ROCK PRODUCTS Q3 2018

Transcription

1 Rock Products Q ROCK PRODUCTS Q TABLE OF CONTENTS Public Company Commentary Aggregates Performance M&A Overview Private Equity Activity Company Spotlight Notable Transaction Construction Materials Update Aggregate Materials Firm Track Record CONTRIBUTORS Darin Good Managing Director Brian Krehbiel Senior Vice President Crista Gilmore Vice President Dominic Cervi Vice President In this quarterly report, provided exclusively for Rock Products, Capstone Headwaters provides insight into mergers & acquisitions (M&A), capital markets trends, aggregates production, and pricing through Q Capstone Headwaters' Building Products & Construction Services Team advises industry business owners, entrepreneurs, executives, and investors in the areas of M&A, capital raising, and various special situations advisory. Due to our extensive background and laser focus within the industry, Capstone Headwaters is uniquely qualified and has an unparalleled track record of successfully representing Building Products & Construction companies. PUBLIC VALUATION COMMENTARY Capstone Headwaters Aggregates Materials Index indicates that average public company EBITDA multiples declined from 14.4x at the end of Q to 12.9x at the end of Q Although average revenue increased from Q2, EBITDA increased at a slower pace reducing the average EBITDA margin by 10 basis points to 17.6%. Public Valuation Multiples US Dollars in Millions EBITDA Enterprise Value/ Company Name TEV Revenue EBITDA Margin Revenue EBITDA LafargeHolcim Ltd. $44,311 $26,656 $1, % 1.7x 34.5x CRH Plc $37,602 $30,054 $3, % 1.3x 10.1x Cemex SAB de CV $24,107 $14,452 $2, % 1.7x 9.3x HeidelbergCement AG $28,109 $21,035 $3, % 1.3x 9.0x MDU Resources Group, Inc. $6,890 $4,487 $ % 1.5x 11.1x Vulcan Materials Company $17,824 $4,272 $1, % 4.2x 16.6x Martin Marietta Materials, Inc. $14,652 $4,195 $1, % 3.5x 13.6x Buzzi Unicem S.p.A. $4,331 $3,174 $ % 1.4x 7.2x Summit Materials, Inc. $3,812 $2,100 $ % 1.8x 9.5x Eagle Materials Inc. $4,676 $1,419 $ % 3.3x 11.1x U.S. Concrete, Inc. $1,485 $1,478 $ % 1.0x 9.4x Mean $17,592 $10,302 $1, % 2.1x 12.9x Median $14,652 $4,272 $1, % 1.7x 10.1x *TEV = Total Enterprise Value (Market Capitalization + Net Debt) Source: FactSet and Capital IQ 1 December 2018

2 AGGREGATES PERFORMANCE Down Aggregate Materials Index Up S&P % 10.6% 30% 20% 10% 0% -10% -20% Total Return Comparison Through Q Up 7.0% Dow Jones Industrial Average Dow Jones Industrial Average S&P 500 Aggregate Materials Index Source: FactSet Capstone Headwaters Aggregates Materials Index has significantly underperformed the S&P 500 and the DJIA, declining 14.0% through Q3. M&A OVERVIEW Preliminary estimates of total acquisition activity in Q demonstrate a decrease of 7.1% compared to the same period in 2017 in terms of the number of aggregates related transactions completed (26) in the US and Canada. Transaction activity was down 27.8% compared to Q2 2018, an above average quarter, but overall M&A activity in the sector remains robust. Publicly traded aggregates producers were notably active during the quarter including CEMEX, LafargeHolcim, U.S. Concrete, and Oldcastle. Select Q Industry M&A Activity Transaction Date Target/Issuer Buyers/Investors Transaction Value ($mm) 09/19/18 Palmer Paving Corporation Peckham Industries, Inc. Undisclosed 09/12/18 Blue Star Materials II (Aggregates Quarry in Texas) CEMEX Undisclosed 09/06/18 Leon River Aggregate Materials U.S. Concrete, Inc. Undisclosed 09/06/18 Fabcon Incorporated Solace Capital Partners Undisclosed 09/03/18 Concrete Specialties, Inc. Oldcastle Infrastructure $ /31/18 Cajun Ready Mix, Ltd. Ingram Readymix, Inc. Undisclosed 08/20/18 Asphalt Plants & Paving Division of Lane Construction Eurovia (SA) $ /02/18 Assets of Metro Mix, LLC LafargeHolcim Ltd (SWX:LHN) Undisclosed 07/16/18 Molalla Redi-Mix and Rock Products, Inc. Knife River Corporation Undisclosed 07/03/18 Tarrant Concrete Company, Inc. LafargeHolcim Ltd (SWX:LHN) Undisclosed Source: FactSet and Capital IQ 2

