UPDATE: I have published an update to this article which can be viewed here.

On 23 November 2018 Brickworks (ASX: BKW) announced to the market that they acquired Glen-Gery from Ibstock plc. Glen-Gery is the fourth largest brick manufacturer by volume in the United States. On 3 December 2018 Brickworks announced that it sold 7.9 million shares in Washington H. Soul Pattinson (ASX:SOL) to pay for the acquisition. The total cost of the Glen-Gery purchase was $141 million (AUD). The sale of the SOL shares raised $154 million in net proceeds more than offsetting the cost of the acquisition.

As many of you may know, Brickworks is a real favourite company of mine due to its wonderful dividend history, great conservative management team, diversified earnings and the fact that it is trading at a 30% discount to its underlying asset value. I have already done an analysis of Brickworks here, which you may like to read to get an overview of how Brickworks operates (hint: it does more than just make bricks!)

This article will analyse the brick manufacturing market dynamics of the United States, what Brickworks future ‘bolt-on’ acquisitions could be and analyse Glen-Gery’s competitors.

Glen-Gery and Ibstock: A History

Glen-Gery was founded in 1890 making it 129 years old as of 2019. Ibstock is over 200 years old. Ibstock was listed on the London Stock Exchange in 1963 and acquired Glen-Gery in 1979. CRH in-turn acquired Ibstock in 1999 (including Glen-Gery).[i] CRH is a large diversified group of building products businesses.

Under CRH Glen-Gery became part of their US operations separating Glen-Gery from Ibstock. On 15 December 2014, CRH came to an agreement with Bain Capital to sell Ibstock Group and Glen-Gery. Bain completed its purchase of Ibstock in February 2015.[ii] Under Bain Capital Glen-Gery became part of Ibstock again as it had been prior to 1999.

In October 2015 Bain Capital floated Ibstock (including Glen-Gery) on the London Stock Exchange. Fortunately for us, when Ibstock re-joined the public markets it lodged a Prospectus. That Prospectus contains some very useful information which we would otherwise not have access to. The data in the prospectus is from 2014, however it is still exceptionally useful for gaining insight into Glen-Gery.

In 2018, Ibstock sold Glen-Gery to Brickworks for $137 million AUD (equivalent to 8 times EBITDA). The main reason for the sale was to improve Ibstock’s balance sheet. Commenting on the sale, Ibstock CEO Joe Hudson stated:

“We have concluded that opportunities to grow the US business are not in line with our overall strategic objectives, and the decision was taken to dispose of these assets and refocus the Group on its core markets here in the UK. Following a competitive process, we believe that this is the best outcome for both Glen-Gery and Ibstock plc.”

Commenting on the purchase, Brickworks stated in its 2019 Half Yearly Report and Accounts:

“With a strong platform now established following the Glen-Gery acquisition, Brickworks is well placed to pursue growth in the United States and participate in the ongoing industry consolidation that is underway. Unlike Australia, the United States brick industry is highly fragmented, with significant over-capacity, and consists of numerous players operating at sub-optimal factory utilisation. As a result, Brickworks is actively investigating bolt-on acquisition opportunities in the United States, that will drive cost savings through realisation of operational and administrative synergies. Any additional acquisitions are expected to be funded from existing debt facilities.

Consistent with our strategy, Brickworks will bring a long-term focus to operations in North America, and opportunities will be evaluated with a disciplined and methodical assessment process. It is anticipated that the transition to a highly efficient and fully utilised plant network, incorporating bolt-on acquisitions, plant upgrades and rationalisation of facilities, will take approximately three to five years to complete.”[iii]

U.S Brick Market

The United States brick market is highly fragmented and regional.[iv] There are approximately 38 manufacturers in the U.S compared to 5 in Australia or 13 in the UK.[v] Approximately 30 of these brick manufacturers are family owned and 8 of them are publicly owned or part of a larger conglomerate. In recent years there has been a trend of consolidation in the industry starting in 2016 when Boral Bricks and Forterra entered into a joint venture. More recently, Wienerberger AG acquired two family owned brick manufacturers: Columbus Brick Company and Watsontown Brick Company.

Please see the table below for details of the companies operating in the industry. The blue shaded rows indicate the company is a non-family owned company which is either part of a conglomerate or is publicly listed. The companies in non-shaded rows are family-owned.

