corporate appetite for bolt-on acquisitions is also driven by the fact that there are strong margin enhancement opportunities in the building products sector
Large global groups in the building products sector are looking to take advantage of the strong fundamentals in the industry in order to make acquisitions which bring economies of scale, provide them with international expansion opportunities or access to new sales channels and customers. They are also keen to differentiate and diversify their own product offerings in order to compete more effectively with their peers and gain a greater share of customer spend. Equally, some large groups look to make acquisitions in order to mitigate the effects of their own lower rates of organic growth.
The ongoing corporate appetite for bolt-on acquisitions is also driven by the fact that there are strong margin enhancement opportunities in the building products sector, whilst acquisitive groups having strong balance sheets and can make multiple acquisitions in order to satisfy their demand. The end result is that there is increasing competition for any acquisition targets which demonstrate strong innovation and access to growth end markets, which is in turn keeping valuations of businesses high.
The fragmented nature of the sector means that large groups have considerable opportunities to make acquisitions, although the modest rate at which targets become available means that it is fundamentally a sellers’ market. This in turn has allowed potential vendors of businesses to be much more selective with regard to the potential buyers which they interact with. The scarcity of high-quality acquisition targets in fact means that potential buyers can no longer benefit from finding uninformed vendors who might sell at a low price. The result of this is that valuations from both PE and trade buyers are typically in the range of six to eight times earnings before interest, tax, depreciation and amortisation (EBITDA).
Large scale M&A activity in the sector has seen multiple transactions across the heavyside market in recent years, with international players such as CRH plc, HeidelbergCement AG, LafargeHolcim Ltd, Martin Marietta Inc and Vulcan Materials Co very much involved.
The scarcity of high-quality acquisition targets in fact means that potential buyers can no longer benefit from finding uninformed vendors who might sell at a low price
The Irish group CRH plc has one of the most active groups in terms of acquisitions in the heavyside sector. The group’s significant acquisition involved the €6.5bn “package” of assets disposed of by Lafarge SA and Holcim AG in 2015, as required by the competition authorities to clear their merger. CRH has more recently been on an active buying spree with the acquisitions of Connolly Key Joint Pty Ltd, an Australian manufacturer of concrete jointing products; David Hill Concrete Inc, a US manufacturer of ready-mix concrete; Filoform BV, a Dutch manufacturer of underground cable protection products; Granite Precasting & Concrete Inc, a US manufacturer of precast concrete products; Hopkins Concrete Ltd, a UK manufacturer of aggregates and ready-mix concrete; Minimix Concrete Ltd, a UK manufacturer of ready-mix concrete; six concrete plants of Pomponio Srl of Romania; Suntree Technologies Inc, a US manufacturer of storm water treatment products; US Mix Co, a US manufacturer of precast concrete products; and Windsor Rock Products Inc, a US manufacturer of aggregates. CRH has been a very active participant in M&A during previous recessions and expectations are that this will be very much the case in the aftermath of COVID-19.
In turn, the German group HeidelbergCement AG has been undertaking a number of disposals and acquisitions. The latter include Alex Fraser Group Ltd., an Australian manufacturer of asphalt; the Aisemont, Engis and Moha limestone businesses of the Belgian group Carmeuse SA; and Giant Cement Holding Inc, a US manufacturer of aggregates, cement and concrete.
Meanwhile, the Swiss group LafargeHolcim Ltd has been a prominent player following the merger of Holcim AG and Lafarge SA to create the group. The group has undertaken a number of disposals, particularly in Asia, and has also subsequently made numerous acquisitions. The group acquired Alfons Greten Betonwerk GmbH, a German manufacturer of cement and concrete; Kendall Group Ltd, a UK manufacturer of aggregates and ready-mix concrete; Metro Mix LLC, a US manufacturer of ready-mix concrete; the sand extraction division of Sibelco Australia Ltd; Somaco Grup Prefabricate Srl, a Romanian manufacturer of precast concrete products; and Tarrant Concrete Co Inc, a US manufacturer of ready-mix concrete.
newcomers such as the UK group Breedon Group plc are using the opportunity to undertake further consolidation of the market
At the same time, newcomers such as the UK group Breedon Group plc are using the opportunity to undertake further consolidation of the market. The group has acquired multiple businesses including Lagan Group Holdings Ltd, a UK manufacturer of aggregates, asphalt, bitumen, bricks, cement, concrete products, ready-mix concrete and tiles; Roadway Civil Engineering & Surfacing Ltd, a UK manufacturer of asphalt production and provider of contract surfacing services; Staffs Concrete Ltd, a UK manufacturer of ready-mix concrete; and an asphalt plant and four quarries from the Irish group CRH plc. Breedon is also in the process of seeking to acquire the UK operations of Cemex SAB de CV which manufacture aggregates, asphalt, quarry products and ready-mix concrete. The transaction is subject to a review by the UK Competition and Markets Authority.
