Cautious optimism appeared to be the principal theme at the National Stone, Sand and Gravel Association annual conference held in Nashville in late March.

Modest M&A Activity

Deal volume in 2023 slipped as higher interest rates, inflation, and recession fears drove many potential buyers and sellers to the sidelines. However, large operators seized the opportunity to acquire attractive assets in certain markets.  Notable transactions in late 2023 included: (1) Summit Materials combination with Argos USA; (2) CRH acquiring Texas ready-mix assets from Martin Marietta Materials; and (3) Smyrna Ready Mix Concrete acquiring Texas ready-mix assets from Vulcan.

We have also seen private equity firms make strategic plays for high-quality assets. Armada Materials, backed by Kelso & Company, acquired two construction materials businesses located in Tennessee in late 2023 and early 2024. These transactions, along with slowly improving economic data, provide optimism that deal volume in 2024 will see an uptick in activity. A few participants were more bullish – forecasting that 2024 would rebound substantially.

Conference participants believe that deal volume in 2024 will focus more on “mom and pop” acquisitions. Historically, large operators focused on the most favorable markets – mostly in the Sun Belt. However, conference participants believed that 2024 may lead to more deals in geographies that historically were not considered as attractive.

Aggregates Continue to Lead Growth in the Construction Materials Industry

Aggregates remain the most attractive industry asset, with several operators expressing an interest in aggregates acquisitions regardless of geographic location. Of all the businesses within the industry, the aggregates space remains the most recessionary-proof business, according to several conference participants. While the volume of aggregates sold has fallen slightly in the last year (according to the U.S. Geological Survey), there is optimism that price increases will provide operators with healthy profit margins in 2024.

Construction & Infrastructure Outlook

Residential construction remains subdued – operators noting that high interest rates are keeping existing homeowners in their current houses for longer and many first time home buyers on the sidelines. Nevertheless, the United States remains in a housing shortage with industry experts believing that the residential construction outlook will improve when interest rates fall.

Operators expressed more optimism in non-residential buildings particularly in the manufacturing industries. A few industry experts noted that the technology sector will serve as a catalyst for non-residential manufacturing projects – demand is forecasted to be high for the infrastructure to produce electronic vehicles, charging stations, computer chips, and artificial intelligence hardware.

Operators are also beginning to reap the windfalls from the passage of the Infrastructure Investment and Jobs Act (IIJA). Many operators noted how healthy state transportation budgets coupled with the IIJA are providing excellent growth opportunities for companies across the infrastructure sector.

2024 Outlook

While 2023 evoked memories of some of the economic uncertainty of the late 2000s, the construction materials industry appears poised for a rebound in 2024. Inflation is trending in the right direction, and the Federal Reserve’s wish for a soft landing may be granted. If current trends continue, cautious optimism in early 2024 may evolve into bullish sentiment.