Please keep in mind that I compiled this information from publicly available sources by myself without access to a paid research service. Therefore, there will obviously be inaccuracies and minor errors. Also note that the brick capacity number can refer to either the maximum capacity of a company’s plants or the current capacity and may not be counted according to the Standard Brick Unit convention. For example, Brickworks says that Glen-Gery is the fourth largest brick manufacturer by volume but according to publicly available data Belden Brick is the fourth largest. This discrepancy is likely due to one company using potential manufacturing capacity and the other using the actual number of bricks manufactured in a given year.

NameBrick Manufacturing CapacityStates with Manufacturing PresenceRanking by number of bricks manufactured
Meridian Brick1.778 millionPlant locations (Canada): Ontario and Quebec
Plant locations (U.S): Alabama, Georgia, Indiana, Kentucky, Louisiana, Michigan, North Carolina, Oklahoma, South Carolina, Tennessee and Texas
Formed when Boral Brick and Forterra Brick merged in 2016. Has 1200 employees.
1
Acme BrickN/AArkansas
Colorado
Kansas
Mississippi
Oklahoma
Texas
Minnesota
Has very strong presence in Texas and Arkansas. In 2008 became largest brick manufacturer by volume until surpassed by Meridian.
2
Wienerberger
General Shale
Arriscraft
Watsontown Brick Company
Colombus Brick
General Shale: N/A Watsontown: 95 million
Colombus Brick: 140 million
Colorado
Georgia
Indiana
Mississippi
North Carolina
Tennessee
Virginia
8 Brick Plants and 2 Stone Plants.
Operates manufacturing facilities in nine states and provinces, 40 General Shale branded retail showrooms and 300 affiliated distributors across North America
3
Belden Brick
Redland Brick
250 millionRedland Brick Plants
2 Plants (Maryland)
1 Plant (Pennsylvania)
1 Plant (Connecticut)
1 Plant (Virginia)
Belden Brick Plants
6 Plants (Ohio)
2 Brick Distributorships
Supplies New England and Mid-Atlantic markets.
4
Glen-Gery230 millionPennsylvania
Ohio
Iowa
Illinois
5
Lee Brick165 millionNorth Carolina (4-5 Plants)6
Palmetto Brick150 millionSouth Carolina (1 Plant)7
Sioux City Brick100 million [160 million capacity]Iowa (2 plants)
Sales office in Omaha, Nebraska
Architectural experts.
8
Brampton Brick100 million (Indiana Plant only)
300 million (Ontario)
Indiana
Ontario
9
Carolina Ceramics Brick Company80 millionNorth Carolina (more than one Plant)10
Statesville Brick Company75 millionNorth CarolinaN/A
Kentwood Brick50 millionLouisiana.
Largest brick manufacturer in Lousiana and one of the top producers in the Southern United States. Mainly residential.
N/A
BrickCraft40 millionIndiana (South Central). Supplies Bricks to distributors.N/A
Pacific Clay Products40 million (at least)CaliforniaN/A
Bowerston ShaleN/AOhio (2 Plants)N/A
Cherokee BrickN/AGeorgia and Mississippi. Available in 32 states.N/A
Continental Brick CompanyN/AWest Virginia (1 Plant) (Only Brick Manufacturer in West Virginia)
Services West Virginia, Washington D.C, Mid-Atlantic and New England areas
N/A
Commercial Brick CorporationN/AOklahomaN/A
EndicottN/ANebraska (services Iowa as well)N/A
Hebron Brick CompanyN/ANorth Dakota (only manufacturer in North Dakota)N/A
Pacific Coast Building Products Inc.
H.C. Muddox
Gladding McBean
Interstate Brick
N/ACalifornia
Utah (Interstate Brick Headquarters)
N/A
MB Holdings LLC (Omani Conglomerate)
Mangum Brick Company
N/AOklahomaN/A
Pine Hall BrickN/ANorth CarolinaN/A
Renaissance Brick (Hand Made Bricks)N/AUtahN/A
Röben – worldwide. Röben is the biggest privately-owned ceramics company in Germany
Triangle Brick Company
N/ANorth Carolina (5 Plants). Has a Plant in Texas.N/A
Kansas Brick & Tile
Cloud Ceramics
N/AKansas (3 Plants)N/A
Marion CeramicsN/APeedee, North Carolina (1 Plant)
Only manufactures thin brick veneer, pavers and pool coping.
N/A
Old Carolina Handmade BrickN/ANorth Carolina
Used throughout the United States
N/A
Mutual MaterialsN/AWashington, Oregon, Idaho, Montana, and British Columbia.N/A
Real Thin BricksN/AWashington (Seattle)N/A
Morin BrickN/AMaine. Supplies many universities. Throughout U.S and Canada.N/A
Marion CeramicsN/ASouth Carolina (one Plant)N/A
Richards Brick CompanyN/AIllinois and Missouri. Supply to St. Louis area.N/A
Mack Brick CompanyN/ANew England. They are New England’s oldest brick supplier.N/A
Stiles and Hart Brick CompanyN/AMassachusetts. Only brick manufacturer in Massachusetts.N/A
Taylor Clay Products Inc.N/ANorth Carolina.
Focusses predominately on architectural market.
N/A
Henry BrickN/AAlabama. Supplies southern, eastern and Midwestern United StatesN/A
McAvoy BrickN/APennsylvania. Sold through distributors primarily in north-eastern states.N/A
Ragland Clay ProductsN/A1 'Boutique' Plant in Ragland, AL, east of Birmingham, ALN/A
McNear Brick & BlockN/ANorthern CaliforniaN/A

