The latest acquisition from nuilding materials firm CRH (CRH) looks a pretty smart move. The market certainly seems to think so, marking the shares 4% higher to £27.61.
Back in August the Irish company sold its US distribution business, Allied Building Products, for $2.63bn to Beacon Roofing Supply which implied an earnings multiple of 16 times. At the time, it noted it would use these funds to pursue M&A elsewhere.
Alongside this deal it announced the $708m acquisition of German lime and aggregates producer Fels which equated to an earnings multiple of just seven.
CEMENTING ITS ADVANTAGE
The latest purchase of the fifth largest cement producer in the US, Ash Grove Cement, for $3.5bn is at an implied multiple of between 10.5 times and 13.5 times according to stockbroker Davy. While this is in line with other transactions in this industry, Davy notes in the context of the Allied sale CRH ‘now appears to be recycling this capital into a higher margin business at a much lower multiple.
‘It is also investing in a business where it has significant synergy and growth potential, which could improve returns even more. This effective recycling of capital should result in a structural improvement in the group's returns over time.’
Davy says this potential is not reflected in CRH’s valuation and reiterates its ‘outperform’ rating on the stock.
