| Analysis: What CRH’s purchase of Ash Grove means |
By Kevin Yanik| September 25, 2017
Martin Marietta‘s Ward Nye proclaimed early in the year that 2017 would be the year of the big deal.
Boy, was he right.
On the heels of Vulcan Materials’ acquisition of Aggregates USA and Martin Marietta’s purchase of Bluegrass Materials, CRH, Oldcastle’s parent company, is buying Ash Grove Cement.
The reported price tag for Ash Grove: $3.5 billion. That’s more than the sale prices of Aggregates USA and Bluegrass combined.
“There are only a handful of these mega, publicly traded producers out there,” says George Reddin, managing director at FMI Capital Advisors Inc. “The stock market is treating them well, and they’re taking advantage of growth opportunities they haven’t seen since the crash. They’re going after the big deals.”
For Reddin, one of the biggest takeaways of the Ash Grove deal is how it positions Oldcastle as a major player in the cement industry. Ash Grove is the fifth-largest cement manufacturer in North America, according to Reuters.
Yes, Oldcastle added divested cement assets in North America within the last few years, owing to the LafargeHolcim merger. But those pickups pale in comparison to the volume of cement assets Oldcastle is adding through Ash Grove.
Ash Grove operates eight cement plants across eight U.S. states, along with 52 ready-mixed concrete plants, 25 sand and gravel plants, 20 limestone quarries and nine packaged products plants.
“They’re a cement company in that they’re owned by CRH, which is based in Ireland,” Reddin says. “But in the United States, prior to what Oldcastle picked up with the LafargeHolcim merger, Oldcastle hadn’t been in the cement business. Now, this puts them squarely into the cement business.”
Geographically, Ash Grove makes sense for Oldcastle, which is the cement manufacturer’s top customer.
“When you look at Oldcastle and Ash Grove assets on a map, Ash Grove is present right down the center of the country and in the Pacific Northwest,” Reddin says. “They overlap really nicely with Oldcastle, which should provide for significant operating synergies.”
Ash Grove’s packaged products business is a better fit for Oldcastle than other suitors who were potentially bidding on the company, he adds.
According to Reddin, Ash Grove had not been a significant dealmaker of its own for some time. So the writing may have been on the wall for some entity to swoop in and buy the company, he says.
“We’ve had a thesis about the changing of the ownership of cement assets and the introduction of new players,” Reddin says. “When Lafarge [and] Holcim merged and they had to divest – bringing Oldcastle into the game – this, together with Summit’s expansion, Lehigh Hanson’s acquisition of Essroc, Argos’ expansion and the McInnis Cement Plant coming online really reshuffled the deck in terms of who owns what.
“There’s been some head scratching about what it all means,” he adds. “But now in a significant way, I think having Oldcastle in the cement business changes things because they are a vertically integrated player. I think that’s going to have people scrambling to figure out what it means.”
Reddin anticipates this latest development will spark additional deals – maybe not of the billion-dollar-plus variety, but large deals nonetheless.
“I do think we’re going to see more of the hundred million dollar-plus deals where big power buyers of cement are going to be in demand.”
The CRH-Ash Grove deal likely cranks the heat up on the industry’s other publicly traded companies to keep up with this year’s most progressive dealmakers.
“I’ve got to believe in the public world, the pressure’s intensified to grow and to make major acquisitions,” Reddin says. “This bodes well for major privately owned business that have been thinking about selling.”