Glen-Gery’s main brick manufacturing competitors are national players Meridian Brick (a joint venture between Boral and Forterra), General Shale Inc. (a unit of Wienerberger AG) and Acme Brick Company (a unit of Berkshire Hathaway Inc.). Glen-Gery also competes with regional player Belden Brick Company which is family owned. I will discuss in depth Glen-Gery’s competitors when I analyse the bolt-on acquisition opportunities.

New entrants to the industry are unlikely. It could take up to six years for a new entrant to build a new facility due to the time needed to find and access suitable clays, acquire planning permission for a factory, construct the manufacturing plant and achieve full commissioning.[vi] The most viable way to enter the industry is via acquisition of an existing brick manufacturer.

The U.S cladding market has very different aesthetic tastes to Australia with vinyl being the most popular choice of primary facing product. Only thirty-six percent of new houses use brick according to Ibstock.[vii]According to Brickworks, bricks share of detached house walling is 22%.[viii]

As a result, American brick manufacturers also compete with manufactures of alternative primary facing products. Part of the reason for this is the earthquake risk in western states. As stated in the Ibstock Prospectus:

“Due to the prevalence of alternative building materials in the United States, Glen-Gery also competes with manufacturers of other materials such as wood, vinyl, fibre cement stucco and manufactured stone. Glen-Gery attempts to distinguish itself from its competitors by its customer service, its focus on quality, the breadth of its product portfolio, premium positioning and its manufacturing footprint.”[ix]

One of these competitors includes ASX-listed James Hardie, who has been reporting increased market share for its fibre cement cladding products in recent years. Despite this, brick is still in demand due to building covenants mandating the use of brick to maintain the heritage of many local areas and consumer preference.

Canadian Brick Market

In addition to competition from U.S brick manufacturers, brick imports from Canada and abroad also compete with Glen-Gery’s products. This is particularly relevant for Glen-Gery as its markets are right next door to Canada. Fortunately, the Canadian brick market is much smaller than the American one. According to the Clay Brick Association of Canada the following companies manufacture 99+% of Canadian made clay brick: Brampton Brick, Meridian Brick, JazBrick and Shaw Brick. General Shale and Mutual Materials also manufacturer brick in Canada.

  1. Shaw Brick is part of a larger conglomerate, The Shaw Group. Shaw Brick is a manufacturer, distributor and retailer of clay brick, concrete block and natural stone products. Shaw Brick is located in Nova Scotia and New Brunswick.
  2. JazBrick is Canada’s leading boutique clay brick manufacture and distributor of brick and stone. It is located in Ontario.
  3. Brampton Brick is Canada’s second largest brick manufacturer, producing 300 million brick equivalents a year from its facility in Brampton, Ontario. This is the largest facility in North America. It also has a manufacturing Plant in Farmersburg, Indiana with an annual output of 100 million brick equivalents a year. It is publicly listed with a market capitalisation of CAD $60 million. Additionally, it should be noted that Brampton is currently making a loss which the company is attributing to a cyclical low in the Canadian building cycle in 2019.
  4. Meridian Brick, General Shale/Wienerberger and Mutual Materials also have a presence in both the United States and Canada.

