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Vulcan (VMC) to Buy U.S. Concrete, Boost Aggregates Position

·4 min read

Vulcan Materials Company VMC has signed an agreement to acquire U.S. Concrete, Inc., which should expand its aggregates business in the growing metropolitan areas.

The transaction, which is expected to close in second-half 2021, is subject to U.S. Concrete’s shareholder approval and other customary closing conditions. Vulcan intends to close the acquisition for $74.00 per share in cash, which represents a 30% premium above Friday's closing price of $57.14. This equates to a total equity value of $1.294 billion.

Vulcan Chief Executive Tom Hill said, “U.S. Concrete is an important Vulcan customer in a number of key areas, and this transaction is a logical and exciting step in our growth strategy as we further bolster our geographic footprint.”

Buyout Synergies

The U.S. Concrete buyout will enhance Vulcan's footprint in vast, attractive metropolitan areas. Based in Euless, TX, U.S. Concrete has 27 aggregates operations serving California, Texas and the Northeast regions. It will also expand presence in key growth areas of Texas, New York and New Jersey. The buyout of U.S. Concrete, which shipped 12.6 million tons in 2020, will provide strategically oriented ready-mixed concrete operations that will expand Vulcan's service capabilities.

Vulcan expects this buyout to boost EBITDA by $190 million before synergies and be accretive to earnings per share in the first full year post the transaction’s closure.

Systematic Acquisitions: A Boon

Since becoming a public company in 1956, Vulcan followed a systematic inorganic strategy for expansion and has wrapped up various bolt-on acquisitions that have contributed significantly to growth. Big or small acquisitions have been a key strategy for the company. As of Mar 31, 2021, it completed more than two dozen value-enhancing acquisitions since 2014 in some of the fastest-growing markets in the country. During 2020, Vulcan purchased businesses that will support aggregates operations for a total consideration of $73,416,000 (both cash and non-cash). Meanwhile, it completed two acquisitions — one aggregate operation in Tennessee and another ready-mixed concrete operation in Virginia — in 2019.

Meanwhile, in 2021, Vulcan expects to spend between $450 and $475 million on capital expenditures, including growth projects. This includes fully restarting and advancing the growth projects that were delayed during 2020 spring such as the opening of a new quarry in California, capacity expansion at other quarries as well as improvements in logistics and distribution network. It also reflects a catch-up of operating capex that was postponed at the start of the pandemic. During 2020, the company invested $361 million in internal growth projects to enhance distribution capabilities, develop new production sites, and enhance the existing production facilities as well as other growth opportunities.

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Shares of Vulcan have advanced 20% so far this year compared with the Zacks Building Products - Concrete and Aggregates industry’s 33.1% rally. Nonetheless, earnings estimates for 2021 have increased 1.7% over the past 30 days, depicting analysts’ optimism for the company’s prospects. Strong public construction activity along with its strong aggregate reserve position, pricing power and bolt-on acquisitions are encouraging.

Vulcan currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the same space include Cornerstone Building Brands, Inc. CNR, Eagle Materials Inc. EXP and Martin Marietta Materials, Inc. MLM. While Cornerstone sports a Zacks Rank #1 (Strong Buy), Eagle Materials and Martin Marietta carry a Zacks Rank #2 (Buy).

Earnings for Cornerstone, Eagle Materials and Martin Marietta are expected to grow 337.5%, 22.6% and 8.2%, respectively, for the current year. You can see the complete list of today’s Zacks #1 Rank stocks here.

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