Sep 13, 2022

Rock Products Market Update: Strategic Buyers Continue to Drive a Resilient Aggregates M&A Market

Aggregates SectorStrategic Buyers Continue to Fuel Aggregates Sector While Fundamentals For Long-Term Demand Remain Sound

Capstone Partners released its September 2022 Rock Products Sector Update, reporting that robust construction backlogs and persistent nonresidential and residential building activity have supported healthy demand in the Aggregates sector amid mounting economic uncertainty. While elevated inflation and financing costs have impacted the profitability of sector players, strong project pipelines have supported near-term optimism.

The prospect of a recession has clouded the immediate operating performance forecasts for many sector participants but the fundamentals for long-term demand remain sound. Aggregates-intensive projects, including data centers and warehouses, have continued at a healthy pace with a strong uptick in domestic manufacturing facilities construction.

Merger and acquisition (M&A) activity in the Aggregates sector has continued at a rapid pace, undeterred by a backdrop of economic uncertainty. Year-to-date (YTD) M&A volume amounted to 72 transactions announced or completed, which marks a 28.6% year-over-year (YOY) increase. Sector players with strong margins, a healthy capital structure, and a firm grasp on labor and supply chains have continued to experience robust buyer demand.

Strategic buyers accounted for 79.2% of YTD transactions and have continued to facilitate divestitures to focus on core, high margin capabilities. These asset sales are often met with strong buyer demand as sector participants have actively sought to increase capacity through inorganic growth. Notably, Martin Marietta (NYSE:MLM) sold its Tehachapi, California cement plant and related distribution terminals to CalPortland for an enterprise value of $350 million in August. Private equity buyers have comprised the remaining 20.8% of YTD transactions, attracted to category leaders with a track record of growth. Elvisridge Capital recently announced its second acquisition in the Decorative Concrete and Hardscape market, purchasing Innovative Concrete Technology in July for an undisclosed sum.

Valuations among public companies in the Aggregates sector have fallen compared to the prior year, with the average last twelve month (LTM) EBITDA trading multiple declining to 9.3x from 10.5x. Often, this can be viewed as a harbinger of lower pricing in M&A markets, however, M&A valuations have held steady through YTD.

Also included in this report:

  • How public aggregates players have performed through YTD 2022.
  • Key takeaways from select notable acquisitions by strategic buyers.
  • Breakdown of aggregate materials volume and pricing through Q1 2022.

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