TRG | The Bottom Line – 6/11

Another week, another big U.S. heavy materials deal announcement. On the heels of Martin Marietta’s (MLM) announced intention to purchase of Lehigh Hanson’s West Region business for $2.3B on May 24th, Vulcan Materials (VMC) made a $1.3B all-cash bid for U.S. Concrete (USCR) on June 7th, a 30% premium for a stock already hitting healthy highs. This translates to $74/share, close to the mid-point of TRG’s valuation range of $71. The purchase multiple of aggregate and concrete producer USCR was 10.8x, and backing out corporate overhead, the purchase multiple is closer to 9x EBITDA. While VMC brings to the table deep aggregate industry expertise to enhance USCR’s aggregate business, USCR’s concrete acumen complements VMC’s ready-mix concrete business. USCR’s western Canadian Polaris aggregates assets provides a solid foundation for many years of high quality products for the CA market, one in which reserves are rapidly depleting. Moreover, VMC brings to the table “blue water” aggregate shipping expertise. In turn USCR raises the bar in terms of concrete logistics and expertise in the market. Ultimately, what both MLM and VMC deals signal is another meaningful step towards additional consolidation in the U.S. heavy materials market, in addition to steps steady steps towards broader vertical integration domestically.