As publicly traded construction materials companies reported their second-quarter earnings, one thing became clear: now is as good a time as ever for construction materials companies to pursue mergers and acquisitions.
Increased macroeconomic certainty, a game plan for predictable earnings growth and a strong probability for interest rate cuts are key reasons why the industry is engaging in acquisitions.
Despite lower sales volumes, many construction materials firms reported strong pricing trends and robust earnings. These trends translate into free cash flow generation, which is being put to work in M&A activities.
In fact, several C-suite executives from the public construction materials players are even describing the current M&A market as historic. For example, take these comments:
• Knife River president and CEO Brian Gray: “In my career at Knife River for 31 years, this is the healthiest pipeline of opportunities that I’ve seen.”
• Vulcan Materials chairman and CEO Tom Hill: “We’ll close on some more meaningful acquisitions in the near future … but it’s a busy season for acquisitions.”
• Martin Marietta chairman and CEO Ward Nye: “[T]he pipeline continues to look attractive.”
• CRH CFO Jim Mintern: “Over the next five years … we expect to have the capacity to allocate up to $24 billion … towards acquisitions and growth capex.”
In summary, the market is prime for sellers looking to maximize the value of their assets in an M&A process. Conversely, buyers should seize opportunities to strengthen their market position to avoid falling prey to the “eat or be eaten” adage.
M&A
There was a flurry of transactions throughout the first half of 2024.
The year began strongly with the acquisition of Gorman Brothers, which was quickly followed by Martin Marietta’s purchase of 20 aggregate operations from Blue Water Industries. More recently, Arcosa entered into a definitive agreement with Stavola, a New York-New Jersey aggregates and hot-mix asphalt (HMA) producer, for $1.2 billion.
The market has also seen strategic bolt-on deals. CRH acquired both BoDean Co. and Ary Corporation. Vulcan strengthened its position in Alabama by acquiring Whitaker Contractor, an aggregate and HMA producer/paver. Granite Construction entered into a definitive agreement with Dickerson & Bowen, an aggregate, HMA and highway construction company in Mississippi.
These are just a few of the year’s highlights, and they come on the heels of a bevy of transactions that were completed in late 2023 and carried into 2024. Favorable operating performances and market dynamics should continue to fuel this “bull market” for construction materials M&A.
Higher prices and lower volumes
Strong pricing momentum and lower volumes continue to be a theme for the second quarter of 2024.
Part of this trend is by design for public construction materials companies. Firms would rather sell less product at a higher price – as long as the result is a boost to the bottom line.
Anne Noonan, CEO of Summit Materials, reaffirmed this outlook when she stated that the company is “not reliant on volume” and there will be “traction from [its] midyear pricing actions.”
For Knife River, Gray detailed how the “average selling price for ready-mix went up 11 percent and … 12 percent less yardage [went] out, and so this is [a] classic case of quality of work over quantity and less is more.”
Still, to combat the shrinking volumes, several firms have turned to M&A to boost demand.
“The increase in materials revenue was primarily due to acquired businesses, as well as increased sales prices, offsetting lower volumes,” says Lisa Curtis, CFO of Granite.
Shrinking volumes in the face of strong demand can somewhat be blamed on climate, as inclement weather slowed volumes in several parts of the nation.
As Vulcan’s Hill explains: “Unfavorable weather conditions … impacted our shipments and operating efficiencies, [but] even in the face of lower aggregate shipments and weather-driven inefficiencies, our teams delivered a seventh consecutive quarter of double-digit, year-over-year improvement in aggregates unit profitability.”