It is important to note that every brick manufacturer listed above (except Mutual Materials) has a presence in either Ontario, Quebec, Nova Scotia and/or New Brunswick which are all directly north of the markets served by Glen-Gery.

Glen-Gery Sales Mix and Markets

Glen-Gery is a leader in the Northeast, Midwest and Mid-Atlantic markets of the U.S. Glen-Gery has a 24% market share in the Northeast and Midwest regions based on volume of despatches.[x]In 2014, 65% of Glen-Gery’s revenue was generated from the Northeast region.[xi]Glen-Gery has a focus on the premium architectural markets with broad end-market exposure.[xii]

Higher margin architectural products sold to the non-residential, multi-residential and paving segments make up 65% of Glen-Gery’s sales.[xiii]This compares favourably to the wider U.S brick industry where sales in these sectors make up around 25% of revenue.[xiv]

Glen-Gery is heavily reliant on independent distributors, with 72% of sales in 2014 going to independent distributors.[xv] Half of Glen-Gery’s customers are distributors, with the rest consisting of builders, contractors and developers.[xvi] Glen-Gery’s top 10 customers were all distributors and accounted for 29% of revenue in 2014.[xvii] Glen-Gery also operates a network of 10 resale centres in areas where there is limited distributor presence.[xviii]

Any future downturn in housing resulting in consolidation of distributors could be detrimental to Glen-Gery. In the US, both prior to and after the financial crisis, there was significant consolidation in the construction industry.  Any future consolidation of distributors and builders could strengthen the market and pricing power of the large distributors and builders which may increase pricing pressure on the sales of bricks.[xix]There are currently 150+ independent distributors in North America, so the risks of consolidation are minimal at present.

Brickworks Integration Plans for Glen-Gery

As you can see in one of the presentation slides below, Glen-Gery is much less efficient compared to Austral Bricks. Regarding the integration process for Glen-Gery, Brickworks has stated:

“Progress is underway on key strategic initiatives, in support of Glen-Gery’s focus on high margin architectural products, including: Securing exclusive agreements with Brickworks European partners, for the supply of premium imported products into the United States; The development of plans to renovate the existing New York design studio and to establish a new studio in central Philadelphia; and as part of the operational improvement plan, the company is investigating a new state of the art plant at the Mid-Atlantic site, in addition to a heavy refit of the existing plant at the same location. This 600-acre site in Pennsylvania is ideally located to service the north-eastern region of the United States. By investing in the country’s largest and most efficient single production line, the company will be well placed to service this key region for decades to come.”[xx]

Acquisition Funding

As you can see above (near the start of the article), Brickworks will be funding any bolt-on acquisitions with existing debt facilities. As of the January 2019 Half Yearly Report Brickworks had approximately $330 million in debt. After including cash on hand Brickworks net debt is $242 million. Brickworks has four main sources of debt:

  1. An unsecured $355 million variable interest rate syndicated loan facility which was established in December 2016. As of 31 January 2019, the facility was drawn to $36 million (2018: $208 million). The three tranches of the facility mature between December 2019 and December 2021.[xxi]
  2. A working capital facility of $100 million until December 2020. As of 31 January 2019, the facility was drawn to $15 million.
  3. A $100 million syndicated Institutional Term Facility which is fully drawn. These Facility’s mature between 2026 and 2028.[xxii]
  4. A USD $150 million 12-month Bridge Facility to fund the Glen-Gery acquisition. As of 31 January 2019, the Bridge Facility was drawn to USD 130 million (AUD $178.9 million). The Bridge Facility was used as a hedging instrument against currency risk. Brickworks plans to re-finance this facility in the second half of 2019 with separate AUD and USD tranches.

