Tuesday 12 December 2017

How Albert Manifold sealed Ireland's biggest-ever deal

CRH spent €6.5bn to buy businesses being sold buy global giants Holcim and Lafarge. Chief executive Albert Manifold stayed up for 96 hours straight to seal the deal. Here's the inside story of Ireland's most audacious buyout.

TOP OF HIS GAME: Albert Manifold, the CRH chief executive
TOP OF HIS GAME: Albert Manifold, the CRH chief executive

Nick Webb and Sarah McCabe

Albert Manifold left his Wicklow house on January 2. The 52-year-old CRH chief executive only made it home last week. In the intervening period, cement giant CRH agreed the biggest deal in its 40-year history - the €6.5bn buyout of a portfolio of assets being sold by building materials firms Holcim and Lafarge.

Codenamed 'Project Cities', it is also the most expensive deal ever taken by an Irish company.

Manifold started working "intensely" on buyout plans from November, according to insiders who spoke to the Sunday Independent on condition on anonymity.

Holcim and rival Lafarge agreed to merge in a €40bn deal in April 2014. To allay completion concerns, they agreed to sell off some plum assets.

To the casual eye the hotch potch of business being jettisoned was "not a synthetic group". There was no obvious fundamental thing linking them together. Except for what Manifold and his team saw.

"It's not necessarily one natural group as such. And really, it breaks down into four distinct regional platforms," Manifold told investors last week. "And as we were looking at this opportunity, it became apparent to us that these individual platforms offered a very compelling story for value creation for CRH and which is why we pursued this opportunity."

But the sale of these businesses was a unique opportunity.

These were "very fine assets which we just don't normally see, only in these unusual circumstances we see before us." CRH has traditionally worked through a series of bolt-on acquisitions. "This is like three years of development in one," according to a source.

Just over a year into his role as chief executive, Manifold made the decision to go for the most audacious deal in the company's history.

A specially assembled team of 35 crack executives moved en masse to the Intercontinental Hotel in Paris. The five-star boutique hotel was built by the Comte de Breteuil in the 1870s and houses the renowned M64 restaurant. But the CRH team didn't have time for distractions.

They rolled up their shirt sleeves and locked themselves in a bunker, pouring over charts, analysing data, checking and rechecking due diligence reports from their bankers. The Paris hotel was near to key shareholders of Holcim and Lafarge. CRH needed to be close enough to smell the sellers.

As the auction reached a climax, Manifold spent 96 hours without sleep - between Wednesday and Sunday morning - working on the crucial final details.

"People think deals are all about money - but it's hard work," according to one source.

Indeed, CRH was facing some serious opposition. But the Irish company had eyes every where.

"It was very important for us to know where the three key decision makers from Blackstone or whoever were at anytime, whether they were in Toronto or wherever."

Knowing what the opposition was up to and where they were was a crucial piece of corporate intelligence. Law firms advising the rival bidders were watched.

Knowing the enemy was part of the battle. The disposal of the Holcim and Lafarge assets was "a regulated de-consolidation" - in other words, they were being forced to sell assets to satisfy regulators around the world.

There were 60 interested parties, but most were just tyre-kickers. CRH realised that trade buyers would be thin on the ground.

"We looked at our peers and they all had competition issues."

That meant that CRH was going to have to go toe-to-toe with some of the biggest private equity and institutional buyers on the planet.

Manifold has been at CRH for nearly 18 years. But before that he'd worked in private equity. He knew how private equity would price the deal and what kind of value. It was like playing poker with a mirror behind your opponents.

CRH's bid of €6.5bn splattered the opposition. A consortium made up of Blackstone, private equity player Cinven and Canadian pension fund CPP is said to have bid hundreds of millions less. At a stroke, CRH has become the third biggest player in the cement and building materials industry, trailing the merged Holcim Lafarge and French group St Gobain.

The scale of the deal is immense. Crunching the numbers on the assets revealed that it would generate sales of €5.1bn with earnings of over €752m. At a stroke it would transform CRH's finances.

