Construction Wrap: Investors Hammer Home Deals –

Mention construction materials, and private equity firms will come running.

Over the past several months, tech-wary investors have begun flocking to an industry sector that is terminally fragmented and ripe for consolidation. According to a report from U.S. Bancorp Piper Jaffray, the sector’s top five five producers generate less than 25% of the total output and there are a significant number of opportunities for geographic expansion. Moreover, the government’s TEA 21 mandate to improve roads and bridges in the U.S. is far from being completed.

Private equity firms that have already shown interest in the sector include KRG Capital, CVC Capital Partners, Advent International, The Carlyle Group, Linsalata Capital Partners and The Cambria Group.

Topping the international construction materials industry news is CVC, Advent and Carlyle’s acquisition of Lafarge SA’s specialty products division for euro890 million. CVC and Advent both took a 22.2% stake while Carlyle took a lower, undisclosed percentage and Lafarge kept a significant stake.

Lafarge’s specialty products division produces aluminates, mortars, admixtures, refactories and paints.

Steven Barnard, a vice president at U.S. Bancorp Piper Jaffray, said geographic expansion is important to those making investments in the construction materials area because the need to get and stay bigger than the competition is key during this consolidation period.

Eat Or Be Eaten

Consolidation in the domestic construction materials market is being driven by several factors including the extent to which regional and local companies will go to stay competitive. For instance, they are looking outside their core competencies in terms of adding vertically integrated businesses to become more of a one-stop supplier to their customers.

These companies are moving closer to the spotlight due in part to the 1998 Transportation Equity Act for the 21st Century (TEA 21), which committed a guaranteed level of federal funds to the improvement of America’s transportation system until 2003.

The aggregate industry, Barnard said, is in an enviable position because virtually no other industry has such a large government component.

“We think the amount of government spending and the guaranteed revenue that will come from the government will play an important role and will continue to spur growth in the construction materials sector,” Barnard said.

After all, the government’s money is relatively guaranteed, whereas consumer spending fluctuates, not to mention the fact that public works projects are larger and more complex, thus demanding more aggregate.

Leslie Green can be contacted at