If we exclude the working capital facility and the 12-month USD Bridging Facility, Brickworks could theoretically borrow up to $319 million to fund any acquisitions. However, I think it is very unlikely that Brickworks will borrow this full amount due to the funding needs of the rest of Brickworks business, the maturity period of the facility and management’s conservative nature. Nevertheless, Brickworks clearly has plenty of ‘wiggle room’ regarding how it can fund its bolt-on acquisitions, in addition to selling off more Soul Pattinson shares (they have $2 billion worth!).

Potential Acquisition Targets

Brickworks acquisition targets will vary depending on what sort of acquisition strategy they plan on implementing. Is Brickworks going to focus on acquisitions in its core markets of the Mid West, North East and Mid Atlantic to solidify its dominance in the region? Or are they going to expand into other geographic areas? The Glen-Gery division of Brickworks is called Building Products North America, does this mean that they plan to expand into Canada? Will Brickworks consider acquiring distributors? What about related companies such as stone product manufacturers?

I don’t know the answers to these questions, but I will try to give you some ideas around potential paths Brickworks may take. Knowing my past record of predicting the future, Brickworks will probably take an entirely different approach to anything I mention here!

Brickworks could probably afford to acquire just about any brick manufacturer in North America, with the obvious exception of the Big Three manufacturers (Meridian, Acme and General Shale).

I also think that, at least in the next five year, Brickworks will only be acquiring brick manufacturers, not distributors, stone product manufacturers such as Eaves Stone or diversified masonry product manufacturers such as Nitterhouse Masonry Products, even though they do manufacture clay bricks as part of their range.  I also think that it is unlikely that Brickworks will acquire many brick manufacturers in Pennsylvania due their significant planned capital investments in that state.

The Big Three: Meridian, Acme and General Shale dominate the southern states. I created some charts below which map the market presence of some of the major manufacturers. The Wienerberger data is based on data from their 2017 Annual Report and thus understates their market positions in some states due to their recent acquisitions. The Meridian market data is based on Boral Limited’s most recent update on Meridian in 2019. Acme data was unavailable, but their market presence can be inferred.

Glen-Gery Markets. Source: Author
Glen-Gery and Meridian Markets. Source: Author
Wienerberger Core Brick Markets. Source: Author
Wienerberger Market Position by State. Source: Author

As can be seen from these charts, General Shale dominates in Indiana, Kentucky, Tennessee, West Virginia, Virginia, Georgia, Mississippi and Georgia. Merdian’s presence is similar to General Shale’s although they also cover Texas and Oklahoma, the heartland of Acme.

I think it is incredibly unlikely that Brickworks will be making any acquisitions in the Southwestern states, particularly Texas and Arkansas, any time soon if ever. This is because the presence of Acme Brick. Harrold Melton, then CEO of Acme Brick has the following to say about Acme as quoted in The Warren Buffett CEO: Secrets from the Berkshire Hathaway Managers by Robert P Miles:

“Acme Brick,” he says, “is the best-known [brick] brand in the United States, by all the studies I’ve ever seen. And in our major brick markets in the Southwest, Acme has 75 percent name recognition among new home buyers. Not among builders, but among consumers. The next best brand recognition might be 15 percent, so there’s just no comparison.” This enormous name recognition, Melton says, is largely a result of advertising. “We began an advertising and publicity campaign in the mid-1970s,” he says, “and it’s still going on today. So, we’ve had a strong program in place for a long time.” Recently, Acme Brick used Warren Buffett to tote its brand on a special advertising cover of Sports Illustrated with the following quote, “Brick could have been my best investment ever.”

Acme Brick’s chief executive notes, though, that there is another factor as well. “By plan and by design,” he says, “Acme Brick Company sells about 95 percent of our production directly to the person who actually pays for the product, who actually uses the product. Nationwide, that percentage would probably be 35 percent or so. Over the years,” he says, “we’ve put together our own distribution system, so we have our own locations and our own people – 40 locations throughout the six-state area, through which we sell direct to the person who uses the product.”[xxiii]

Acme’s brand and distributor presence in the South-West is difficult to compete with. Acme’s dominance in the South-West and General Shale’s dominance to the South-East indicate that entering into these markets would be a difficult undertaking for Brickworks. It is interesting to note that Meridian has plants in almost every one of the southern states but does not have the top market position in many of them (they are also loss-making at the moment).

