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Breedon empire has room to build further after £178m Cemex deal

by ace
Breedon empire has room to build further after £178m Cemex deal

Stories of companies enjoying a $ 1 billion valuation, built almost overnight, have become almost commonplace in the technology industry.

They are a bit rarer in the so-called "old economy" – and yet, for those who like to look, they exist.

Over the past decade, Breedon Group has been built, almost from scratch, into one of the largest suppliers of building materials in the UK and Ireland, with a stock market valuation of almost £ 1.4 billion.

Today, it announced the latest acquisition in a series of deals, buying the British business of Cemex, the Mexican cement giant, for a total of £ 178 million.

The business comprises 100 different aggregate, asphalt and pre-mixed concrete operations in Scotland, Wales, Norfolk, Yorkshire, East Midlands and North East England.

Meanwhile, Cemex will maintain the UK's presence in the cement sector – it has the Rugby Cement brand – and in paving.

Following the acquisition, Breedon will have over 3,600 employees and will have over one billion tons of reserves and mineral resources.

Image:
Workers on a road construction project

Not bad for a business that barely existed 10 years ago.

Breedon was born of the vision of two men, Peter Tom and Simon Vivian, who together boasted seven decades of experience in the building materials industry.

They set up a company backed by private equity investors, called Marwyn Materials, with the specific goal of acquiring aggregate companies.

Tom, who is well known to sports fans as a former second-row president and now executive chairman of the Leicester Tigers rugby club, recently sold Aggregate Industries, a deal he built for many years to Swiss giant Holcim. for £ 1.8 billion.

Meanwhile, Vivian had already managed Hanson's European building materials arm before becoming CEO of the Mowlem building group.

Their moment was immaculate. The building materials industry was teeming with struggling companies following a construction slowdown, meaning there was no shortage of assets available for purchase at attractive prices.

The pair first landed at a company called Breedon, owner of 29 quarries, 19 asphalt and 27 concrete in England and Scotland, which collapsed in the arms of their banks during the financial crisis.

They bought in August 2010 for just 2.25 million pounds.

The expanded company took on the name of the newly acquired company – Breedon – based in the village of Breedon on the Hill, Leicestershire, where it owned a quarry – and was quickly winning contracts from companies like Scottish Water and London Zoo.

The following year, the pair bought C&G Concrete de Cambridgeshire from their managers for £ 10.15 million, saving 130 jobs in the process.

Other business followed, but the next in 2014 saw Breedon pay £ 336m for Hope Construction Materials, formerly owned by steel magnate Lakshmi Mittal, in a deal that made it the world's largest independent building materials company. UK.

This was followed in early 2018 by the £ 455 million acquisition of the Belfast-based Lagan Group in what remains Breedon's largest acquisition to date.

Then came today's agreement.

Pat Ward, Breedon's chief executive, said: "This is a unique opportunity to expand our national network through a single value-added transaction, substantially increasing our presence in various regions of Britain where we are currently under-represented. and adding approximately 170 million tons of reserves and mineral resources.

Pat Ward is the chief executive of the company. Photo: Breedon
Image:
Pat Ward is the chief executive of the company. Photo: Breedon

"It also offers a radical change in the development of our national asphalt strategy.

"There is potential for significant performance improvements in these new assets and they will also strengthen our platform for additional organic growth and acquisitions."

News of the deal fell well with investors, with Breedon shares rising nearly 6%.

Clyde Lewis, a building materials analyst at brokerage firm Peel Hunt, said that with Breedon paying £ 178 million for a company that made £ 23 million in its last full financial year, it looked like “another good deal” "

He added: "This agreement demonstrates that Breedon still has things to do in the UK that will continue to keep the group's profits and gains growing at a healthy pace."

The acquisition will not be the last either. The building materials sector remains fragmented and therefore further consolidation is likely, mainly because, thanks to the recent slow state of the construction sector, assets are starting to become available at lower prices than in recent years.

The big multinational players that now dominate the global building materials industry – Lafarge Holcim (formed from a merger in 2014), Cemex and HeidelbergCement, owner of Hanson – are unlikely to expand further, which could open the door for Breedon , which seems ideal for attracting smaller rivals.

Setting up new building materials factories is a costly business, creating high barriers for those looking to enter the industry, while the cost of distributing heavy materials over long distances means that it is important for suppliers to be based close to where they are. local demand.

That's why it makes sense for smaller players to be bought by rivals like Breedon, who have national coverage.

In addition, with the newly elected government of Boris Johnson promising to invest heavily in road construction and encourage housing construction, demand for aggregates seems to increase in the coming years.

Vivian and Tom do not remain on the board. Vivian announced her retirement from the company in March 2018.

Tom, an inspiring figure who spoke in the past about how he struggled to overcome dyslexia and bullying on his way to the boardroom, quit as president last May, but remains Breedon's 11th largest shareholder.

Both can look at businesses they have built as proudly as any technical billionaire – even if they haven't made as much money along the way.

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