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Dive brief:
- Granite Construction is expanding its reach in the Southeast. The Watsonville, California-based road builder and contractor acquired two affiliates asphalt and aggregate companies in MemphisTennessee for $278 million, the company announced Dec. 5.
- Granite picked up Lehman-Roberts and Memphis Stone & Gravel, two sister companies focused on the highway paving and asphalt and aggregate mining industries, to build its so-called “home market” strategy, where it supplies projects in a region determined from its own nearby plants.
- In a presentation by the Securities and Exchange Commission, Granite said it financed the deal through a new $150 million term loan and a $100 million drawdown of an existing credit facility. The company invested $28 million in cash for the remainder of the purchase price. The deal follows the $26.9 million cash purchase of Coast Mountain Resourcesan aggregates producer in British Columbia, Canada, in April.
Diving knowledge:
Although Granit, along with other important ones construction companies, felt the bite of inflation and other headwinds to its earnings in the third quarter, the firm also has a consolidated materials business, where it benefits from supplying road-building aggregates to itself and other contractors.
For example, while that of the company overall profits fell in the third quarter due to challenges in its legacy risk portfolio, gross profit in its materials business increased by $7.4 million to $29.5 million, up 34% from 2022. The company say higher selling prices for aggregates and asphalt were the main driver of the unit’s higher bottom line. .
In fact, Granite said that with the Memphis acquisition, it has raised its 2024 revenue guidance to a range of $3.8 billion to $4 billion, up from its previous targets of $3.35 billion to 3.45 billion dollars.
Picks and Spades Strategy
The company claims to be one of the largest producers of construction materials in the US, with materials operations in seven western states: Alaska, Arizona, California, Nevada, Oregon, Utah and Washington. These plants produce more than 22 million tons of asphalt, concrete and aggregates each year.
CEO Kyle Larkin highlighted the health of the company’s materials unit in his third-quarter conference call on Oct. 31 and hinted at more activity in the market sector ahead.
“We see more opportunities to strengthen our current home markets and expand into new geographies,” Larkin said at the time. “We are now growing and plan to pursue opportunities to drive growth and expand our footprint in both our materials and construction segments.”
On the current deal, Larkin said: “We are very excited to complete this acquisition of an outstanding materials-led business that expands our footprint in the South East.” It added that the move aligns with its strategy of developing “home markets that are served by highly successful scale businesses with great leadership.”
Founded in Memphis in 1939, Lehman-Roberts became affiliated with Memphis Stone & Gravel through a shared ownership structure in 1972. fourth generation family businesses they operate in the Tennessee, Mississippi and Arkansas markets, according to the Lehman-Roberts website. The companies have completed paving projects at the US Navy’s NSA Mid-South Base in Millington, Tenn.; I-69 in Mississippi; and I-269 around Memphis.
