M&A is all about confidence – and the players with $10 billion in bids for Australia’s building materials companies are full of it.
Every year, investment bankers would try to get excited about the building materials sector, only to find it too hard.
Why the sudden interest? There are three things, according to those at the targets and others involved in the deals. That has earnings and share prices up across the sector – shares in CSR suitor Saint-Gobain, for example, are at their highest price since the financial crisis. AdBri suitor CRH’s shares are at a record high – which fuels confidence.The second is Australia itself, and the medium and long-term outlook for things like concrete and plasterboard.
It also helps that the likes of CSR, AdBri and Boral are all listed, which should make it easier to assess shareholders’ view of value and the likelihood of success.Importantly, the three Australian targets have got their houses in order and angles have opened up for offshore strategic buyers. What links the three, and distinguishes them from other Australian building materials groups that would probably like a bid of their own, is their lack of construction risk. None of them do any construction, rather supply the materials required for others. Fletcher Building and Western Australia’s BGC, who could both use some bids, are different.