The move comes just three years after India steel magnate Lakshmi Mittal invested £272m on setting up Hope by acquiring assets that Lafarge and Tarmac were required to sell for their merger to go ahead. The Mittal family will retain a £134m stake in the combined business.
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.
Breedon itself is also a relative newcomer to the industry, created through a reverse takeover of Ennstone by former Mowlem and Hanson boss Simon Vivian and former Aggregate Industries boss Peter Tom.
The seller is Cortolina Investments, a Mittal family vehicle.
Under the deal, Breedon has agreed definitive terms to acquire Hope for £336m on a cash- and debt-free basis. Breedon will pay £202m in cash and £134m in shares, issued to Abicad Holding, an associate company of the vendor.
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 and son-in-law of Lakshi Mittal, will be appointed to this role.
Hope is a leading independent construction materials supplier in the UK with a national footprint of more than 160 operational sites, including the Hope cement works in Derbyshire, five quarries and 152 concrete plants. In the 12 months ended 30th June 2015, Hope sold 1.6 million tonnes of cement , 4.7 million tonnes of aggregates and 2.3 million cubic metres of concrete, generating revenue of £285.6m and underlying EBITDA of £37.0m.
Breedon operates 53 quarries, 26 asphalt plants, 59 ready-mixed concrete plants and three concrete block plants in England and Scotland. It generated £269.7m in revenues in 2014 and pre-tax profits of £21.4m.
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 conditional upon the approval of the Competition & Markets Authority but is expected to complete in the second quarter of 2016.
Breedon executive chairman Peter Tom 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 750 million 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.
“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.”
Hope chairman Amit Bhatia said: “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.”