TRG | The Bottom Line – 2/16

Barely into Q4 earnings season, a flurry of heavy materials and building product M&A activity continues to dominate the headlines, big announcements hitting headlines just prior to year-end earnings. Owens Corning (OC) on February 9th announced its intention to acquire door-manufacturer Masonite (DOOR)  for $133.00 in cash, a 46% premium to DOOR’s 20-day VWAP. Combining these companies (with the majority of synergies being achieved within 2 years), results in $12.6B of sales and EBITDA of $2.9B. The $3.9B all-cash deal is valued at 8.6x EBITDA (or 6.8x post synergies).In effect, this is OC swapping a low-performing unit for a high-performing business with more durably high margins. Clearly, this makes OC a bigger company and the swap should raise the margin profile. Both companies, in our view, have strong market positions with solid margins and FCF generation. Heavy materials producer Marietta Materials (MLM) spent Super Bowl weekend on deals, not football. This past Monday, MLM announced the completion of its $2.1B cash divestiture of its previously announced south TX cement and related concrete assets to CRH. In conjunction with this event, MLM also announced the acquisition, for essentially the same amount ($2.05B), of privately held aggregate producer Blue Water Industries aggregate assets in AL, SC, south FL, TN, and VA. As a reminder, EBITDA associated from the south TX divestiture accounted for $170MM. The recently announced CO-based Albert Frei EBITDA contribution is an estimated $40-45MM EBITDA. The combined Albert Frei/Blue Water EBITDA contribution is an ~$180MM, implying $135-$140MM annualized EBITDA contribution from Blue Water to MLM. Blue Water brings to the table 20 active aggregate locations in AL, SC, south FL, TN, and VA. This also marks MLM’s entry into two fast-growing metro markets, Nashville and Miami.