Pit & Quarry, February 2016

ECONOMICS PULSE strongest financial performance since the onset of the recession As a group FMIs Construction Materials Index CMI companies reported average EBITDA margins in excess of 165 percent for the last 12 months Figure 2 their strongest performance since 2009 The indexs median net debt to EBITDA declined to 265 times in December the lowest levels since 2007 Figure 2 FMIs CMI companies are at their healthiest point since the recession Public markets are also favoring CMI companies FMIs CMI was up more than 13 percent in 2015 while the Dow Jones Index and S P 500 were both negative for the year This dynamic is also at work in the trading multiples of FMIs CMI which are at their post recession high of between 10 and 12 times EBITDA With higher valuations healthier balance sheets and recovering earnings the CMI companies are primed and ready for additional deal activity The FAST Act The FAST Act signed by President Obama in December is by no means an industry panacea However it does include a slight increase over MAP 21 levels with 230 billion allotted to highways and 60 billion allotted to public transportation projects through 2020 In the wake of numerous reauthorizations the legislation provides a window of certainty to the industry that it has not had since the passage of SAFETEA LU in 2005 This certainty also allows states to plan multi year transportation projects As a result producers backlogs will extend in duration providing greater insight into pricing decisions and future financial performance Barring a downturn in private markets we anticipate financial performance will continue to improve in tandem This has important implications for merger and acquisition activity When buyers have greater confidence in future earnings they are typically willing to pay higher prices for target companies because perceived risk is lower Furthermore with a few years of reasonable earnings behind them independent sellers are likely to achieve valuations that have not existed in the market for quite some time The recovery from the 2009 recession has taken substantially longer than expected Now more than seven years after the failure of Lehman Brothers and the onset of the financial crisis construction materials firms are beginning to recover financially When combined with a strategic reshuffling in the U S and greater insight on future highway spending we expect 2016 to mark the best year for U S focused mergers and acquisitions since the onset of the Great Recession P Q George Reddin is a managing director with FMI Capital Advisors Inc FMI Corp s investment banking subsidiary He specializes in mergers and acquisitions and financial advisory services www fminet com REMA TIP TOP North America Inc T e Global Leader in Conveyor Maintenance Service Conveyor Belts and Wear Protection Phone 800334 REMA 7362 Æ www rematiptop com Æ www rematiptop com Come see us at Booth 1459 Cemex takes delivery of new REICHdrill C 450 at Clinchf eld Plant in Georgia 99 Troy Hawk Run Highway Philipsburg PA 16866 Ph 814 342 5500 Fax 814 342 1135 www reichdrill com www pitandquarry com February 2016 PIT QUARRY 75