Audax Group. Park Avenue Equity Partners. ShoreView Industries. These are some of the biggest names in today's concrete industry, but you won't find them painted on a ready-mix drum. That's because one of the world's most plentiful building materials has caught the eye of a group of people far away from dusty jobsites: private investors.
Managers of building material companies have used strategic acquisitions to strengthen their bottom lines since before cement was sold in bags. A producer buys a smaller one, streamlines the operation, and eventually enjoys bigger margins. It was only a matter of time before bankers decided they could do it just as well. Or even better.
The arrival of private equity groups was not new in 2006. Investors were already making blips on the radar screen with acquisitions in 2003. Now, we are realizing how far and wide the ripple effects of these deals can reach.
One of these ripples began in Boston and reached clear to Colombia, sweeping through North Carolina on the way. In late 2004, the Audax Group, a private equity firm, bought the Ready Mixed Concrete Co. (RMCC) in Raleigh, N.C. With operations in the Carolinas and Virginia, RMCC proved to be a lucrative investment. Audax resold the company to Cementos Argos in March 2006 for $435 million, about twice the original purchase price.
Another occurred in New York in 2005, when Park Avenue Equity Partners bought Meyer Material Co, a ready-mix and aggregates producer near Chicago. It ended when Aggregate Industries, a subsidiary of Holcim, bought Meyer in July 2006 as a foothold for new growth in the Midwest. (Recently, Park Avenue also acquired Coastal Concrete in Bluffton, S.C.)
An intriguing industry
Concrete professionals, including some who have made a career in the industry, might scratch their heads and ask, what makes private equity firms think they know about concrete operations? Can pencil-pushers really understand how to keep a ready-mix or precast plant running, much less improve it?
“A private equity firm can provide capital, strategic guidance, and board-level participation to turn a 500,000 yard producer into a 2 million yard producer,” says Alan Blackburn, managing director of Gulf-Star Group Investment Bankers. Blackburn has more 20 years of experience as an investment banker, with particular expertise in the construction materials industry. “The primary reason for a private business owner to get involved with an investment firm is to grow the business with a partner and still maintain some independence, rather than being folded into a larger company.”
Investors seem to be following a trend that's been popular in the industry for years, but are adding a twist. Rather than absorbing a company into a larger operation and then looking for ways to streamline the two businesses, investors first look for ways to make individual companies more efficient, and then sell them as good acquisition candidates to other businesses.
When companies in the business, or “strategic buyers,” acquire and consolidate other companies, it's generally with the goal of expanding and strengthening the industry. But investors acquire producers to realize a return on their money, and establish a track record of successful investments. “Most of these partnerships have a limited lifespan,” says Blackburn. “It's just a matter of time before the producer will be for sale again.”Adding value
When investors act as middle-men, they can increase the value of smaller companies. They spend their time and money making businesses more profitable, so acquiring companies don't have to. In cases like this, an investor's involvement can work to the industry's advantage.
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