Arcosa recently announced the acquisition of Southwest Rock Products, an Arizona aggregates producer supplying ~5M tons per year to the Phoenix metropolitan area. The acquisition includes five sand and gravel sites and one hard-rock quarry, providing Arcosa with a substantial platform in one of the largest and fastest growing regions in the nation.
The Phoenix market, long admired for its impressive growth, has also historically been perceived as somewhat challenging for aggregates producers, based on its fragmented structure and relatively low barriers to entry. But with both Arcosa and Martin Marietta making acquisitive entries in this market, and with both stating their intent to grow through additional acquisitions, the Phoenix region may be poised to transition into a market with both strong growth and a favorable structure.
For now, the 10.7x EBITDA multiple implied by this $150M acquisition appears to incorporate both the positive and negative aspects of the current Phoenix market. The multiple is in line with historical norms for aggregate pure-play but below recent multiples for large transactions in the space. Importantly, it’s also below the multiple implied by Arcosa’s current market cap, suggesting the transaction is value-accretive to shareholders.
A measured, value-creating entry into a high growth market, with further upside potential, and a smart transaction by one of the industry’s most acquisitive players.
Read the full press release here