LDN - Business

CRH sells U.S. distribution arm to Beacon Roofing for $2.6 billion

[August 24, 2017] By Padraic Halpin

DUBLIN (Reuters) - Irish building materials firm CRH has sold its U.S. distribution business to Beacon Roofing Supply Inc. for $2.63 billion in cash and will use the proceeds to continue an acquisition spree elsewhere, it said on Thursday.

At the same time as announcing the sale, CRH said it was buying German lime and aggregates producer Fels for 600 million euros ($708 million), a business its chief executive said it tried to purchase on three other occasions in the last 20 years.

Added to the 632 million euros the company spent on buying 13 other smaller businesses in the first half of the year, that purchase signals a ramping up of acquisitions to a pace chief executive Albert Manifold said he expected to continue.

"When we look at the value we could crystallize through this transaction, no way could we create that value for our shareholders if we were to hang onto the business," Manifold said of the U.S. sale in a telephone interview.

"We will redeploy that (cash) in the years ahead into higher growth and better opportunities. It doesn't change the strategy of CRH overall, our U.S. distribution accounted for 5 percent of group EBITDA, it doesn't shift the needle."

Shares in CRH, the world's third-biggest building materials supplier, were up 3.7 percent at 30.15 euros at 0735 GMT.

The company said it sold the Allied Building Products business in the United States for 16 times its earnings before interest, tax, depreciation and amortization (EBITDA). It bought Fels for 7 times EBITDA.

Beacon, North America's largest listed roofing and building products distributor, said the deal would take it into new local markets, including New York, New Jersey and the upper Midwest.

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It said it would immediately boost earnings and expected the combined company to achieve a run-rate of $110 million in annual synergies within two years. The acquisition will be mostly financed through debt, it added.

New Jersey-headquartered Allied, which CRH bought in 1996 for $121 million, makes roofing, windows and insulation.

Since entering the United States in the late 1970s - where it is now the biggest producer of asphalt for highway construction - CRH has grown into a company employing over 87,000 people through decades of acquisitions.

The recent activity meant it spent more in the first six months than in any calendar year for the past decade, apart from 2015 when it spent 8 billion euros on two major deals.

CRH also said its first half EBITDA rose 5 percent year-on-year to 1.175 billion euros on rising sales in the United States and Europe, and forecast continued momentum in both markets.

"CRH's on-going commitment to profitable growth and structural improvement in returns is amply demonstrated (in these deals)," Davy Stockbrokers wrote in a note, reiterating an 'outperform' recommendation on the stock.

"This, combined with a reiteration of its positive outlook for full year profits, highlights compelling value in the current share price."

Citi advised Beacon on the deal and J.P. Morgan advised CRH.

($1 = 0.8477 euros)

(Reporting by Padraic Halpin; Editing by Mark Potter)

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