Another player building up its market presence and benefitting from the corporate reorganisation in the heavyside sector is the UK group Sigmaroc plc. The group acquired Ronez Ltd, a UK manufacturer of aggregates, asphalt, ready-mixed concrete and precast concrete products, from LafargeHolcim Ltd. The group also acquired Carrieres du Hainaut SA, a Belgian manufacturer of limestone products; CCP Building Products Ltd, a UK manufacturer of aggregates, paving and precast concrete products; GDH Holdings Ltd, a UK manufacturer of asphalt and concrete; Poundfield Products Group Ltd, a UK manufacturer of precast concrete products; and Topcrete Ltd, a UK manufacturer of precast concrete products.
Another regular buyer in the building products sector is Compagnie de Saint-Gobain SA which acquired Continental Building Products Inc, a US manufacturer of gypsum wall boards. The group’s others acquisitions include Farecla Products Ltd, a UK manufacturer of surface finishing products; HKO Isolier und Textiltechnik GmbH, a German manufacturer of heat protection and thermal insulation products; the North American ceilings division of the Dutch group Hunter Douglas NV; the Mexican plasterboard division of the German group Knauf GmbH; Kuwait Insulating Material Manufacturing Co, a Kuwaiti manufacturer of insulation products; Logli Massimo SpA, an Italian manufacturer of glass panel systems; Norton Industries Inc, a US manufacturer of ceiling and wall products; Q-Bot Ltd, a UK manufacturer of access and survey robots; the Roofspace room-in-roof division of the UK group SIG plc; and OWA Sonex Ltda, a Brazilian manufacturer of acoustic ceiling products. SIG RoofSpace Solutions, the UK-based offsite manufacturer of panelized room-in-roof system.
Meanwhile, a serial buyer in the US building products sector is Cornerstone Building Brands Inc. The group has acquired Ply Gem Holdings Inc, a US manufacturer of doors, fencing, gutters, mouldings, shutters and windows. Ply Gem had itself previously been a consolidator in the market and the transaction provided an exit for the US PE firms Clayton Dubilier & Rice and Golden Gate Capital.
Cornerstone has also acquired the patio door and vinyl window divisions of the US group Andersen Corp; Environmental Materials LLC, a US manufacturer of stone veneer; and Kleary Masonry Inc, a US manufacturer of stone veneer.
Another acquisitive US group is Masonite International Corp which acquired DW3 Group Ltd, a UK manufacturer of composite doors. The group also acquired the US wood door division of Assa Abloy AB and Bridgewater Wholesalers Inc, a US manufacturer and distributor of wood doors.
Elsewhere in the building products sector, the Swedish group Assa Abloy AB is a regular buyer in the building controls and security products segment. The group’s acquisitions include AM Group Pty Ltd, an Australian manufacturer of roller shutters; Biosite Systems Ltd, UK manufacturer of biometric access control equipment in a transaction which provided an exit for the UK PE firm Mobeus Equity Partners; the identity solutions division of De La Rue plc; Exidor Ltd, a UK manufacturer of door controls and emergency exit equipment which was formerly part of Chamberlin plc; KEYper Systems Inc, a US manufacturer of key storage equipment; LifeSafety Power Inc, a US manufacturer of access control power equipment; and Spence Doors Pty Ltd, an Australian manufacturer of access equipment and doors.
Another expansive European group is the UK group Victoria plc which has been expanding its presence in the flooring and tiling sectors. The group has acquired Ceramica Solani SAU, a Spanish manufacturer of ceramic and porcelain tiles.
M&A activity in the flooring sector has seen the US group Mohawk Industries Inc undertake multiple acquisitions
Further M&A activity in the flooring sector has seen the US group Mohawk Industries Inc undertake multiple acquisitions. The group has acquired Eliane Revestimentos Ceramicos SA, a Brazilian manufacturer of ceramic coatings; Godfrey Hirst Pty Ltd, an Australian manufacturer of carpets and hard surface products; and Koninklijke Peitsman BV, a Belgian distributor of flooring adhesives and sealants.
Also on the acquisition hunt is the Irish group Grafton Group plc which acquired Polvo BV, a Dutch distribution of building products. The group had previously acquired LSDM Ltd, a UK builders merchant and distributor of building products. It also sold its Plumbase division to the UK group Edmundson Electrical Ltd.