AECI takes road less travelled (but tarred)
• Company buys Much Asphalt in deal worth R2.27bn, writes Michael Avery
The disposal by Capitalworks of Much Asphalt to AECI for a total consideration of R2.27bn was the 2017 private equity deal of the year.
Much Asphalt is SA’s leading asphalt producer, servicing a range of customers engaged in road construction and maintenance activities.
Much Asphalt’s period as a private equity portfolio company ended in October, after four years under the stewardship of Capitalworks Private Equity-led consortium, involving the Mineworkers Investment Company. Capitalworks spotted a good opportunity when they first acquired Much Asphalt and then worked closely with the management team over the next four years to grow shareholder value. The exit process was an elegant one.
The bitumen player started life in 1965 as Murray & Roberts’ hot mix asphalt supplier unit and is southern Africa’s largest commercial producer of hot and cold asphalt products for the construction and maintenance of all types of roads, runways and other applications.
Much Asphalt’s products are used by national, provincial and local government, the South African National Roads Agency (Sanral), the Airports Company South Africa (Acsa), the private sector from large corporations to one-man businesses, and the public. It has 17 static plants, four mobile asphalt plants, three static emulsion/modified binder facilities and a bitumen converter across SA. It also has static asphalt plant in Namibia. It employs more than 500 people and its production capacity represents more than 50% of SA’s installed asphalt capacity.
Spend on roads in SA has increased by a compound annual growth rate of 12.7% over the past six years, evidence of government’s commitment to infrastructure development. According to the 2017 budget, government and state-owned companies plan to spend R327.7bn on transport and logistics over the medium term. At the same time, Sanral’s reviewed plan is to expand its road network from 22,000km to 25,000km, through the transfer of roads previously administered by provincial and local authorities. It has been allocated R36.8bn to upgrade and maintain the national road network over the medium term, including R4.8bn for the Moloto Road, R29.6bn for road rehabilitation and R2.4bn for coal haulage roads. Some R34.5bn has also been allocated to fund the resealing and rehabilitation of provincial roads.
All this places Much Asphalt in a good position to realise its growth ambitions and justify one of the largest acquisitions ever concluded in the 121-year history of AECI.
AECI CEO Mark Dytor said that Much Asphalt has huge capability in terms of intellectual property and research and development (R&D) and there is a good opportunity to grow the business in SA and beyond.
“The development of road infrastructure on the continent is a prerequisite for economic growth,” says Dytor. “Given AECI’s extensive footprint, there is plenty of scope to build the business and the dream of a prosperous, thriving Africa.”
Much Asphalt has a market leading position with longestablished customer relationships, a robust order book and project pipeline, and an experienced management team, to go with a strong track record of innovation supported by a leading R&D capability, excellent technical capabilities and specialist, proprietary solutions for customers.
There is potential to extract benefits by combining supply chains. Much Asphalt will operate as a standalone entity in the AECI Group.