Breedon - growing into a giant
This week Breedon Group Plc announced it is on track to acquire a large part of Cemex UK's operations for GBP178m (US$232.5m), continuing the company's rapid transformation into a heavy weight of the UK building materials sector.
The assets under consideration included 100 active operations, including 49 ready-mix plants, 28 aggregate quarries, four depots, one cement terminal, 14 asphalt plants and four concrete product operations. In the year ended 31 December 2018, Cemex’s UK Assets sold 6.5Mt of aggregates, 0.7Mt of asphalt and 0.6Mm3 of ready-mixed concrete and generated revenue of GBP178m and EBITDA of GBP23m.
The active operations that Breedon is buying are located in Scotland, Wales, northeast England, Norfolk, the east Midlands and Yorkshire. The acquisition will add a further 170Mt of mineral resources to the Breedon Group, sufficient to last more than 27 years at current extraction rates.
Breedon intends to pay for the purchase by its existing GBP350m revolving credit facility and a drawdown of GBP80m. Synergies of GBP2m have been estimated from the acquisition over the next three years with the deal expected to be completed in 2Q20.
Pat Ward, Breedon’s Group CEO, said: "This is a unique opportunity to extend our national network through a single value-enhancing transaction, substantially increasing our footprint in several regions of Great Britain where we are currently underrepresented… It also delivers a step-change in the development of our national asphalt strategy.
"In addition to the cost synergies we anticipate, we also expect the deal to be accretive to both earnings and free cash flow in the first full year, with a positive ongoing impact on the cash generation of the enlarged Group."
Breedon’s place in UK building materials market
Building materials is a competitive sector in the UK with leading companies including Aggregate Industries (LafargeHolcim group), Tarmac (CRH group), Hanson UK (HeidelbergCement) and Breedon Group. In terms of cement, Breedon has the second-largest cement plant in the UK – the 1.5Mta Hope plant in Derbyshire – as well as the 0.7Mta Kinnegad cement plant in Ireland. However, the company trails Hanson UK, which has the largest capacity at 5.4Mta, as well as Cemex (4Mt) and Tarmac (3Mta).
In 2018 Breedon achieved product volumes of 19.4Mt in aggregates, 2.8Mt in asphalt and 3.2Mm3 in ready-mix.
While the rise of Breedon Group has been very fast since the GBP336m acquisition of Hope Construction Materials in 2016, this acquisition of Cemex assets is the biggest deal Breedon Group has carried out since. It will increase Breedon’s share of the ready-mix, aggregates and asphalt markets substantially.
In 2018 Breedon ramped up its acquisitions with the Lagan Group (Holdings) Ltd for GBP455m, which added nine quarries, a 0.7Mta cement plant in Lansdown, Kinnegad, 13 ready-mix plans and nine ready-mix plants to the group. Later that year, it secured three quarries in Inverness, Penrith and Wrexham as well as an asphalt plant, near Porthmadog, in exchange for 23 ready-mix plants to Tarmac. As recently as November 2019, Breedon was also expanding its footprint in the UK's ready-mix sector when it set up a joint venture with Capital Concrete to serve the London market, where Capital Concrete operates seven ready-mix plants. Following that deal, Breedon operated 70 quarries, 40 asphalt plants and 180 ready-mix plants.
Comparisons between leading UK building materials groups
- Breedon Group (after Cemex deal): 98 quarries, 54 asphalt plants and 229 ready-mix facilities, plus two cement production units.
- Aggregate Industries: 60 quarries, 70+ ready-mix facilities, (40 asphalt plants in 2013)
- Hanson UK: 80+ quarries, 178 ready-mix plants (static and mobile) and six cement works
- Tarmac: 120 quarries, 74 asphalt plants, 100 ready-mix facilities, four cement plants.
