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CRH, Ireland’s largest construction company by market value, has agreed to sell some brickmaking businesses to Bain Capital in a £414m deal that highlights private equity’s appetite to gain exposure to the housing market.
As well as acquiring Ibstock, one of the UK’s three biggest brick manufacturers, the private equity firm is also buying US clay business Glen Gery and UK concrete product makers Forticrete and Supreme Concrete as part of the deal.
CRH, a FTSE 100 company, is one of Europe’s biggest building materials groups, and has enjoyed a renaissance thanks to the economic upturn in the UK and US.
CRH chief executive Albert Manifold, who took on the role in January, said the sale was part of the company’s strategy to accumulate as much as €1.5bn for acquisitions and reinvestment.
“We see expanding our footprint as a tried and tested means of harnessing growth,” he said, adding that 60 per cent of the group’s profit growth came from acquisitions.
“We first invested in these parts of our business 15 years ago and no longer see them as core components of our growth strategy, given these are businesses of scale that require continual investment. However they are clearly extremely appealing in other people’s eyes.”
Under the transaction, Bain Capital will pay approximately £295m in cash, and assume £119m of debt and pension liabilities, resulting in an enterprise value of £414m, according to CRH.
The three businesses being bought by Bain collectively generated a pre-tax profit of £16m in 2013.
CRH had been expected to sell all of its brickmaking businesses, but will retain some continental European operations.
Shares in CRH fell almost 2 per cent at £14.21 on Monday.
Brickmaking was one of the worst-affected parts of a construction sector hit hard by the financial crisis. The UK’s big three — CRH-owned Ibstock, Wienerberger, and Hanson, part of HeidelbergCement — went into the downturn with 55 brickworks between them. By 2013, just 34 remained.
But demand has surged, partly because of a property boom in the UK, aided by the government’s Help to Buy finance scheme. Now housing developers are reporting significant shortages of core building materials.
“We believe the UK brick business historically generated long-term average returns well below the group average. The sale of this business will help to structurally improve CRH group returns and will support this objective,” analysts at Davy said.
The Bain deal will exclude real estate assets valued by CRH at £30m, which it plans to retain for “future disposal”.