3 PRIVATE EQUITY TRANSACTION ACTIVITY & 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 200 private equity firm contributors on the number of completed transactions. The following chart 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 the number of transactions completed rebounded closer to historical levels while average valuation multiples were relatively flat and senior debt levels declined slightly. Private Equity Valuations & Leverage # of Transactions TEV/EBITDA Total Debt/EBITDA Senior Debt/EBITDA Q Q Q Q Q Q Q Q Q x 6.8x 6.6x 7.2x 7.5x 8.0x 6.7x 7.4x 7.3x 3.8x 3.7x 4.0x 4.2x 4.4x 4.3x 4.1x 3.9x 3.8x 3.2x 2.8x 3.0x 3.6x 3.6x 3.4x 3.3x 3.2x 2.8x Source: GF Data COMPANY SPOTLIGHT Ownership: Publicly Traded (Ticker: SWX:LHN) Headquarters: Jona, Switzerland Markets: Construction Materials LTM Revenue: $26.7 Billion Company Description: Net sales for LafargeHolcim, on a year-over-year basis, grew 5.8% in Q3 and 5.1% through the first nine months of All four business segments (cement, aggregates, ready-mix concrete, and solutions & products) contributed to the sales increase. Recurring EBITDA growth outpaced sales with a 8.1% increase in Q3, overcoming steep cost inflation in energy and logistics through volume growth and the effectiveness of its pricing and efficiency programs. The LafargeHolcim Q3 earnings report offered the following outlook: The accelerated sales growth and over-proportional increase in Recurring EBITDA demonstrates the strength of Strategy 2022 Building for Growth. This positive momentum is expected to continue in Q4, supported by the following underlying market trends: ContinuedgrowthinNorthAmerica Softer cement demand in Latin America Strong markets in Europe Challenging but stabilizing conditions in Middle East Africa Continued demand growth in Asia Based on the above trends and positive momentum, the net sales guidance for 2018isadjustedupwardsto4.0%to6.0%ona like-for-like basis (compared to 3.0% to 5.0% as previously guided). 1 3

4 COMPANY SPOTLIGHT (CONTINUED) Ownership: Publicly Traded (Ticker: BIT:BZU) Headquarters: Casale Monferrato (AL), Italy Markets: Construction Materials LTM Net Sales: $3.2 Billion Company Description: Buzzi Unicem reported a 3.1% increase in cement volume through Q3 while ready-mix concrete was down 1.8% compared to the prior year period. In the first nine months of 2018, sales volumes were higher than the level achieved in the previous year due to changes in the scope of consolidation in Italy and Germany and the progress achieved in the Czech Republic, Poland, and Russia. The US market was negatively impacted by unprecedented rainfall, especially in September, and activity in Ukraine was significantly lower than in the prior year. In the US, cement deliveries ran smoothly until August, but record levels of rainfall throughout the month of September in the Northeast, Texas, and parts of the Midwest resulted in some of the lowest production figures on record while YTD revenue declined 7.2% compared to the prior year period. 2 NOTABLE TRANSACTION Eurovia acquires Asphalt Plants & Paving Division of The Lane Construction Corp. (August 2018, $555.0 Million) Acquires Asphalt Plants & Paving Division of Eurovia, a subisidary of VINCI (ENXTPA:DG), signed an agreement with Salini Impregilo Group to acquire the Asphalt Plants & Paving division of its subsidiary Lane Construction, for a total consideration of $555.0 million. These operations, based in 10 states on the East Coast and in Texas, generate over $600.0 million in annual revenue and include approximately 40 asphaltproduction plants and several quarries. The acquisition complements Eurovia s current operations in the United States where its subsidiaries Hubbard Construction and Blythe Construction operate in the Southeastern states of Florida, Georgia, and North and South Carolina. As a result of this acquisition, which is subject to regulatory approval in the United States, Eurovia will become one of the larger asphalt producers on the East Coast with total revenue of about $1.2 billion. 3 4

