CRH to acquire Dutch DIY firm for €693m

CRH will spend a record €693 million acquiring Dutch business Cementbouw.

The deal, which is expected to be completed towards the end of this year, will give Ireland's largest industrial company full ownership of a DIY, merchanting and building products operation with sales of €790 million last year and profits of €73 million.

In addition, CRH will take a 45 per cent stake in a joint venture covering Cementbouw's materials division.

It will also acquire first refusal on the balance of the materials operation for three years after the deal closes.

CRH is paying 8.8 times operating profits for the group but expects synergies of at least 1 per cent of group sales.

The company's chief executive, Mr Liam O'Mahony, described the deal as a "unique fit for CRH in a familiar market area, which we believe offers exciting prospects to CRH and our combined business going forward".

He said the company had long been an acquisition target.

CRH said Cementbouw's distribution operations, based primarily in the north and north-eastern part of the country, would fit well with CRH's existing operations, which are concentrated in the south.

CRH is paying goodwill of around €292 million, largely attributable to the retailing operations.

The combined group will have a 16 per cent share of the Dutch DIY market and about 17 per cent of the merchanting business, along with a more balanced geographic coverage throughout the Netherlands.

The company expects to spend €5 million restructuring the business over the next 18 months, assuming it clears regulatory hurdles in the Netherlands and the European Union, as expected.

Analysts reacted favourably to the deal, which is seen as adding about six cents or 8 per cent to earnings in 2004.

"Large as this is, it certainly will not stretch CRH's balance sheet," said Mr John Mattimoe of Merrion Stockbrokers.

Mr Joe Burnell, of company broker Davy, noted that CRH was very familiar with the Dutch market, where it made its first acquisition outside the Republic and Britain 30 years ago.

"Despite its size, this is a deal in the usual CRH mould, in a market it knows well," he said.

Referring to the joint venture element of the deal, he said it was explained by CRH's lack of presence in the Dutch materials market to date.

"The structure of the deal gives the division time to show its potential," according to Mr Burnell.

Mr O'Mahony said the joint venture allowed CRH to "participate in profitable established segments of the Dutch construction market where we are not already present and should provide opportunities for further development".

Mr John Sheehan, of NCB stockbroker, said the acquisition increased CRH's exposure to what is the better end of the construction market in the Netherlands.

"This is a good fit and will give the company critical mass in a market they know well," he said. "It also redresses the balance somewhat between the company's operation in the United States and Europe."

Despite the scale of the Cementbouw deal, the company was bullish about the prospect of further acquisitions in the remainder of the year.

Mr O'Mahony said: "The CRH pipeline is quite active with a significant number of potential deals being examined, ranging from bolt-on acquisitions to reasonably significant deals".

He added that the company's "stock in trade" would continue to be smaller add-on businesses although, as the business grows, these would tend to be larger than previously.

Mr Sheehan confirmed that, in NCB's view, CRH would comfortably be able to fund deals of €2 billion a year over the next few years.