‘We’ve been waiting a decade for a transaction like this’
On Sunday, it confirmed that it will pay €6.5bn for assets that have come on the market through the merger of Holcim and Lafarge.
CRH chief executive Albert Manifold said the “company had been waiting a decade for a transaction like this”.
The acquisition is set to add €842m to EBITDA (earnings before interest, tax, depreciation, and amortisation) on an annual basis. It opens up the potential for a pipeline of bolt-on acquisitions in the future, he added.
The new businesses are located in Canada, east and west Europe, Brazil, and the Philippines. The deal will be funded through a combination of €2bn in cash sitting on CRH’s balance sheet, new debt, and the proceeds of yesterday’s equity rating.
The acquisition, which is about the equivalent of what the firm would traditionally do, in value terms, over a three-year period, will raise the overall debt level to 3.2 times EBITDA. However, this will be reduced through a divestment programme of assets, Mr Manifold said.
It is expected the deal will lead to €90m in synergies on an annual basis, is expected to boost earnings per share by 25%, and generate a return on capital in the high teens.
“We really are buying these businesses at the right time,” Mr Manifold said. “Buying these businesses at this point of the cycle, with trough margins, trough earnings, and very low cost financing, puts us in a very good position to create value.”
Mr Manifold said CRH had a good record of integrating complex businesses into the group and did not expect any of the new assets to present any problems.
There was a mixed response to the deal from analysts yesterday.
“The group has indicated that it expects synergies of €90m in year three. [This] will strengthen CRH’s position in a number of markets in Europe (eastern Europe, most notably), push forward its vertical integration (France), and accelerate its exposure to emerging countries (where is will double in size),” said Virginie Rousseau, an analyst with Paris-based Oddo Securities.
“However, in addition to the slightly high price tag, we think that there is substantial execution risk (notably the group’s capacity to achieve divestments) whilst the geographic mix remains less attractive than that of the other groups in our sample.”
Barry Dixon of Davy Stockbrokers said that “the deal 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”.
He added: “CRH’s management is delivering on its promise of recycling capital from businesses disposed of at high multiples into new operations at substantially lower valuations.”
For Holcim and Lafarge, the sale removes the final major hurdle in the way of their plan to combine cement- and crushed-rock operations with $40bn (€35bn) in annual revenue.
They expect the merger to be completed in the first half, once Holcim shareholders approve the deal at a meeting and Lafarge investors tender their shares.
CRH competed against bidders including a group formed by Cinven and Blackstone Group, sources said.
Additional reporting: Bloomberg
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