The Brickworks Limited (ASX: BKW) share price is on watch today after announcing an acquisition last night.
Brickworks is going to expand its distribution network in the US by acquiring the largest independent brick distributor in the country – Illinois Brick Company (IBC).
It’s buying certain assets from Southfield Corporation for $70 million, or US$51.1 million, including IBC.
IBC has 17 showrooms and distribution outlets across Illinois and Indiana.
Brickworks explained that IBC has delivered consistent earnings for several years, with significant growth opportunities and cost synergies available to Brickworks.
Just under half of IBC’s revenue is generated through sales of around 70 million bricks per year. IBC also offers a range of complementary building materials and supplies such as stone, masonry, construction materials and tools.
The transaction is going to be funded by existing debt facilities and is expected to add 2% to profit/earnings per share (EPS). That doesn’t include achieving cost synergies, as well as the implementations of growth plans that are possible.
Brickworks Managing Director Lindsay Partridge 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. The acquisition will significantly increase the scale of our direct distribution network, increasing our store count from 10 to 27..
“Importantly, sales volume through the IBC network will underpin production volume at our Midwest plants, which have ample capacity to accommodate additional sales growth.”
Summary thoughts on Brickworks and the share price
This seems like a sound fit for Brickworks. The US is a huge opportunity for Brickworks and this is a good step towards capturing some of that opportunity where it currently doesn’t have much presence.