Feb 6, 2024

Rock Products and Aggregates Industry Market Update – February 2024

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Aggregates IndustryStrategics Drive M&A Transaction Activity in the Aggregates Industry to Close 2023

Capstone’s latest Rock Products and Aggregates Industry Market Update reports that a favorable pricing environment and steady demand for aggregates-intensive projects have fueled growth in the Aggregates industry through year end. Leading public companies have captured elevated revenues through year-to-date (YTD) and cost control initiatives have yielded healthy levels of profitability. Leading aggregates and heavy building materials supplier, Martin Marietta (NYSE:MLM), grew gross profit in its Aggregates segment by 32.1% year-over-year (YOY) in Q3, supported by a 20% increase in prices, according to its earnings release. Martin Marietta’s Cement segment experienced a similar trend with gross profit rising 61.5% YOY as pricing growth of 18.9% YOY offset relatively flat shipments. The pricing power of leading Aggregates players has demonstrated the sector’s defensibility—with large players able to capture outsized profit growth despite lower volume levels. Moving into 2024, substantial infrastructure funding and healthy state and local budgets are expected to drive continued demand for Aggregates sector players.

Construction backlogs have remained healthy approaching year-end, rising to 8.5 months in November from 8.4 months in October, according to Associated Builders and Contractors. However, compared to the prior year, backlog levels have fallen 0.7 months. While the Commercial and Institutional and Heavy Industrial segments have registered declines in contracted work YOY, the Infrastructure segment has benefited from robust project visibility. In November, Infrastructure backlogs rose 1.2 months YOY to 7.9 months.

Despite elevated interest rates, contractors expect sales, profit margins, and staffing levels to expand over the next six months—supporting sector optimism heading into the new year. Sector players are expected to continue to actively manage their business portfolio to drive efficiencies, which is likely to provide ample merger and acquisition (M&A) opportunities. Privately-owned players with strong gross margins, substantial revenue visibility, and a footprint in attractive regions, are poised to continue to garner buyer interest.

M&A volume in the Aggregates industry has moderated through YTD 2023, falling 35.7% YOY to 83 transactions announced or completed. An elevated cost of capital has encouraged greater discipline and selectivity among buyers in their acquisition pursuits. However, favorable infrastructure spending and the need for aggregates-intensive projects have contributed to steady cash flows for many potential target companies. As valuable construction bidding opportunities have continued to come to market, sector players have recognized the need to scale capabilities, often through inorganic growth.

Also included in this report:

• Discussion of strategic and financial buyer transaction activity in the current market.
• Insights into notable large-scale transactions in the space completed by sector players.
• Recent data on aggregate materials pricing and volume.

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.

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