Breedon to acquire Hope Construction Materials for £336m

Published:  18 November, 2015

Breedon Aggregates has announced that it has entered into a conditional agreement with Cortolina Investments S.à.r.l. to acquire Hope Construction Materials (Hope) for £336m.

The combination of Breedon and Hope will create the UK’s leading independent producer of cement, concrete and aggregates, and a vertically-integrated building materials group. The acquisition is consistent with Breedon’s strategy of organic growth combined with the continuing consolidation of the smaller end of the UK heavyside building materials industry.

Transaction highlights:

  • Breedon has agreed definitive terms to acquire Hope for £336m on a cash- and debt-free basis
  • Hope is a leading independent construction materials supplier in the UK with a national footprint of over 160 operational sites, including the Hope cement works in Derbyshire, five quarries and 152 concrete plants
  • In the 12 months ended 30 June, 2015, Hope sold 1.6m tonnes of cement , 4.7m tonnes of aggregates and 2.3m cubic metres of concrete, generating revenue of £285.6m and underlying Earnings Before Interest, Tax, Depreciation, and Amortisation (EBITDA) of £37.0m
  • The consideration for Hope will be payable in a combination of cash and new Ordinary Shares to be issued to Abicad Holding, an associated company of Cortolina Investments S.à.r.l., upon completion of the acquisition
  • The cash consideration of £202m will be financed by a combination of a new £300m revolving credit facility and a £41m equity placing with existing shareholders
  • The share consideration of £134m 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 £10m 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 £41m
  • 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.

Peter Tom, Breedon’s executive chairman, 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 750m tonnes of mineral reserves and resources – together with access for the first time to the rail-fed sector of the market.

“Under Amit’s leadership, Hope has delivered an outstanding performance over the last three years and has become a formidable competitor in the UK market. Together we will be an even stronger business, complementing one another geographically, operationally and culturally.”

Mr Tom continued: “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.

“I believe strongly in Peter's leadership and in the potential of the enlarged business, and am delighted to be joining the board as well as retaining a considerable stake in the combined business.”

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