Acquisition Prospects

There are many acquisition prospects for Brickworks. As you can see in the chart I made below, most states have a family owned brick manufacturer present.

States with family-owned brick manufacturer present. Pennsylvania also has one family owned brick manufacturer present (not displayed). Source: Author

It must be noted at the outset that many of the family owned companies throughout the U.S may not wish to be purchased by Brickworks or any company for that matter. Some of these companies have histories which go back more than a century and as such may not wish to be part of a larger company. This tendency may be offset a little by Brickworks stated position that they will not be telling acquired American brick manufacturers how to run their business. They want to learn how the American industry works first. Brickworks will likely want to purchase businesses with great management which Brickworks can rely on to efficiently run the business while learning the details of how the American brick industry operates. Despite this, I’m sure there are at least a few family-owned brick manufacturers who would like to sell to Brickworks due to lack-of-interest, financial issues or memories of the effect of the financial crisis on their business.

One of the Brickworks most significant competitors outside of the Big Three is Belden Brick. Belden Brick services the same markets as Glen-Gery, with a focus on the north east of the country. Belden Brick is about the same size as Glen-Gery in terms of number of bricks produced and is the largest family-owned brick manufacturer. Clearly, Belden Brick would be an ideal acquisition for Brickworks as it would substantially increase their market share in the north east and result in high synergies. This would be a large acquisition for Brickworks and may not be approved on competition grounds, assuming of course that Belden Brick was willing to sell. Additionally, Brickworks may not be interested in purchasing Belden since Glen-Gery already has a substantial presence in the north east market.

Belden Brick and Redland Brick Presence. Distribution presence is likely larger than appears on this graph. Exact presence by state is hard to determine.

North East Expansion

One strategy Brickworks could adopt is to increase its dominance of the north eastern market, namely the mid-Atlantic and New England states. The goal would be to acquire some of the many small family-owned brick manufacturers in the region.

Mack Brick Company is one such acquisition target. They service the New England market and are New England’s oldest brick manufacturer. Acquiring Mack Brick would strengthen Glen-Gery’s presence in the New England market.

Another likely acquisition target is Stiles and Hart Brick Company. They are the only brick manufacturer in Massachusetts. Acquiring Stiles and Hart Brick would improve Glen-Gery’s presence in the north east of the United States.

Morin Brick is located in Maine and supplies many universities with bricks throughout the United States and Canada. Acquiring Morin Brick would be a logical choice for Brickworks as they have an architectural focus and they service similar markets to what Glen-Gery does. There would likely be many synergies between the two companies.

McAvoy Brick located in Glen-Gery’s home state of Pennsylvania could also be a company Glen-Gery is interested in purchasing to solidify their presence in Pennsyvania.

Mid-West Expansion (most likely)

Another acquisition strategy Brickworks could implement would be to acquire some of the smaller brick manufacturers throughout the mid-west. This would increase Glen-Gery’s presence in this market.

One of the largest brick manufacturers in the region is Sioux City Brick who manufactures approximately 100 million bricks per annum (capacity: 160 million). They have two plants in Iowa and a sales office in Omaha, Nebraska. The most attractive part of Sioux City Brick is that they have a lot of architectural expertise, which compliments Glen-Gery nicely.

[August 2019 Update: Brickworks has acquired Sioux City Brick for US$32 million ($47 million AUD) using existing debt facilities. This acquisition will compliment Glen-Gery nicely. See this article for more information.]

Continental Brick Company would also be a logical bolt-on acquisition. They are the only brick manufacturer in West Virginia. Continental Brick services West Virginia, Washington D.C, the Mid-Atlantic and New England areas.

Richards Brick Company services the St Loius area in Illinois and Missouri. Acquiring this company would improve Glen-Gery’s presence in the Mid-West. The Big Three also have a limited presence in Illinois and Missouri.

BrickCraft is another potential acquisition target based in Indiana. They supply 40 million bricks per annum to distributors.

Bowerston Shale is another acquisition target. They have two plants in Ohio. Hebron Brick Company is another likely acquisition target as it is the only brick manufacturer in North Dakota. Endicott, based in Nebraska and servicing Iowa, is another acquisition potential target which could increase Brickwork’s market share in the mid-west.

West Coast Expansion

If Brickworks wishes to expand its geographic reach without going south the only other place to go within the U.S would be the west coast.

