Although construction materials industry acquisitions aren’t being completed in 2023 like they were a year ago, they are still getting done at a healthy rate.
Based on FMI Capital Advisors’ tabulation, 27 construction materials deals were completed in the first half of 2023. That total is down from the first halves of 2022 (36) and 2021 (32), but it’s up significantly from the first halves of 2020 (9) and 2019 (17).
Cody is well aware of the rate of dealmaking, and he says there’s at least one thing all transactions have in common.
“The acquisitions you see happening out there are all done with leverage (debt),” Cody says. “Everybody’s borrowing money to be able to do acquisitions.”
According to Cody, this dynamic is one Kraemer’s owners are more comfortable with than most.
“Calculating and modeling risk is something our team and owners can do in our sleep,” Cody says of Kraemer and Peterson. “It doesn’t scare us. It doesn’t bother us. It’s a world we are used to given our backgrounds. When you start to look at an acquisition, one of the scariest things is if it goes wrong. If it does, it might not just be your job, but it might be the company at stake.
“That is risk of any sizable acquisition,” he adds. “But getting comfortable with that is something we’re extremely capable of.”
Today’s higher-interest rate environment certainly makes buyers think a little more before pulling the trigger. But Cody says today’s environment provides opportunities for buyers that a low-interest rate environment would not.
“If you wait for interest rates to go down, you’re essentially going to be facing a lot more competitors,” he says.
On the flip side, Cody says every seller has a different perspective about when the time to deal is right.
“You have to find them at the right time, but there’s not a universally right time – it’s unique to each owner,” he says. “The ideal time is when someone’s sitting there and they’re at that point where they’re probably not too comfortable leveraging money to grow the business through new PP&E or acquisitions – especially in this environment. Do they want to be borrowing money at the percentage rates we’re seeing today? Do they want to continue to deal with inflation impacting their margins? Or, is this the right time to cash out and enjoy the next phase of their life?
“Owning and running a quarry is a highly demanding lifestyle,” Cody adds. “In my experience, most owners are used to it but are open to moving away if the money is right. In this business, you develop a discipline to meet that high demand, and it’s hard to picture your life without that constant workload in front of you every day. The beauty of M&A in aggregates is that you have the opportunity to help an owner that has worked themselves to the bone building a business to retire and finally relax and hopefully get to enjoy their families and hobbies that they worked so hard for.”
In other cases, those who own a business might realize they can make more money or have an improved work-life balance through another means.
“I’ve met a lot of owners who got into aggregates just because they found rock underneath the ground on their property,” Cody says. “That property was doing something else before. It might have been a farm or a ranch, and they’re sort of into the aggregate business because there was aggregate under the ground, and they heard there was money in that.
“You might enable one of those owners to do more farming or ranching by buying out that business,” he adds.
Similarly, buyers must know their core competency. For Kraemer, Cody says its strength is aggregates.
“At the end of the day, we understand our market really well,” he says. “We consider ourselves experts when it comes to making big rocks into little rocks. If something came up that made sense in the market, we would definitely dive right into it. But we’re not going downstream.”
A solid foundation is a must, though. As Cody says, Kraemer’s operational excellence is a foundation on which the company can grow.
“I know enough about Luck Stone to know that location and operations were really their strength early on,” he says. “They developed a strong reputation in the markets they were in, and they leveraged that positive reputation to do it over and over again. If you think about it, that’s a really great path forward for us.
“I think we would be a little bit different than a Luck Stone in the sense that you don’t have as many strong metro areas in Minnesota as you do in Virginia,” he adds. “We’ll probably have to step outside the state a little bit, but like Luck I would try to use our relationships, growth and reputation to help us grow into new locations.”
