Rock Products and Aggregates Industry Market Update – July 2023

Favorable Price Environment and Steady Demand Propel Aggregates Industry

Capstone Partners released its July 2023 Rock Products Industry Update, reporting that steady construction backlogs, robust employment growth, and defensible gross margins have allowed the Aggregates industry to remain largely insulated from an aggressive monetary tightening campaign and persistent levels of inflation. While near-term uncertainty has lingered for the broader economy, aggregates providers have benefited from a high degree of demand visibility—evidenced by construction backlogs remaining elevated in June at 8.9 months, according to Associated Builders and Contractors (ABC).

Many market participants forecasted the rapid succession of interest rate hikes would suppress the labor market for construction workers. However, the Construction industry has continued to expand its workforce, adding 23,000 jobs in June with total employment rising 2.6% over the past year, according to ABC. Despite forecasts for a downturn in the near-term, contractors expect staffing levels, sales, and profit margins to expand over the next six months.

Merger and acquisition (M&A) volume in the Aggregates space has moderated through year-to-date (YTD) 2023 as many prospective sellers have awaited further market clarity before engaging in a liquidity event. At the halfway point in 2023, M&A activity has declined 19.4% year-over-year (YOY) to 50 transactions. Strategic buyers have overwhelmingly driven consolidation activity, accounting for 84% of total M&A volume, with private strategics comprising 60% of transactions. Public sector participants have also been active in M&A markets both as acquirers and through divesting non-core assets or operations. Sector players are expected to continue to employ inorganic growth strategies to gain operational efficiencies, geographic penetration, and enhanced product offerings.

Financial buyers have been increasingly selective in their acquisition pursuits amid a heightened cost of capital and uncertainty in projecting cash flows. Through YTD, private equity acquirers have accounted for 16% of total transactions, a significant decline from 29% in 2022. However, quality sector participants have continued to draw interest from the sponsor community.

Also included in this report:

• How public companies in the space have performed compared to the broader market.
• Insights to aggregate materials prices and volume.
• Commentary from senior bankers on the state of the sector and outlook for M&A activity.

Capstone Partners’ Building Products Investment Banking Team provides M&A, capital formation, and financial advisory services to the owners of middle market businesses in the Rock Products and Aggregates Industry. Our team partners with leading mid-to-large sized businesses that serve growing end-markets.

For more information on the Aggregates Industry Market trends featured in this report or to speak with one of our Building Products M&A Team members about how to grow, value, and/or sell your company, we are here to help. Contact us today.