Sunday 18 August 2019

CRH sells European distribution business for €1.64bn

Consolidate: CRH Chief Executive Albert Manifold. Photo: Gary O' Neill
Consolidate: CRH Chief Executive Albert Manifold. Photo: Gary O' Neill

Donal O’Donovan

US private equity giant Blackstone has bought CRH's European distribution arm, which the Irish construction supplies giant put up for sale earlier this year, for €1.64bn.

The price paid excludes a further €50m of additional consideration, which is dependent on the satisfaction of certain other contract clauses.

The cash transaction is subject to regulatory approval.

The business is made up of CRH's entire general builders merchants business in Europe, including its sanitary heating and plumbing business.

It supplies building materials to professional builders, specialist contractors and DIY customers through a network of local and regional brands across six countries in Western Europe.

In 2018 the business generated proforma earnings before interest, taxation, depreciation and amortisation (EBITDA) of €155m on sales of €3.7bn.

Profit before tax for the year amounted to €124m and gross assets at year-end amounted to €1.9bn.

Private equity firms Advent, Bain, Lone Star and CVC had all previously been named as potential buyers.

Albert Manifold, CRH chief executive, said: "The transaction announced today demonstrates the continued execution of CRH's strategy of creating value for our shareholders through active portfolio management, the efficient allocation of capital and creating a simpler and more focused group going forward.”

In 2017, CRH sold Allied Building Products, its US distribution business, to Beacon Roofing Supply for $2.6bn (€2.3bn). The Irish corporate giant has a long history of buying and selling businesses.

CRH boss Albert Manifold said in February that the company had sold 35pc of businesses owned when he took over in 2013. At the same time, CRH is a prolific buyer, snapping up a business "every eight or nine days" in 2018, according to Mr Manifold.

He said 2019 would be a "year when we consolidate and deliver", rather than target a major acquisition, but added CRH will continue a bolt-on acquisition strategy, "focused on filling in the gaps around the business".

Blackstone is best known in Ireland for a series of distressed acquisitions in the wake of the financial crisis, including at one point the dominant stake in Eir and the Burlington Hotel.

The deal for CRH's European distribution business would provide Blackstone a potential platform in the building materials sector from which it would likely look to become a consolidator.

In 2009, Blackstone and Silverhawk Capital Partners created Summit Materials in the US and eventually rolled up more than 35 aggregates, concrete and asphalt companies into a consolidated business, then exited through a stock market listing.

In Europe, Blackstone will face competition from fellow US private equity fund Lone Star.

It owns Nordic building materials supplier Stark, which in turn has agreed a €335m deal to buy Raab Karcher, a German construction supplies business owned by CRH's French rival, Saint Gobain.

CRH's bigger European distribution business had core earnings of €181m last year, which at a multiple of 11 times implies a valuation of about €2bn.

Hovering in the background of the deal is CRH's activist shareholder, Cevian, which is pushing the Irish company to release value by simplifying its existing complex corporate and operational structure.

However, CRH has rejected suggestions that its business is too complex.

After its most recent financial results, the company said its structure had been simplified into three very focused operating divisions to enhance its performance.

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