It was recently announced that Summit Materials had acquired six companies:
- Elam Construction
- Grand Junction Concrete Pipe
- Fischer Quarries
- B&B Resources
- Triple C Concrete
- Wind River Materials
It always peaks my curiosity when I see a company announce this many The Blackstone Group and Silverhawk Capital Partners, in 2009. The goal of the platform company is to acquire companies in the “aggregates and heavy-side building materials sector,” according to Summit’s release.. So I did a little digging. Turns out that Summit Materials is a “platform company” and was formed by a group of investors, including
Some of you may be unfamiliar with the term platform company. Essentially this describes a company that an equity fund makes an initial investment in with the goal of growing that platform company into a larger entity. The acquisition of synergistic companies is the typical method used when growing a platform company. Most investment firms have a five- to seven-year horizon that they use when expanding their platform companies. At the end of that time frame, after several rounds of acquisitions, the new, much larger and more profitable entity is either sold or taken public in most cases.
Interestingly, the equity firms backing Summit Materials are taking a contrarian position. Not many investors are flocking to heavy construction niches at this time. Just take a look at the description of these acquired companies.
- Elam Construction, based in Grand Junction, Colorado, is an aggregates, asphalt, and paving business with across the Western Slope of Colorado.
- Grand Junction Concrete Pipe is an aggregates, ready-mix concrete, precast products, and pipe distribution company also based in Grand Junction and serves the Western Slope market.
- Fischer Quarries operates a quarry in Sedalia, Missouri.
- B&B Resources is an aggregates and ready-mix concrete producer in Salt Lake City, Utah.
- Triple C is an integrated ready-mix concrete, aggregates, and precast products business located in southern Idaho.
- Wind River Materials produces aggregates and ready-mix concrete in southwest Wyoming.
So it is clear that the firms financing this platform are expecting the demand for aggregates and heavy construction services to increase over the next several years. They obviously have done their homework and have a clear strategy in place to take advantage of the growth they expect to see in the coming years in this niche. At the inception of the platform company in 2009, Neil Simpkins, senior managing director at Blackstone, stated, “Over the next 18-24 months we envision making a number of acquisitions.” He added that the group is seriously looking at a pipeline of about 10 transactions. According to Mr. Simpkins, “The U.S. heavy-side building materials sector represents significant opportunities for growth” (emphasis added).
Many of you are probably surprised to read about investors who are actively growing a platform in an industry like this with new acquisitions. What may surprise you even more is that chances are good that there are investment firms that are doing the same thing in your industry. Because these add-on acquisitions tend to be smaller, they don’t generate much publicity. There is a possibility that there are firms looking for well run, middle-market companies in your industry as well. Never assume that there are not.
Partnering with an experienced M&A advisory firm is the best way to determine if there are active equity firms (or strategics) consolidating your industry. Most importantly, they will be able to determine which types of buyers would be most favorable for your company. Assuming that they have closed deals with a wide variety of buyer types (strategics, investment firms, and private individuals), they will be able to determine what approach to use when taking your company to market. Not every is a legitimate target for an equity firm. However, the optimal way to determine this is to obtain expert advice before you enter the market.
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