Sum­mit Materials well placed to profit from US con­struc­tion boom

Sunday Independent (Ireland) - Business & Appointments - - FRONT PAGE - David Holo­han

IT may seem un­usual to es­tab­lish a North Amer­i­can build­ing materials com­pany dur­ing an eco­nomic down­turn, par­tic­u­larly if that down­turn was the worst since the Great De­pres­sion.

In 2009, that chal­leng­ing macroe­co­nomic back­drop pro­vided Tom Hill with the op­por­tu­nity to cre­ate Sum­mit Materials and lay out a growth plan that would al­low his team to cre­ate a best-in-class or­gan­i­sa­tion, formed at the bot­tom of the con­struc­tion cy­cle. Hav­ing run CRH’S US busi­ness for sev­eral years, Hill was one of the most well con­nected, knowl­edge­able peo­ple in the sec­tor with an un­beat­able record of ac­com­plish­ment and of suc­cess­fully build­ing one of the largest build­ing materials com­pa­nies in the US.

The prospect of set­ting up a new build­ing materials com­pany, staffed by some of CRH’S most se­nior ex­ec­u­tives that had left the be­he­moth group, ap­pealed to pri­vate eq­uity in­vestors who in­vested in Sum­mit Materials — pro­vid­ing the com­pany with the cash to make ac­qui­si­tions.

Tak­ing ad­van­tage of a re­cov­er­ing con­struc­tion mar­ket while us­ing a tried and tested ap­proach to ac­qui­si­tions, Hill and his team has suc­ceeded in build­ing Sum­mit Materials into one of the most at­trac­tive build­ing materials com­pa­nies in the US. It has made more than 57 ac­qui­si­tions since 2009 and is well placed to con­tinue to com­plete sev­eral deals every year. Sum­mit now op­er­ates from 21 states, the most im­por­tant be­ing Texas, Utah, Kansas, Mon­tana, and Virginia.

The man­age­ment team was very se­lec­tive in the as­sets it ac­quired, en­sur­ing that the com­pany is the num­ber one mar­ket player in most ar­eas that it op­er­ates in — and within the top three across the en­tire portfolio of com­pa­nies it owns.

Sum­mit’s split be­tween mar­kets is 37pc pub­lic and 63pc pri­vate, with most pub­lic spend­ing re­lated to in­fra­struc­ture. The out­look for both mar­ket seg­ments is pos­i­tive over the next sev­eral years as in­fra­struc­ture spend­ing in­creases — cou­pled with in­creased pri­vate con­struc­tion lev­els.

As it is very dif­fi­cult to get plan­ning per­mis­sion for ce­ment pro­duc­tion fa­cil­i­ties in the US, there is lim­ited new sup­ply en­ter­ing the mar­ket, sup­port­ing ce­ment prices for the ex­ist­ing pro­duc­ers. With this pos­i­tive mar­ket sup­ply back­drop, Sum­mit Materials boasts some of the strong­est profit mar­gins in the sec­tor cou­pled with the strong­est growth prospects.

With a mar­ket cap­i­tal­i­sa­tion of $3.5bn (€2.9bn), the com­pany of­fers the joint at­trac­tions of be­ing a pos­si­ble ac­qui­si­tion tar­get in a con­sol­i­dat­ing sec­tor — and a com­pany that is the right size to dou­ble in value every five or six years if man­age­ment con­tinue to make ac­cre­tive ac­qui­si­tions.

CRH re­cently ac­quired US com­pany Ash Grove Ce­ment for $3.5bn and while an­other build­ing materials com­pany Martin Ma­ri­etta paid $1.6bn (€1.3bn) for Blue­grass Materials, a lead­ing ag­gre­gates com­pany. As the sec­tor con­tin­ues to con­sol­i­date, the num­ber of po­ten­tial tar­gets with val­ues of more than $1bn (€842m) will con­tinue to fall and quite pos­si­bly, Sum­mit Materials will see its po­si­tion change from be­ing an ac­quirer of com­pa­nies — to be­ing a tar­get.

While the build­ing materials sec­tor is cycli­cal, many of the in­di­ca­tors in the US sug­gest pri­vate sec­tor con­struc­tion is in the early stages of an up­ward cy­cle. The Trump ad­min­is­tra­tion is also likely to fo­cus more at­ten­tion on in­fra­struc­ture spend­ing in­creases in 2018.

Sum­mit Materials looks set to be a sig­nif­i­cant win­ner against that back­drop. David Holo­han is chief in­vest­ment of­fi­cer with Mer­rion Cap­i­tal Any in­vest­ment com­men­tary in this col­umn is from the au­thor di­rectly and should not be seen as a rec­om­men­da­tion from The Sun­day In­de­pen­dent

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