CRH to acquire Lafarge and Holcim assets in €6.5bn transaction

Shares in building materials group jump 1.2% in London as it says it may partner with private equity group KKR on some UK assets

Building materials group CRH has entered into a binding commitment to acquire certain assets from European rivals Lafarge and Holcim, who are offloading these businesses to win regulatory approval for a $40 billion (€35 billion) merger announced last year.

The € 6.5 billion transaction, which was first signalled on Sunday morning, will be funded through a combination of € 2bn cash on balance sheet, bank facilities and a 9.99 per cent equity placing.

The transaction is expected to close in mid-2015, and CRH said it expects to be about 25 per cent accretive to underlying earnings and will generate a ROIC in line with CRH’s weighted average cost of capital in the first full year of ownership.

“Return on equity is expected to be in the high teens in 2016,” CRH said.


Albert Manifold said that the deal represents “a significant value creation opportunity for CRH”.

“We are acquiring a quality portfolio of assets, which complement our existing positions, at an attractive valuation and at the right point of the cycle. The acquisition strengthens our presence in important markets across North America, western, central and eastern Europe as well as providing new platforms for growth in emerging markets,” he said.

CRH said that it was the right time for the deal, given the “all-time-low cost of funds; heavyside sector earnings at cyclical low and industry margins at trough levels; and the growth phase of global construction cycle.

CRH has also identified € 90m of synergies (net of implementation costs) that will be achieved in the first three years post acquisition.

The assets CRH is acquiring are expected to generate 2014E revenue of € 5.1bn and EBITDA of € 752 million. Approximately two-thirds of the assets revenue is generated in the European region.

CRH said it is in talks with private equity firm KKR& Co LP to partner on some.

“Not all of these assets are going to remain long term in our group, that’s for sure. Some of these assets, we will be required to take partners on,” Mr Manifold told journalists on a conference call.

“One of those areas is the United Kingdom and we will look at whether we feel it’s appropriate to allocate all of the capital at this moment of time or to take on some partners. We have had a number of discussions with people. We are in discussions with KKR about investing in the UK,” he said.


The 9.99 per cent placing, which is underwritten by UBS, JP Morgan and Merrill Lynch, will go ahead regardless of whether or not the acquisition is completed, and CRH will retain the net proceeds “ for other potential acquisition opportunities”. It is expected that admission to the London and Irish stock exchanges will take place and that trading in the placing shares will commence on February 5th 2015.

In a note, Davy Stockbrokers said that the acquisition “ is not only substantially accretive to earnings and returns, it also provides the company with new platforms for growth in both emerging and developed markets”.

The acquisition requires the approval of shareholders, and an egm will be held in due course. The acquisition is also conditional upon 1) the successful completion of the merger of Holcim and Lafarge and 2) completion of local re-organisation plans.

People familiar with the matter said CRH has struck the deal on its own but is considering partnering with buy-out group KKR after the acquisition closes. No comment was available from KKR.

The transaction was agreed early Sunday morning. During an auction process that lasted months, CRH beat off competition from a consortium bid from buyout groups Blackstone and Cinven as well as Canada Pension Plan Investment Board.

Cement makers Holcim and Lafarge needed to divest businesses with revenue of about €5 billion to ensure regulatory approval for their merger, which will combine cement and crushed-rock operations with $40 billion in annual revenue.


CRH also updated the market on its trading outlook on Monday, indicating that it expects full-year earnings (EBITDA) to be not less than than € 1.625bn with full year revenues of € 18.9bn.

(Additional reporting Reuters)

Ciarán Hancock

Ciarán Hancock

Ciarán Hancock is Business Editor of The Irish Times