Rock Products

MAY 2019

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24 • ROCK products • May 2019 www.rockproducts.com M&A OVERVIEW Preliminary estimates of total acquisition activity in Q4 2018 demonstrated a decrease of 2% compared to the same period in 2017 in terms of the number of aggregates related transactions completed (24) in the US and Canada. Despite this quarterly decline, total transaction volume in 2018 outpaced 2017 activity, increasing 4.2% year-over-year. Healthy demand in the aggregates industry is expected to persist in spite of proposed discretionary budget cuts for the Department of Transportation (DoT) for 2020. 1 The federal government has called upon increased infrastructure investments by state, local and private parties, incentivizing them through a fully funded Highway Trust Fund; a $1 billion commitment to the BUILD grant program, which supports innovative projects that enhance quality of life and economic competitiveness; and a $2 billion allocation to the Infrastructure to Building America competitive program. States including Missouri, Alabama, Ohio and Michigan have also taken steps toward strengthening infrastructure investments by raising fuel taxes to support road building and maintenance. Figure 3: Select Q4 2018 Industry M&A Activity Transaction Date Target/Issuer Buyers/Investors Transaction Value ($mm) 12/17/18 Materials Division of Lojac Holdings Alley-Cassetty Undisclosed 12/17/18 Montney In-Basin frac sand project Athabasca Minerals Inc. (TSX:ABM) $2.7 12/14/18 I-XL Building Products Equicapita Income GP Undisclosed 11/27/18 Ascension Ready Mix, Inc. Quality Concrete Group Undisclosed 11/23/18 Glen-Gery Corp. Brickworks Limited (ASX:BKW) $110.0 11/19/18 VantaCore Partners LP Sun Capital Partners; StonePoint Materials $205.0 11/14/18 ACG Materials, LLC Arcos, Inc (NYSE:ACA) $315.0 11/06/18 Walker Sand & Gravel Co. Summit Materials, Inc. Undisclosed 10/22/18 C&C Sand & Stone Co. SiteOne Landscape (NYSE:SITE) Undisclosed 10/17/18 US Block Business of Boral Limited (ASX:BLD) Quikrete Holdings, Inc. $156.0 PRIVATE EQUITY TRANSACTION ACTIVITY & VALUATIONS GF Data Resources, a provider of detailed information on business transactions ranging in size from $10 million to $250 million, provides quarterly data from over 200 private equity firm contributors on the number of completed transactions. Figure 4 provides the number of completed transactions from GF Data contributors, the average Total Enterprise Value (TEV)/ EBITDA multiples, and the average amount of debt utilized in the transaction computed as a multiple of EBITDA. The data, although not industry specific, showed that the number of transactions declined to historical levels while average EBITDA multiples increased and total debt and senior debt multiples remained relatively flat. Figure 4: Private Equity Valuations & Leverage Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 # of Transactions 57 67 58 53 71 67 47 70 62 TEV/EBITDA 6.8x 6.6x 7.2x 7.5x 8.0x 6.7x 7.4x 7.2x 7.8x Total Debt/EBITDA 3.7x 4.0x 4.2x 4.4x 4.3x 4.1x 3.9x 3.7x 3.8x Senior Debt/EBITDA 2.8x 3.0x 3.6x 3.6x 3.4x 3.3x 3.2x 2.7x 2.9x COMPANY SPOTLIGHT Eagle Materials' revenues declined 7% in Q4 on a year-over-year basis, yet increased 0.6% through the nine months ending Dec. 31, 2018. 2 The comparability of their performance was affected by two non-recurring items (tax benefit of ~$61 million and a litigation settlement expense of $39 million). In Q4, performance was impacted by: improved operating margins in the Wallboard business; higher cement prices and volumes; and a fall in Concrete and Aggregates revenues which reflected a lower sales volume that was only partially offset by improved concrete pricing and heavier than typical rainfall in Q4 2018. Sources: FactSet and Capital IQ Source: GF Data Aggregate Industry Market Report

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