The best company to acquire on the west coast is Mutual Materials. Mutual Materials has a dominant position in Washington, Oregon, Idaho, Montana and British Columbia (Canada). The Big Three have minimal presence in the north west of the United States. Mutual Materials also has Canadian exposure in British Columbia.

If Brickworks wanted to further expand its presence in the state of Washington, Real Thin Bricks could also be a potential target as their thin brick intellectual property could be valuable to the business. At present, Glen-Gery’s thin brick range is limited compared to some competitors.

Pacific Clay Products Inc. is another brick company focussed on Northern California. They produce over 40 million bricks per annum. The two other California focussed brick manufacturers are H.C Muddox and Gladding McBean who are owned by Pacific Coast Building Products Inc. Acquiring any of these companies would give Brickworks significant west coast exposure.

Southern Expansion

Despite the presence of the Big Three in the southern states, there are still many family-owned businesses with dominant market positions in each state, particularly in North and South Carolina.

The largest of the family-owned brick manufacturers in the Carolinas is Lee Brick. Lee Brick manufactures 165 million bricks per annum in North Carolina. The second largest manufacturer in the region is Palmetto Brick, who manufactures 150 million bricks per annum from one plant in South Carolina.

The third largest family owned manufacturer in the Carolinas is Carolina Ceramics Brick Company who manufacture 80 million bricks per annum from North Carolina. Statesville Brick Company is the fourth largest manufacturer. They produce 75 million bricks per annum from North Carolina.

Another large North Carolina brick manufacturer is Triangle Brick Company owned by Röben, the largest privately-owned ceramics company in Germany. Triangle Brick has 5 plants in North Carolina.

Acquiring any of these companies could instantly give Brickworks a solid presence in the south from which they could expand upon.

One smaller company in the Carolinas which Brickworks may be interested in is Taylor Clay Products Inc., who predominately focus on the architectural market. This would be an obvious choice for Brickworks given their architectural expertise.

Pine Hall Brick, Marion Ceramics and Old Carolina Handmade Bricks are other small family owned brick manufacturers located in North Carolina which Brickworks may acquire.

If Brickworks were to expand south, the Carolinas seem like the best place start based on the number of acquisition opportunities available.

Outside the Carolinas, Henry Brick is also another acquisition target. It is based in Alabama and services southern, eastern and mid-western states.

Kentwood Brick, in Louisiana produces 50 million bricks per annum. Kentwood is the largest brick manufacturer in Louisiana. They have a primary focus on the residential market. Kentwood would not be a likely acquisition target due to their proximity to the Big Three’s markets and their focus on residential rather than architectural markets.

Cherokee Brick, in Georgia and Mississippi could also be an acquisition target although they are in markets dominated by the Big Three. Likewise, Commercial Brick Corporation and Mangum Brick Company located in Oklahoma would not be a likely acquisition target due to their location in markets dominated by the Big Three.

Canadian Expansion

If Brickworks does not want to expand south, they can always go north! The three Canadian brick makers which are realistic acquisition targets: JazBrick, Shaw Brick and Brampton Brick could be attractive acquisitions due to their exposure to Canada and their proximity to Glen-Gery’s existing markets. They also have a good distribution presence within their region.

The largest of these, Toronto Stock Exchange listed Brampton Brick, has a market capitalisation of CAD $60 million (AUD $69 million). Due to its presence in both Indiana and Ontario, it could be an attractive acquisition target due to its geographic diversity and efficient plant operations. Obviously, Brickworks would have to pay a premium to the market capitalisation, so this may not be the cheapest option to gain exposure to Canada. Further, if Brickworks plans to expand its building products offering in North America like it has in Australia then Brampton may be a good place to start as it makes more than just bricks. Nevertheless, due to the large price tag I doubt Brickworks will acquire Brampton since they have stated they are focussing on smaller ‘bolt-on’ acquisitions.

Competition for Acquisitions

As Brickworks has stated, the brick industry in the United States is in the process of consolidation. While this is undoubtedly a good thing for Brickworks, Brickworks is not the only one looking to expand their presence. While Meridian and Acme Brick (Acme has been closing plants) have not been making any acquisitions, General Shale has been active. In October 2017 General Shale acquired Columbus Brick Company, expanding its presence into Louisiana and Mississippi and strengthening their presence in other southern states.  In December 2018 General Shale acquired Watsontown Brick Company, extending the companies presence in Pennsylvania, right in the middle of Glen-Gery’s heartland.

