Martin Marietta Materials (MLM) stock is down 2.40% on Tuesday following the news that the company has agreed to acquire Bluegrass Materials, a Florida-based company, for $1.6 billion. Bluegrass, a private held company, is a perfect fit for Marietta to expand further into the southeast.
Bluegrass maintains 23 quarries, some of which are found in South Carolina and Georgia.
Martin Marietta gains leverages in new markets and also allows the company to further strengthen their reach in Mid-Atlantic regions where growth is rapid.
The deal is a cash deal and will include around 300 employees that currently work under Bluegrass. The company is the leading producer of aggregates in Maryland and eastern Kentucky. The company states that the acquisition will be a “strategic new growth platform.”.
Bluegrass’ revenue is not public knowledge due to the company being privately held. Martin Marietta said that the purchase price is in-line with other aggregates acquistions and is a multiple that is in-line with recent acquisitions.
“Buyers are in growth mode. They’re focused on ensuring the continuity of revenue and service, and energized to innovate,” explains transition specialist Aaron Hasler.
Martin Marietta’s stock is up 7.86% in the past 90-day period, with the company’s stock rising 26% in the past year. The company’s slipping stock on Tuesday comes amid fears from investors that the company may have overpaid for Bluegrass due to private entities not required to release their revenue publicly.
The acquisition is expected to save Martin Marietta $15 million annually, with the acquisition slated to close in the final quarter of 2017.
The company spent $179 million in 2016 in acquisitions and has made 85 smaller acquisitions since 1994. Synergies from the company’s acquisition of Texas Industries in 2014 led to $100 million in savings.
Martin Marietta has underperformed so far in 2017, with the industry growing at a rate of 7.4%. Martin Marietta’s growth was just 4.8% during the same time period, according to Zacks.com.
The company’s first quarter financials show that they ended the quarter with $55.4 million in cash, up from $27.2 million during the same period a year prior.
The company expects net sales of $3.75 billion to $3.95 billion in 2017, and posted net sales of $792 million in the first quarter of the year.
Aggregates products are expected to bring in $2.2 billion to $2.3 billion, with aggregate product line volume expected to increase between 4% and 5.5% in 2017.
Analysts suggest that Bluegrass’ annual EBITDA is at least $100 million.