In one of its largest transactions, AECI has bought Much Asphalt, Southern Africa’s largest supplier of hot and cold asphalt products, for R2.3bn in cash, saying the outlook for road infrastructure in SA is extremely positive.
Much Asphalt will operate as a standalone entity in the explosives and speciality chemicals company, but there is potential to combine supply chains, geographic networks and best practices.
AECI says the acquisition is subject to conditions precedent.
AECI says spend on roads in SA has increased by a compound annual growth rate of 12.7% over the past six years. In terms of the 2017 Budget Review, the government and state-owned companies plan to spend R328bn on transport and logistics infrastructure over the medium term.
“The highly significant move is in line with the group’s strategy of growing new areas of business and diversifying the markets in which it operates,” AECI CEO Mark Dytor said on Monday.
He said road building in SA was growing far faster than GDP growth. The option to buy Much Asphalt presented itself in about July 2017. Dytor said the buyout would provide broad-based black economic empowerment credits to Much Asphalt.
This would enable it to comply with the South African National Roads Agency’s recently stated Horizon 2030 strategy of using far more small and medium-sized black enterprises to build roads in future.
AECI said that key reasons for the buyout included the market-leading position of Much Asphalt, its robust order book and project pipeline and a highly experienced management team. It also had a track record of innovation through its strong research and development capability, providing specialist and proprietary solutions for customers. This matched the profile of AECI, which worked across heavy industrial markets, including mining, manufacturing, agriculture and food
and beverages.
Apart from hot and cold mix asphalt products, the group is a manufacturer, supplier and applicator of bituminous road binders, emulsions, primes, pre-coats and modified binders. These products are used in the construction and maintenance of roads, airports, runways, parking facilities, harbour quays, dam linings and racing tracks.
Mish-al Emeran, an equity analyst at Electus Fund Managers, said on Monday that it “remained to be seen” if Much Asphalt was a good fit for AECI, which did not have direct exposure to infrastructure.
“I think the obvious benefit [of the buyout] is that it allows AECI to diversify its product set and market reach,” he said.
He said the R2.3bn price tag equated to a price-to-earnings ratio of 12.6 times. “In my view, a fairly full price for a private business — that implies fairly high growth expectations to justify the price paid.”
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