5 CONSTRUCTION MATERIALS UPDATE Construction input prices increased 0.3% in September and are up 7.4% 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. Producer Price Index Percent Change Inputs to Construction Industries (October 2015 September 2018) 9.0% 7.0% 5.0% 3.0% 1.0% -1.0% -3.0% -5.0% One Month % Change 12 Month % Change Source: US Bureau of Labor Statistics AGGREGATE MATERIALS Industry results in Q showed increases in volume compared to the same period in 2017 for cement (2.5%), crushed stone (3.6%), and sand & gravel (7.4%). Additionally, ready-mix concrete and asphalt both experienced increases in prices when compared to the prior year period. Cement 4 Portland cement consumption (24.2 million metric tons) increased 2.5% year-over-year in Q The average net selling price per ton for Martin Marietta and Eagle Materials in Q3 was $109.1, an increase of 0.2% over the prior quarter and a 1.9% increase over the same period in Millions of Tons US Cement Production $115 $110 $105 $100 $95 $90 Price Per Ton 0 $85 Cement Volume Cement Price Source: US Geological Survey 5

6 Ready-Mix Concrete (RMC) RMC prices increased 4.0% in Q and were up 3.3% when compared to Q 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. Millions of Cubic Yards US Ready-Mix Concrete Production $122 $114 $106 $98 $90 $82 Price Per Cubic Yard Ready-Mix Concrete Volume Ready-Mix Concrete Price Source: NRMCA Industry Data Survey, Average RMC selling price of US, Concrete, Vulcan Materials, Martin Marietta Materials & Eagle Materials Asphalt Asphalt prices increased 1.6% in Q as measured by the average net asphalt selling prices of Vulcan Materials and Martin Marietta. Asphalt prices increased 3.3% when compared to Q Asphalt volume is not tracked on a quarterly basis. Millions of Tons US Asphalt Production $54 $50 $46 $42 $38 Price Per Ton 260 $34 Asphalt Volume Asphalt Price Source: EAPA Asphalt in Figures, Vulcan Materials & Martin Marietta Materials average of net asphalt selling prices Crushed Stone 4 An estimated million metric tons of crushed stone was produced and shipped to the US for consumption in Q Crushed stone production in Q increased 3.6% compared to Q Pricing data specific to crushed stone production is not available on a quarterly basis. Millions of Tons 1,500 1, US Crushed Stone Production $11.5 $11.1 $10.7 $10.3 $9.9 $9.5 Price Per Ton Crushed Stone Volume Crushed Stone Price Source: US Geological Survey 6

7 Sand & Gravel 4 Sand & gravel production in Q increased 7.4% year-over-year, the fifth consecutive quarterly increase when compared to the same period the prior year. Pricing data specific to sand & gravel production is not available on a quarterly basis. Millions of Tons 1, US Sand & Gravel Production $9.0 $8.6 $8.2 $7.8 $7.4 Price Per Ton 0 $7.0 Sand & Gravel Volume Sand and Gravel Price Source: US Geological Survey CITATIONS 1. Accelerated growth momentum with +5.8% in Net Sales LFL in Q3; Over-proportional increase in Recurring EBITDA of +8.1% LFL, accessed December 10, Operating Performance at September 30, 2018, accessed December 10, Eurovia, Eurovia signs an agreement with Salini Impregilo Group to acquire the Asphalt Plants & Paving business of Lane Construction in the United States, accessed December 10, US Geological Survey, accessed December 18, Disclosure: This report is a periodic compilation of certain economic and corporate information, as well as completed and announced merger and acquisition activity. Information contained in this newsletter should not be construed as a recommendation to sell or buy any security. Any reference to or omission of any reference to any company in this newsletter should not be construed as a recommendation to buy, sell or take any other action with respect to any security of any such company. We are not soliciting any action with respect to any security or company based on this newsletter. The newsletter is published solely for the general information of clients and friends of Capstone Headwaters. It does not take into account the particular investment objectives, financial situation or needs of individual recipients. Certain transactions, including those involving early-stage companies, give rise to substantial risk and are not suitable for all investors. This newsletter is based upon information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied upon as such. Prediction of future events is inherently subject to both known and unknown risks and other factors that may cause actual results to vary materially. We are under no obligation to update the information contained in this newsletter. Opinions expressed are our present opinions only and are subject to change without notice. Additional information is available upon request. The companies mentioned in this newsletter may be clients of Capstone Headwaters. The decisions to include any company in this newsletter is unrelated in all respects to any service that Capstone Headwaters may provide to such company. This newsletter may not be copied or reproduced in any form, or redistributed without the prior written consent of Capstone Headwaters. The information contained herein should not be construed as legal advice. 7

