The Brickworks Limited (ASX: BKW) share price is going to be on watch today after announcing an acquisition of certain assets from a business called Southfield Corporation.
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What is Southfield Corporation?
Southfield Corporation is a business in the US that has assets including the Illinois Brick Company (IBC), which includes what Brickworks is buying.
IBC was started in 1981. Through a combination of organic growth and acquisitions, it is now the largest independently owned and operated brick distributor in the US with 17 showrooms and distribution yards, all located in Illinois and Indiana.
Brickworks says that IBC trades under a range of well-known and long established brands. Almost half of its revenue comes from the sale of around 70 million bricks per annum.
IBC also sells a variety of building materials and supplies such as stone, masonry, construction materials and tools.
How much is Brickworks spending to buy the Southfield Corporation assets?
Brickworks is going to spend $70 million, or US$51.1 million, on buying certain assets from Southfield Corporation.
The transaction is going to be funded by existing debt facilities and is expected to deliver 2% earnings per share (EPS) accretion.
Why is Brickworks buying this business?
Brickworks noted that IBC has delivered consistent earnings for several years, with significant growth opportunities and cost synergies available to Brickworks.
The company said that the acquisition supports Brickworks' growth strategy in North America. It said that it builds scale and fills a gap within Glen Gery's existing direct distribution network. Brickworks also pointed out that sales volume through the IBC network underpins significant sales volume at its Midwest plans, which Brickworks says have ample capacity to accommodate additional sales growth.
Lindsay Partridge, the managing director of Brickworks, said:
We have enjoyed a strong relationship with IBC since our entrance into the US market almost three years ago. We know the business well and are pleased to welcome its 225 staff to the Brickworks Group. We look forward to building on the strong position that IBC has established as the number one brick distributor in the region.
Illinois and Indiana are two major states within our key target market in the Midwest, and both have a strong heritage of brick construction. We currently lack a direct distribution presence in these states and as such this acquisition is a logical strategic fit.
Outlook
Management said that the outlook for the region is strong, with building activity expected to increase over the next five years, across both residential and non-residential segments.
Infrastructure spending is expected to boost construction activity.
Brickworks points out that the US vaccine program is now well advanced and the economy is re-opening. It's seeing a strong recovery in demand.
The company continues to see the North American brick industry as a "highly attractive" long-term growth opportunity.
The market will have the chance today to decide how material this is for the Brickworks share price.
