May 31, 2022

Rock Products Market Update: Robust Aggregates Sector Demand Fuels Strong M&A Market

Rock Product Market UpdateM&A Activity In The Rock Products Sector Has Continued To Outpace The Prior Year

Capstone Partners released its May 2022 Rock Products Update, reporting that surging demand in the Aggregates sector has continued through year-to-date (YTD) 2022, uninterrupted by rising interest rates and persistent labor shortages as total construction spending increased 11.7% year-over-year (YOY) in March, according to the U.S. Census Bureau. While the sector has encountered challenges with elevated materials and transportation costs, healthy construction backlogs and favorable aggregates pricing have driven top line growth for leading players.

Merger and acquisition (M&A) activity in the Aggregates sector has continued to outpace the prior year with 52 transactions announced or completed YTD. Private strategic buyers have dominated M&A volume, accounting for 61.5% of total 2022 transactions as sector players have leveraged inorganic growth to scale operations and penetrate new geographies. While private equity firms have accounted for a modest 21.2% of transaction activity, sponsors have nearly surpassed last year’s total M&A count with 11 transactions to-date compared to 13 in all of 2021. In addition, Building Products has recently become one of the most desired markets for private equity firms within Capstone’s network.

Following elevated M&A valuations across the middle market in 2021, many sectors have noted declines in pricing through YTD 2022, potentially signaling the beginning of a shift to a buyer’s market. However, M&A purchase multiples in the Aggregates sector have remained healthy, with the average EBITDA multiple spanning 2019 to YTD 2022 amounting to 9.5x EV/EBITDA. At the middle market level, characterized by transactions below $500 million in enterprise value, the average sector multiple has stood at a robust 8.7x EV/EBITDA, outperforming the broader Building Products & Construction Services industry valuation of 7.9x EV/EBITDA, according to Capstone Partners’ Middle Market M&A Valuations Index.

Also included in this report:

  • Commentary on notable public company activity
  • Expansive pricing and volume data for aggregate materials through 2021
  • Insights from Capstone bankers on the sector’s outlook and M&A trends

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