The combination of Breedon and Hope will create the UK’s leading independent producer of cement, concrete and aggregates and a vertically-integrated building materials group.
The acquisition is conditional upon the approval of the UK Competition and Markets Authority and is expected to complete in Q2 2016
The acquisition is consistent with Breedon’s strategy of organic growth combined with the continuing consolidation of the smaller end of the UK heavyside building materials industry.
Breedon has agreed definitive terms to acquire Hope for £336 million on a cash- and debt-free basis.
Hope is a leading independent construction materials supplier in the UK with a national footprint of over 160 operational sites, including the Hope cement works in County Derbyshire, England; five quarries and 152 concrete plants.
The enlarged group will have more than 310 operational sites, including a cement plant; 58 quarries; 26 asphalt plants; 211 ready-mixed concrete and mortar plants’ three concrete block plants; nine depots and wharves, eight regional contract surfacing operations, and one traffic management services company.
Hope Construction Materials was launched as a new company on 7 January, 2013, and at that time was owned by Mittal Investments, holding the majority of the assets sold by
In the 12 months ended 30 June 2015, Hope sold 1.6 million tonnes of cement, 4.7 million tonnes of aggregates and 2.3 million m³ of concrete, generating revenue of £285.6 million and Underlying EBITDA of £370 million.
The consideration for Hope will be payable in a combination of cash and new Ordinary Shares to be issued to Abicad Holding Limited, an associated company of the seller, upon completion of the acquisition.
The cash consideration of £202 million will be financed by a combination of a new £300 million revolving credit facility and a £41 million equity placing with existing shareholders. The share consideration of £134 million will be satisfied by the issue of 259,120,245 new Ordinary Shares to Abicad. On Completion, Abicad will hold approximately 18.4% of the Enlarged Share Capital of Breedon and will be entitled to appoint one non-executive director to the board of directors.
It is anticipated that Amit Bhatia, Hope's current chairman, will be appointed to this role.
The acquisition provides entry into the cement market and extends Breedon’s UK geographic footprint, while adding a rail-linked quarry and a national network of depots.
Breedon expects to achieve annual cost synergies of approximately £10 million from operational improvements by the third full year following completion.
The acquisition is expected to be double-digit accretive to underlying earnings per share in the first full year following completion.
In addition to the acquisition, Breedon has undertaken a placing of 78,782,825 new Ordinary Shares at 51.79p per share to raise gross proceeds of approximately £41 million.
Peter Tom, Breedon’s executive chairman, said: “The acquisition of Hope transforms Breedon into the UK’s leading independent building materials group. We’re creating a vertically-integrated business with one of the country’s largest cement plants, nearly 60 quarries, more than 200 ready-mixed concrete plants and around 750 million tonnes of mineral reserves and resources – together with access for the first time to the rail-fed sector of the market.
“Under Amit’s leadership, Hope has delivered an outstanding performance over the last three years and has become a formidable competitor in the UK market. Together we will be an even stronger business, complementing one another geographically, operationally and culturally.
“We’re particularly pleased that Abicad will become a significant shareholder in the enlarged Breedon group and look forward to welcoming Amit to our board.
“This acquisition is well-timed, with UK construction output forecast to expand by around 15% over the next four years and volumes of all our major products expected to grow strongly. We are confident that we will be able to continue delivering significant value for our shareholders in the coming years, with an even stronger platform for growth. We very much look forward to welcoming everyone at Hope to the Breedon family.”
Amit Bhatia, Hope’s chairman, said: “The growth of Hope is testament to the incredible amount of hard work put in by everyone in the business over the past three years. The combination with Breedon builds on that by creating a new, independent force in the construction materials sector with superior growth prospects and greater opportunities thanks to its broader product mix, strong customer offer and extended geographic footprint. Both companies are entrepreneurial and energetic and this transaction will combine the best of both teams and cultures.
“I believe strongly in Peter's leadership and in the potential of the enlarged business, and am delighted to be joining the board as well as retaining a considerable stake in the combined business.”
Trading update
Breedon has also today issued a trading update for the ten months ended 31 October 2015.
It says that Breedon continues to trade strongly, with product volumes in the first ten months ahead of the comparable period in both England and Scotland.
Underlying trading conditions in England remain strong. In Scotland, road spending remains subdued but several large contracts are about to commence which will run through next year and into 2017.
For the ten months to 31 October, 2015, group sales volumes of aggregates increased by 19% cent, asphalt by 23% and concrete by 20% compared to last year.
Unaudited group revenue for the same ten months increased by 22% to approximately £274 million. Lower hydrocarbon costs have continued to benefit performance in the second half of the year but forward market pricing is now starting to reflect these lower costs.
Assuming that weather conditions remain favourable for the remainder of the year, the Group’s underlying EBITDA for the full year is expected to be at the top end of current market expectations.
The group says the outlook remains positive, with a number of projects already secured for next year.
Breedon is “confident of making further progress in 2016 and, assuming that completion of our acquisition of Hope Construction Materials takes place as expected in the second quarter of next year, our progress is likely to be significantly enhanced.”
Breedon will announce its preliminary results for the year to 31 December 2015 on 9 March 2016.
