Cantillon: Not everyone convinced by bumper CRH deal

CRH's acquisition of assets from the merger of European rivals Lafarge and Holcim had been well flagged but the size and scale of the €6.5 billon transaction still gave pause for breath.

In one fell swoop, this deal will increase the building materials company's revenues by 27 per cent and its earnings by 46 per cent. It will be funded by €2 billion in cash, €3 billion in debt and the balance via an equity placing. And it will make CRH the third-biggest building materials group in the world, up from sixth place.

Chief executive Albert Manifold said CRH had been waiting a decade for such a deal to come along.

CRH is buying four distinct businesses – in Canada, western Europe, central and eastern Europe and emerging markets.

It will add €5.1 billion in revenues and €752 million in Ebitda (earnings before interest, tax, depreciation and amortisation). Add in €90 million of synergies within three years and the Ebitda figure expands to €842 million. The synergies are skinny by CRH standards – just 1.8 per cent of sales versus a usual rate of 3 to 5 per cent. Manifold described it as a “compelling value opportunity”.

CRH doesn’t really want all the businesses that come with the package so it will offload some over time or work with other groups in certain markets. It is already in discussions with private equity group KKR about the UK assets.

Most of the brokers struck a positive note, save for Oddo Securities. While acknowledging it would strengthen CRH’s hand in a number of markets in Europe and emerging countries, it maintained its “reduce” recommendation on the stock.

“In addition to the slightly high price tag, we think that there is substantial execution risk – notably the group’s capacity to achieve divestments – while the geographic mix remains less attractive than that of the other groups in our sample,” it said.

This deal is the equivalent of about three years’ worth of acquisitions compressed into one transaction. It is sure to test CRH’s senior management to the full.