Analysis: Aggregate adds to US stake with $53m buy

Acquisition follows collapse of talks with Tarmac
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The Independent Online
AGGREGATE INDUSTRIES, the acquisitive building materials group, yesterday reinforced its position in the booming US market with the $53m (pounds 33.1m) purchase of Bill Smith Sand & Gravel.

The acquisition of the Michigan-based producer comes a week after Aggregate saw its hopes of expansion in the UK dashed by the collapse of talks over a pounds 1.8bn merger with its UK rival Tarmac. The shares ended unchanged at 69p.

City analysts said that yesterday's move underlined the ambition of Peter Tom, Aggregate's chief executive, to grow the group through bolt-on acquisitions in the absence of a large deal.

"They have clearly reverted to plan B: to do add-on acquisitions in the US and some smaller deals in the UK. [A deal with] Tarmac was the biggest opportunity out there but it is unlikely to be resurrected," one expert said.

Mr Tom said that the purchase of Bill Smith would give Aggregate, formed 18 months ago by the merger of the two materials producers Bardon and Camas, access to a fifth region in the US. The company already has a large US business with operations in Colorado, North Dakota, Maryland and Massachussets, where it controls around 30 per cent of the market for heavy materials.

Mr Tom claimed that after the integration of Bill Smith - which last year posted a profit of $4m on turnover of $15.8m - around half of the group's sales and earnings would come from the US.

Aggregate's focus on the US market mirrors the actions taken by several rivals. Companies such as Hanson and Blue Circle of the UK, Lafarge of France and the Irish giant CRH have been expanding in the US, in a bid to offset flagging domestic sales through the buoyant American market.

The driver behind the US boom is a $216bn roadbuilding programme recently approved by Congress. Experts estimate the plan will translate into a 46 per cent rise over the next six years in demand for sand and gravel used in road construction.

Kevin Cammack, an analyst with Merrill Lynch, said that this rise in demand would prove a major boost for the earnings of the UK producers with a US presence. "This is not a boom and bust scenario. These are rolling programmes and are here to stay," he said.

Industry experts believe that Aggregate and Hanson, which went on a $300m buying spree in the States this year, are set to reap the bigger US rewards among the UK building materials groups. Both companies have plans for further expansion and expect the US business to account for around 60 per cent of their sales in the near-future.

By contrast, the short-term outlook for the UK is grim. "The prospects are flat. If you look at volumes, you'll be struggling to describe them as anything but neutral," Mr Cammack said.

Although price rises are expected to beat inflation in 1999, growth will be constrained by the current economic slowdown and is set to be well below the US levels.

The deteriorating economic climate and the increasingly difficult market conditions should speed up consolidation in the sector. Marley's takeover by the Belgian group Etex and this week's bid by CRH for Ibstock set the ball rolling and experts believe more deals are set to follow suit.

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