When the world’s two largest cement companies merge in a “mega deal” that propels them into the rankings of the top mergers and acquisitions of all-time, it is obvious something is afoot.
Consolidation has taken hold of the global building products, services and aggregates sector in a way that has not been seen for some time.
Since last year Lafarge and Holcim have joined forces to create a company with a combined market value of more than $50bn (£33bn). HeidelbergCement, the world’s third-biggest cement group, had sold its brickmaking arm to Lone Star for $1.4bn.
The fallout from these blockbuster mergers and sell-offs has led to other deals. CRH, the Irish concrete and cement group, has snapped up £6bn of assets, including Tarmac UK, from the enlarged LafargeHolcim. In turn, it has sold Ibstock, its British brick business, to Bain Capital Europe to help finance the acquisition.
And in what might be described as one of the most daring private equity “flips” of recent times, after only nine months of ownership, Bain Capital Europe plans to float Ibstock, a business it bought for £414m, for £1bn.
This swathe of dealmaking and uplift in valuations marks a sea change for a sector that was badly hit by the recession.
Building products and services companies are inextricably linked with the construction industry and both experienced a torrid time in the UK when the commercial and residential property markets crashed during the recession.
However, a recovery has been under way for some time now, as evidenced by rising construction costs, particularly in London, and BDO says that the repairs, maintenance and improvement market is already back at pre-recessionary levels.
As this turnaround gains ground, and volumes, cash generation and profits start to improve, consolidation activity is rising as companies seek to buy revenue and expand.
Even away from the large listed sector, M&A activity across the construction and building materials sectors is buoyant.
Earlier this month, Wates Group, one of the UK’s largest family-owned private construction and property companies, struck a deal to buy Shepherd Engineering Services and Shepherd FM. The deal includes a significant number of contracts and strategic frameworks from Shepherd Construction and is part of Wates’s grand strategic plan to double turnover to £2bn.
There has also been merger activity among sub-sectors within the wider industry, including companies making insulation products and energy-saving devices.
Part of the attraction of acquisitions is the benefit of economies of scale and access to faster-growing markets.
Buying a company can be a quick route to market share. And firms that have survived the recession are generally better for it, with leaner costs and more efficient operations.
Wates’s deal with Shepherd, for example, is about expanding turnover as well as its geographic footprint, particularly into the North.
CRH’s deal with Lafarge Holcim turned it overnight into the third-largest building supplies company in the world and gave it further access to faster-growing markets in Asia.
The building materials and construction sectors are also facing a capacity constraint and skills shortage crisis. This means acquisitions that can beef up capacity and resources are in demand.
Data from Thomson Reuters shows the total value of worldwide M&A transactions jumping from $168bn in 2013 to $250bn last year. So far in 2015 the sector has already done deals valued at $241bn.
There are plenty of buyers out there, too, with trade purchasers competing with private equity.
With valuations starting to rebound, there is a also a clear incentive to sell.
Rising values could partly explain why Qatar Investment Authority is selling its stake in Vinci, the French construction group, in a private placement that could generate as much as €380m (£283m).
It may be a cliché, but “watch this space” – there are plenty more deals in the offing.
Deirdre Hipwell is mergers and acquisitions correspondent, The Times