"There about almost 700 locations across the four main platforms. These 15,000 employees complement the 75,000 employees we currently have within CRH. There are a number of facilities in terms of cement plants, there are 24 individual cement plants with cement capacity of 36 million tonnes and cement sales of about 23 million tonnes.

"In terms of aggregates, we'll acquire 80 million tonnes of aggregates production and about 10 million cubic meters of concrete. So, a very significant business of size and scale," CRH told investors.

The deal has been justifiably described as a "game-changer" for CRH.

"It changes the pace of growth going forward at CRH," according to one insider. Essentially what it does is open up four new regions or "platforms" for the company. These regions in East Canada, central Europe, western Europe and in emerging markets such as the Philippines and Brazil, fit spectacularly well beside CRH's existing operations.

"If you were to sit down with a piece of paper and look at the footprint of CRH around the world and then try to design a package of assets comprising this value and try to fit them into a regional portfolio that will fit with CRH that wouldn't cause competitive issues, you'll find it hard not to design this package of assets," Manifold told investors on a conference call last week. The Clondalkin headquartered firm will be able to squeeze huge savings out of merging these new operations.

Some €90m of synergies have been identified, although consistently CRH has under promised and over delivered on many previous deals. Equally important is the creation of new verticals, where CRH now produces its raw material of cement, supplying its own plants, which make finished concrete products. CRH can no longer be gouged on price by competitors.

The market was wowed by the deal, with CRH rising 10pc over the last week. This added around €1.8bn onto the value of the company - more than it tapped up investors for, during a rapidly sold out placement on Tuesday, which raised almost €1.6bn to fund the buyout.

Charlie Campbell, analyst at Liberum, thinks CRH has preparing for this deal for a long time. "The cement industry over-indebted itself pre-recession; there was just too much debt, the majors had to sell stuff off to pay it down.

"Post-2008, CRH knew that there would be a large chunk of cement assets up for grabs. I think they've been biding their time for this opportunity. Normally they would spend £1bn a year on acquisitions - in the last couple of years it fell to a fifth of that. They've been saving for the big one."

Cost savings will be felt immediately, Campbell says. "Synergies will come through quite quickly - it will affect the price they can get in North America almost straight away. They told us €25m will be saved just from how they buy cement."

Campbell thinks CRH will probably sell the UK tarmac business it is acquiring as part of the deal. The company recently confirmed it is in talks with private equity giant KKR about selling British Tarmac.

Manifold said that CRH didn't buy the Holcim and Lafarge assets with the view of breaking them up - but added that he "didn't want all the toys in the shop".

Investec's Gerard Moore agrees. "They are keeping their cards close to their chest. They have managed to buy assets at a good price because Holcim Lafarge had to sell. What they don't want to do now is turn around and admit that they definitely want to sell the UK business, and lose all negotiating power. But I wouldn't be surprised if it happens.

"CRH likes to have a balanced portfolio. One of the consequences of this deal is that it has slightly raised their exposure to Western Europe, so they will probably want to reduce that. But they will probably be looking at selling other assets too."

The deal was a mixture of prudence and luck, says Moore.

"In the last couple of years they pulled back on acquisitions out of caution. Nobody wants to buy assets at the top of the market. I don't think they did that explicitly to save up for a deal like this - after all, the Holcim-Lafarge merger was itself a surprise. But their prudence over the last few years meant they were in the right place at the right time when the opportunity came around."

But while there's plenty of back- slapping at CRH and the phalanx of M&A advisers are whooping over the size of their fees, a deal of this size has risks for CRH and its shareholders.

Manifold and his team have a track record of bedding down plenty of smaller deals - but they've yet to show the management "heft" required to integrate this many large businesses at the same time.

Investment house Bernstein said last week that continued to have concerns regarding CRH, as it struggled "to justify the stock's rising valuation premium over European peers", even before teh Lafarge-Holcim purchase.

CRH has traditionally spent over €1bn a year buying smaller bolt-on acquisitions which it subsumes into the core business. This deal gives it a huge opportunity to roll out that successful strategy across four new regions. And gives CRH "a decade of growth" overnight.

It'll give Manifold something to think about when his head finally hits the pillow.

Sunday Indo Business

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