General Shale has stated that it wants to ‘drive consolidation in the US brick market through bolt-on M&A’ and ‘expand geographic market coverage’.[xxiv]This will result in competition for any acquisitions Brickworks want to make.

Source: Wienerberger
Source: Wienerberger
Source: Wienerberger

Conclusion

The economics of brick manufacturing remain attractive and rationalisation of brick manufacturers will continue to drive change in the industry. As Dennis Knautz, President and CEO of Acme Brick states:

“There are things about the industry that don’t change … which ironically drive much of the change the industry is experiencing in the twenty-first century. “Brick is heavy,” Knautz said. “It doesn’t travel well. The natural delivery radius is about 250 miles around the brick manufacturing plant.”

Knautz pointed out another traditional reality that will continue to drive change in the industry. “The brick industry has a major barrier to entry,” he said. “It requires a large amount of capital investment. Because of that, it’s an industry that still has a potential for consolidation. The Mom and Pops have had some miserable years. The question is, are the bankers going to be willing to back the Mom and Pops financially? And that fact could introduce a new wave of consolidations.”[xxv]

Glen-Gery was quite possibly the best possible entry point to the North American market for Brickworks. Not only is Glen-Gery a market leader in architectural products (an area which Austral Bricks excels in), but its core markets have little presence from the Big Three brick manufacturers. This allows Brickworks to build critical scale from which it can expand and solidify its presence throughout North America. Reduction in American brick manufacturing capacity will be good for the larger players in the long term. Brickworks has ample choice of companies it can acquire to bolster its presence throughout its core markets and beyond.

Glen-Gery’s position next door to Canada provides Brickworks with easy access to the Canadian market either by exporting to Canada from the U.S or investing in manufacturing plants in Canada itself.

Combine these opportunities with:

  • a world class management team;
  • diversified earnings across the building cycle due to their investment in Soul Pattinson;
  • a growing portfolio of first tier industrial properties providing rental income through the cycle and asset appreciation;
  • 43 years of stable or growing dividends;
  • a 12.8% compound annual return for the last 50 years; and
  • hostile takeover protection courtesy of the Soul Pattinson cross-shareholding.

Glen-Gery could be the start of something big for Brickworks.

 

[i] Ibstock plc Prospectus pg. 52.

[ii] Ibstock plc Prospectus pg. 52.

[iii] Brickworks Half Yearly Report and Accounts pg. 10.

[iv] Ibstock plc Prospectus pg. 46.

[v] BKW Acquisition of Glen-Gery Investor Presentation slide 16; Michelmersh 2019 Investor Presentation slide 15.

[vi] Ibstock plc Prospectus pg 64.

[vii] Ibstock plc Prospectus pg. 46.

[vii] BKW Acquisition of Glen-Gery Investor Presentation slide 14.

[ix] Ibstock plc Prospectus pg. 58.

[x] Ibstock plc Prospectus pg. 48.

[xi] Ibstock plc Prospectus pg. 49.

[xii] Brickworks Half Yearly Report and Accounts pg. 10.

[xiii] Brickworks Half Yearly Report and Accounts pg. 7.

[xiv] Brickworks Half Yearly Report and Accounts pg. 7.

[xv] Ibstock plc Prospectus pg. 61.

[xvi] Ibstock plc Prospectus pg. 58.

[xvii] Ibstock plc Prospectus pg. 19.

[xviii] Ibstock plc Prospectus pg. 66.

[xix] Ibstock plc Prospectus pg. 16.

[xx] Brickworks Half Yearly Report and Accounts pg. 7.

[xxi] Brickworks 2018 Annual Report pg. 107.

[xxii] Brickworks 2018 Annual Report pg. 107.

[xxiii] The Warren Buffett CEO: Secrets from the Berkshire Hathaway Managers by Robert P. Miles pg. 330.

[xxiv] Wienerberger Results 2018 Presentation slide 34.

[xxv] Acme Brick Company: 125 Years Across Three Centuries pg. 146-147.

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