8 ROCK PRODUCTS REPORT CONTRIBUTORS Darin Good Managing Director Darin is a recognized expert witness and speaks nationally regarding merger and acquisitions. Courts and clients appreciate his ability to synthesize large amounts of complex business information and present it in concise terms that are clearly understood by all parties. Trade groups and national publications have recognized Darin s business acumen and technical knowledge. Prior to joining Capstone Headwaters, Darin started, operated, made acquisitions and sold three successful companies in construction, import and distribution, and commercial real estate management. Over a two year period, he implemented the turnaround of the underperforming business units of a publicly held national franchisor. Two sell side transactions that Darin performed are published and taught in business schools around the globe. Darin teaches these cases at the University of Denver, where he received his Bachelor of Science in Finance. Brian Krehbiel Senior Vice President bkrehbiel@capstoneheadwaters.com Prior to joining Capstone Headwaters in 2011, Brian spent five years with a boutique investment bank performing sell-side transactions, financial modeling and value-add client services. At Capstone Headwaters, Brian is a member of the Building Products & Construction Services team assisting clients with sell-side, buy-side and debt and equity raise transactions. Prior to his career in Investment Banking, Brian developed construction industry and operations experience owning and managing a successful family-owned residential construction company. His education and industry expertise are resources used in all aspects of the transaction process. Brian graduated from the University of Northern Colorado with a BS degree in Finance and he is a CFA Charterholder. Crista Gilmore Vice President cgilmore@capstoneheadwaters.com Crista started her career at KPMG LLP where she audited a wide range of businesses from small nonprofit to large Fortune 100 companies. Crista then accepted a Senior Associate role with a $12 billion multi-strategy hedge fund managing the monthly PnL close process for several funds. She was promoted to Vice President, Valuations responsible for pricing the portfolio of over 8,000 securities monthly, as well as reporting to the Valuation Committee on a bi-monthly basis. At Capstone Headwaters, Crista works with clients to improve their financial metrics and reporting capabilities. Additionally, she performs research, valuation analysis, prepares marketing documentation, manages client data rooms and responds to due diligence inquiries. Crista graduated summa cum laude from Drake University with a degree in Finance and Accounting. She also earned a Master s of Accounting degree from Drake University and is a CFA Charterholder. 8

9 ROCK PRODUCTS REPORT CONTRIBUTORS Dominic Cervi Vice President Dominic has spent the entirety of his investment banking career with Capstone Headwaters, primarily focusing on sell-side M&A. In addition to 2017 s Cross Border Deal of the Year, Dominic has executed deals ranging from $30mm to $200mm across a wide-range of industries, including Industrial Manufacturing, Industrial Technology, Transportation & Logistics, TMT and Healthcare & Life Sciences. Dominic s primary responsibilities are creating process materials, performing financial and operational analysis, data room population and management as well as coordinating management presentations. Prior to joining Capstone Headwaters, Dominic was a professional soccer player with the United States Soccer Federation, including as a member of the 2008 Beijing Olympic Games, and the Celtic Football Club. Dominic graduated cum laude from the University of Denver with a degree in Finance and Accounting. SELECT CAPSTONE HEADWATERS BUILDING PRODUCTS & SERVICES TRANSACTIONS a portfolio company of a portfolio company of has performed a majority recapitalization has been recapitalized in partnership with Beirne Pipeline Holdings Axis Private Equity Group Navigator Partner has been recapitalized with US MIDDLE MARKETS INVESTMENT BANK OF THE YEAR US GAMECHANGER OF THE YEAR US DEBT FINANCING ADVISORY OF THE YEAR MIDDLE MARKET INVESTMENT BANK OF THE YEAR 9

10 BUILT FOR THE MIDDLE MARKET UNITED STATES 160+ professionals 17 offices Boston Boise Burlington Chicago Dallas Denver Greenwich Houston Los Angeles New York Orange County Philadelphia San Diego San Francisco St Louis Tampa Washington DC INTERNATIONAL 300+ professionals 37 offices in 33 countries Argentina Belgium Brazil Canada Chile China Colombia Croatia Czech Republic Denmark Egypt Finland France Germany Hungary India Ireland Italy Japan Mexico Morocco Netherlands Norway Peru Poland Russia Spain Sweden Switzerland Turkey United Arab Emirates United Kingdom Vietnam Capstone Headwaters is an elite investment banking firm dedicated to serving the corporate finance needs of middle market business owners, investors and creditors. Capstone Headwaters provides merger & acquisition, private placement, corporate restructuring and financial advisory services across 16 industry verticals to meet the life cycle needs of emerging enterprises. Headquartered in Boston, MA and Denver, CO, Capstone Headwaters has 19 offices in the US, UK and Brazil with a global reach that includes over 300 professionals in 33 countries. 12