The Basch Report: Timing right for Baker’s Bluegrass

Bluegrass Materials Co. is a Jacksonville-based construction aggregates company that has operated pretty much below the radar.

  • By Mark Basch
  • | 9:15 a.m. July 3, 2017
  • | 5 Free Articles Remaining!
Bluegrass Materials Co. produces construction aggregates and concrete at 23 locations in Georgia, South Carolina, Maryland, Kentucky and Tennessee.
Bluegrass Materials Co. produces construction aggregates and concrete at 23 locations in Georgia, South Carolina, Maryland, Kentucky and Tennessee.
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But when the company agreed last week to a $1.625 billion buyout by industry leader Martin Marietta Materials Inc., we learned the Baker family who runs Bluegrass has quietly built a formidable business.

The Bakers formed a partnership to acquire construction materials mining operations after selling their previous company, Florida Rock Industries Inc., for $4.2 billion to Vulcan Materials Co. in 2007.

The timing was fortuitous, according to one analyst who follows Martin Marietta.

“Bluegrass began acquiring assets in 2009 from several of the large international players (Cemex and Lafarge) that were in the process of de-leveraging after the financial crisis,” said Robert Norfleet of Alembic Global Advisors in a research report last week.

The company announced its first acquisition in 2010.

Another analyst said Bluegrass did a good job picking out acquisition targets.

“We have heard from industry sources that these are high quality assets and should be very complimentary to Martin Marietta’s portfolio,” Stifel analyst Stanley Elliott said in a research note.

Bluegrass is run by CEO Ted Baker II, whose grandfather, Thompson, founded Florida Rock in 1929 and whose father, John, was CEO of Florida Rock when it was sold.

The Bakers formed the partnership to run Bluegrass with investment firms Blue Water Worldwide and Lindsay Goldberg. The Bakers own about 15 percent of the company.

Martin Marietta did not disclose financial details on the privately owned Bluegrass, but analyst reports on the deal do give us a clue about how big the company is.

“In the release, the company alluded to paying a multiple consistent with recent transactions. We believe this refers to Vulcan’s announced acquisition of Aggregates USA,” SunTrust Robinson Humphrey analyst Rohit Seth said in a report.

Based on that, analysts are estimating the $1.625 billion cash price is more than 13 times Bluegrass’ earnings before interest, taxes, depreciation and amortization, or EBITDA.

“We estimate Bluegrass is at least a $100 million EBITDA property,” Elliott said.

Seth also noted Martin Marietta “did state that the EBITDA margin at Bluegrass is consistent with its own.”

According to Martin Marietta’s website, its EBITDA margin is 17.6 percent of net sales.

Put that all together (the margin plus the estimate of at least $100 million in annual EBITDA), and it calculates to annual revenue of at least $568 million for Bluegrass.

Bluegrass is headquartered in the BB&T Tower at 200 W. Forsyth St. in Downtown Jacksonville, but the company doesn’t have any production sites in Florida.

It produces construction aggregates and concrete at 23 locations in Georgia, South Carolina, Maryland, Kentucky and Tennessee. Analysts think it’s a good addition for Martin Marietta.

“We view this deal in a positive light, as we believe Bluegrass’s solid portfolio of assets provides astrong complement to Martin Marietta’s existing footprint in the SE and Mid-Atlantic regions.” Norfleet said.

Also, “Bluegrass provides Martin Marietta with a new strategic growth platform in Maryland,” he said.

Shipments in that market have been down recently, “providing Martin Marietta ample opportunity for growth as these markets become more active and benefit from an accelerated economic recovery,” he said.

“We believe it is strategically important that Martin Marietta diversifies exposure away from Texas, and into earlier cycle markets,” said Seth.

“This deal makes a solid contribution toward this end.”

Rayonier AM-Tembec talks took months

Rayonier Advanced Materials Inc.’s merger with Canadian company Tembec Inc. was more than a year in the making and originally involved only a portion of Tembec’s business.

However, Rayonier AM in January expressed interest in acquiring the entire company, starting several months of negotiations culminating in a merger agreement in May, according to a Tembec proxy statement.

The $807 million deal will greatly increase the size and earnings power of Rayonier AM, which will remain headquartered in Jacksonville after the merger.

