained in this report, contact the Capstone Headwaters team: Darin Good, managing director, This email address is being protected from spambots. You need JavaScript enabled to view it., 303-549-5674; Brian Krehbiel, senior vice president, This email address is being protected from spambots. You need JavaScript enabled to view it., 970-215-9572.