Brian BollenIreland-based CRH plc, the international building materials group, has this morning reported that it has reached an agreement to acquire Ash Grove Cement Company of Kansas, USA. Total consideration is US$3.5bn, says CRH. The proposed transaction is subject to Ash Grove shareholder and regulatory approvals.
It will be financed through existing financial resources. The transaction is expected to close around year end 2017.
This is the second time in a matter of weeks that CRH has hit the headlines for its acquisition strategy. In August, it agreed to sell its Americas Distribution business to Beacon Roofing Supply for $2.63bn in cash after it had been part of the CRH Group for more than 20 years.
Construction project in Texas, courtesy of CRH
Growth strategy
That business has traditionally executed a growth strategy based on focused acquisitions, selective greenfields and investments in private label products. But as reported here at the time, the absence of value accretive acquisitions and a lack of visibility re a route to market leadership tipped the balance in favour of a disposal.
At the same time, CRH’s Europe Heavyside business agreed to acquire Fels, a German lime and aggregates business, for €0.6bn (enterprise value).
Ash Grove in brief
- Ash Grove is a US cement manufacturer headquartered in Overland Park, Kansas
- CRH chief executive Albert Manifold says it is an excellent addition to its portfolio of businesses across North Americas as the company looks to deploy its resources into high quality businesses.
- Ash Grove operates eight cement plants across eight US states
- Ash Grove has ready mixed concrete, aggregates and associated logistics assets across the US midwest
- Ash Grove reported profit before tax of $215m and gross assets of $2.5bn for the year ended 31 December 2016
Charlie Sunderland, chairman of the Board of Ash Grove, said that CRH is his company's biggest customer. It has enjoyed a close and highly productive relationship with Ash Grove for many decades. He adds that the board of directors believes CRH will be able to bring Ash Grove on the next phase of its development after 135 years in operation.
The view from Davy
Dublin-based stockbroker Davy Group, which follows CRH closely, said in a rapid reaction note from researchers Robert Gardiner and Barry Dixon that the proposed acquisition is further evidence of its strong capital discipline and relentless focus on return on capital.
“Having recently sold its Allied Distribution business for an EBITDA (earnings before interest, tax, depreciation and amortisation) multiple of circa 16x, it now appears to be recycling this capital into a higher margin business at a much lower multiple,” said Davy.
“It is also investing in a business where it has significant synergy and growth potential, which could improve returns even more. This effective recycling of capital should result in a structural improvement in the group’s returns over time.
“At an EV/IC (enterprise value/invested capital) multiple of under 1.5x, this potential is not reflected in CRH’s valuation,” it added. “We reiterate our ‘outperform’ stock rating.
Share price impact
The CRH share price rose on the news, by 3.13% (79 pence) in London and by 3.79% (€1.06) in Dublin. A corporate video is available here. Ash Grove says that JP Morgan Securities LLC is serving as its financial adviser. The legendary firm of Skadden, Arps, Meagher & Flom LLP is serving as its legal adviser.