The proxy statement shows Rayonier AM had first-quarter revenue of $201 million, but the addition of the larger Tembec would have increased revenue to $502 million.

While Rayonier AM reported earnings of 15 cents a share, the merged company would have produced earnings of 47 cents, it said.

Both Rayonier AM and Montreal-based Tembec produce cellulose specialty products, although they serve different segments of the industry. 

Tembec has product lines beyond cellulose specialties, including lumber, paperboard and newsprint.

According to the proxy, Rayonier AM began discussing a purchase of only Tembec’s specialty cellulose pulp business segment in April 2016, while Tembec talked to other companies about buying its other operations.

Tembec had retained investment bankers in May 2015 to assess strategic alternatives as the company experienced liquidity issues, it said.

In the months after negotiations with Rayonier AM began, Tembec’s financial and liquidity positions improved, and company officials did not receive any “acceptable” offers for its businesses, it said.

But in January, Rayonier AM Chief Executive Paul Boynton approached Tembec about a possible bid for the entire company, and negotiations began.

Tembec has scheduled a special meeting for July 27 in Montreal for shareholders to vote on the acquisition.

The companies hope to complete the merger in the second half of this year.

Rayonier Inc. settles shareholder suit

Attorneys for a group of Rayonier Inc. shareholders last week announced a settlement of a class action lawsuit against the Jacksonville-based timber and real estate company.

Rayonier Inc. and Rayonier AM split into separate public companies three years ago.

The shareholder lawsuit involved a restatement of financial statements issued before the split.

Under the settlement agreement, Rayonier Inc. will pay a total of $73 million to stockholders who bought shares between Oct. 26, 2010, and Nov. 7, 2014.

The average recovery will be $1.11 per share purchased, according to court documents.

U.S. District Judge Timothy Corrigan issued a preliminary approval of the settlement June 1.

A final hearing on the settlement is scheduled for Sept. 8 in federal court in Jacksonville.

Dick’s Wings chain sees earnings rise

ARC Group Inc., operator of the Dick’s Wings & Grill restaurant chain, reported higher 2016 earnings last week.

The company reported adjusted earnings of $330,927, or 5 cents a share, for the year, up from $105,458, or 2 cents a share, in 2015.

Revenue rose 32 percent to $1.275 million.

Jacksonville-based ARC Group’s yearend earnings report was delayed because of accounting issues related to its acquisition of two franchised Dick’s Wings restaurants at the end of the year. Previously, all 22 restaurants were owned by franchisees. 

The company also has delayed its first quarter report for this year as it gets its accounting up to date.

Taking ownership of the two restaurants will significantly increase revenue.

ARC Group said the two sites are expected to produce $3.6 million in revenue this year.

The company’s franchised restaurants averaged $47,837 in royalties last year.

Besides Dick’s Wings, ARC Group owns a 50 percent interest in the franchisor of Wing Nutz, a restaurant chain with 12 locations in the Western U.S.

The company also announced an agreement in February to acquire the Yobe Frozen Yogurt chain.

“Moving forward, we intend to open additional restaurant locations through low-cost conversions and seek additional acquisition opportunities for premium restaurant brands,” CEO Richard Akam said in a news release.

The company’s long-term goal is to transform ARC Group into “a holding company comprised of a diversified portfolio of leading brands and profitable businesses that are all strong contributors to our bottom line,” he said.

Landstar’s Gattoni ‘well liked’

In a preview of second-quarter earnings of transportation companies, Stifel analysts provided an interesting observation of Jim Gattoni, who was promoted from chief financial officer to chief executive officer of Landstar System Inc. at the beginning of 2015.

“Our research suggests that Mr. Gattoni supplements his accounting competence with a visible, upbeat leadership style that is well liked by the strategically critical Landstar agent family,” the analysts’ report said.

Jacksonville-based Landstar doesn’t own trucks, but uses a network of agents to contract with drivers who own their own trucks to transport freight.

The analysts are optimistic about Landstar’s performance.

“We believe the stock will likely perform as supply and demand once again tighten around the truckload market and as the return to legacy core strategy generates additional organic momentum. Large flatbed and heavy-haul capabilities position the company well for America’s industrial renaissance,” they said.



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