Data Mining
Data
AggMan Index: Feel the Noise
s I noted in the previous month's column, the AggMan Index was likely to encounter some near-term turbulence given the "noise" in the market. Unfortunately, the prediction has rung true, and the index declined more than 10 percent as compared to the S&P 500, which was essentially flat during the same period. As the broader economy continues to show signs of recovery, the construction materials sector is likely to continue to search for more clarity in the months and years ahead from a funding perspective. The path to recovery will be driven by the next federal transportation bill, which continues to see delays in Washington, D.C. This was clearly evidenced by the U.S. Department of Transportation's recent decision to furlough nearly 2,000 employees without pay when the Highway Trust Fund expired. The cost of this on the state level was estimated by some to be about $153 million a day, which is not helpful, as we are in the window when many projects are typically let for the coming season. As with all things, this too shall pass, but the impact is reflected in the lower current valuations for materials businesses.
Status of M&A in Construction Materials: "Cautiously Optimistic"
autiously optimistic seems to be the party line in the construction materials sector when it comes to discussing the state of merger and acquisition (M&A) activity. As the results for 2009 were announced, expectations were not high. That being said, these results were as expected since early in that year or even since late 2008. The chart below presents the EBITDA for a select group of construction materials producers that have reported year-end results for 2009 (some based on TTM as of Sept. 30, 2009). As shown, earnings peaked for most of these companies in 2007 or 2008 and appear to have hit bottom in 2009. The good news is that the consensus outlook for 2010 is improved for most. Cautious optimism comes from three fronts. First, many of the publicly traded strategic buyers have improved their balance sheets over the last year by generating increased liquidity and refinancing debt and are ready for acquisitions. Second, the sponsor-backed community sees an opportunity to fill the void left by the strategic buyers throughout the last 18 months. Third, after a 23-percent decrease in crushed stone production in the United States during 2009 and an anticipated decrease in 2010, according to the U.S. Geological
$7,500 $6,500 $5,500
EBITDA
Survey, most expect to see improvement in 2011 and beyond, which means the business development teams are back out looking for deals. In the last month, Oldcastle Materials, Inc. acquired the assets of A.L. Blades & Sons, Inc., a general contractor, asphalt paver, and construction aggregates manufacturer serving the southern tier of New York state and northern Pennsylvania. No pricing was disclosed. A joint venture between Cemex and Ready Mix USA, LLC sold 12 active quarries in the United States, in addition to other assets, for $420 million. The assets are being sold to SPO Partners & Co., an investment firm in San Francisco. The operations include two granite quarries in Georgia and 10 limestone quarries -- nine in Tennessee and one in Virginia. George H. Reddin is a principal in FMI's Investment Banking practice. He can be reached at 919-785-9286 or at greddin@fminet.com.
$4,500 $3,500 $2,500 $1,500 $500 ($500) Lafarge CEMEX Vulcan Materials CRH plc Martin Materials
2007 2008
Holcim*
Titan Cement* Heidelberg US Concrete* Cement*
2005
2006
2009
2010 E
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AGGREGATES MANAGER
AGGREGATES MANAGER April 2010