CRH in exclusive talks to buy US road firm

Building materials group CRH has entered into exclusive talks to buy US asphalt business, Ashland Paving and Construction (APAC), in what could be its biggest acquisition ever.

The building materials group said yesterday that it had entered into an exclusivity agreement with Ashland, the speciality chemicals group that owns the business, "which may lead to the acquisition of APAC by CRH".

Analysts estimate that APAC, which had EBITDA (earnings before interest, tax, depreciation and amortisation) of $200 million (€159 million) in the year ending March on sales of $2.8 billion, could be worth as much as $1.4 billion.

If the deal is successful, this would make it CRH's biggest purchase ever, well ahead of the €693 million it paid for the Dutch DIY business Cementbouw, three years ago.

Shares in CRH raced ahead yesterday, gaining nearly five per cent to €25.29 as investors welcomed the news.

"It's a chunky deal. If it goes ahead, it would be quite transformational for their US business," said one dealer.

APAC, which has its headquarters in Atlanta, is the second largest US asphalt producer after CRH, with operations in 14 southern and mid-continent states. It produces 32 million tons of aggregates and 32 million tons of asphalt annually.

Analysts said it would provide an excellent geographic fit for CRH, whose asphalt business is mainly focused on the northern states of the US, giving it exposure to the faster-growing economies in the south.

In addition, it would increase CRH's exposure to the highway business, which is well underpinned by the introduction last year of a new six-year Highway Bill. APAC's business also relies heavily on public sector work and moves CRH away from the US residential building sector, a source of some concern for investors of late.

"It would be a great strategic fit," said John Mattimoe, analyst at Merrion Stockbrokers. "If they can get it at a sensible price, I would welcome it."

Analysts say APAC should fetch around seven times EBITDA, suggesting a price of around $1.4 billion. But depending on what due diligence throws up, the price could be even higher.

They noted that APAC was hit last year by rising input costs for materials such as bitumen but is expected to see profits rebound this year with forecasts in the market for earnings of $230 million to $240 million.

Due diligence is expected to take around two months. CRH said any deal would be subject to approval by both its own board and that of Ashland as well as US regulatory approval. However, analysts don't foresee any competition issues arising from a purchase given the different regional bias of the two businesses.

CRH is also expected to have little trouble funding the deal, despite its size.

"They have plenty of spare balance sheet capacity to allow them to fund it with debt," said NCB analyst John Sheehan.