Aggregates group Breedon has entered into a conditional agreement with Cortolina Investments S.à.r.l. to acquire Hope Construction Materials Limited.
The combination of Breedon and Hope will create a leading UK independent producer of cement, concrete, and aggregates, and a vertically-integrated building materials group.
Breedon chairman Peter Tom has agreed to pay £336m for Hope, which was created when Lafarge and Tarmac merged merged and the former had to sell off some of its assets to meet Competition Commission requirements.
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 at the 90-Day VWAP of 51.79p per share.
Upon 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.
Breedon’s pro forma net debt is expected to be approximately 2.5x Underlying EBITDA at Completion.
The Acquisition is conditional upon the approval of the UK Competition and Markets Authority, and is expected to complete in Q2 2016.
Tom 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.
“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, added: “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.”