In April 2019 I wrote an article analysing Brickworks foray into the North American brick industry when they purchased Glen-Gery. I have since done some more research on the American brick industry and this article aims to remedy some of the mistakes I made in my previous article.
In this article I will give an overview of the U.S brick industry, discuss Brickworks’ future acquisition strategy and analyse Brickworks’ competitors. I will also give an update on Brickworks recent bolt-on acquisitions of Sioux City Brick, their acquisition of four plants from Redland Brick and what it means for Brickworks North America. The main aim of the article is to determine if Brickworks will be able to successfully operate in the North American brick industry. For my analysis of Brickworks see this article. For my brief article on Brickworks bolt-on acquisition of Sioux City Brick, see this article. Please note that I do not work in the brick industry so all information is sourced from public sources online.
The United States Clay Brick Industry
The U.S brick industry consists of ≈ 38 manufacturers primarily concentrated in the east half of the country. Ever since the GFC, the U.S clay brick market has been characterised by industry-wide capacity under-utilisation and a difficult pricing environment. For example, from 2004 to 2006 prior to the financial crisis, Glen-Gery was utilising approximately 95% of production capacity for most of the year. When Brickworks bought Glen-Gery, capacity utilization was substantially lower. Brickworks aims to improve Glen-Gery’s capacity utilisation by making smaller bolt-on acquisitions and subsequent plant rationalisations as well as investing in upgrades to Glen-Gery’s plants. Capacity under-utilisation has occurred across the entire brick industry, with other large manufacturers such as Acme Brick having to reduce their manufacturing capacity to match current demand.
External cladding demand is the primary driver of brick demand. Unlike countries such as Australia, brick’s share of the North American external cladding market is just 10%. The North American cladding market is dominated by vinyl (29%), fiber cement (20%) and engineered wood (19%).
When analysing the U.S brick industry, I like to separate the U.S into five different regions: Western Region, Mid-West Region, Greater Texas Region, North East Region and South East Region. This roughly reflects the markets most brick manufacturers operate in. Brickworks divides the North East region even further into the Mid-Atlantic market and the North East market, but for this article the difference is immaterial. The Greater Texas and South East regions account for most brick sales in the Unites States, primarily to residential markets. Texas is the number one manufacturer of bricks while North Carolina ranks number two. North Carolina is also home to many large to medium sized family-owned brick manufacturers while Texas is dominated by large publicly owned manufacturers. Regardless of region, most brick manufacturers operate their own distribution outlets in addition to distributing their bricks via many of the 800+ independent brick distributors.
Across these five regions there are anywhere from 38 to 51 manufacturers, depending on whether you consider the extremely small manufacturers and specialised manufacturers such as manufacturers who only make thin brick, pavers or glazed brick. In the North East and Mid-West Regions, brick use is dominated by commercial and architectural applications. The Greater Texas and South East regions have high brick use intensity in residential construction with less of a focus on the architectural and commercial market. The Western region has the lowest brick use intensity with states closer to the Mid-West and Texas generally having higher usage intensity.
I have found almost every clay brick manufacturer in the United States and I have collated this information into the below tables. Finding information on the size of many of these manufacturers is extremely difficult so there may be errors, especially for the smaller manufacturers. A brick manufacturer’s size is based on the number of bricks they manufacture per year. In some cases, this is based on their brick manufacturing capacity and in other cases this number is based on actual production. This can lead to significant over or under stating of the size of the company. Where available production numbers have been used but finding reliable information is difficult. The Brick Industry Association provides market share information to manufacturers, but since I’m not a manufacturer I don’t have access to it. For many of the smaller companies the size of the company has been estimated.
|Brick Manufacturers Ordered by Approximate Number of Bricks Manufactured (Descending Order)|
|Company||States with Manufacturing Presence In|
|Meridian Brick (Boral and Forterra)||Texas, Ontario (Canada), Alabama, Oklahoma, Georgia, North Carolina, South Carolina, Michigan, Tennessee, Kentucky and Indiana|
|Acme Brick (Berkshire Hathaway)||Texas, Arkansas, Alabama and Oklahoma|
|General Shale (Wienerberger)||North Carolina, Mississippi, Indiana, Georgia, Colorado, Tennessee, Virginia and Pennsylvania|
|Glen-Gery (Brickworks)||Pennsylvania, Iowa, Maryland, Virginia, Ohio and Illinios (+ Stone plant in Kentucky).|
|Triangle Brick (Röben)||North Carolina and Texas|
|Belden Brick||Ohio and Connecticut|
|Brampton Brick||Ontario (Canada) and Indiana|
|Pine Hall Brick||North Carolina and Georgia|
|Cherokee Brick||Georgia and Mississippi|
|Palmetto Brick||South Carolina|
|Lee Brick||North Carolina|
|Pacific Coast Building Products|
- H.C. Muddox
- Interstate Brick
|California and Utah|
|Pacific Clay Products|
- Yankee Hill Brick
|California and Nebraska|
|Bowerston Shale Company||Ohio|
|Hebron Brick Company||North Dakota|
|Endicott Clay Products||Nebraska|
|Carolina Ceramics||South Carolina|
|Statesville Brick||North Carolina|
|Kansas Brick & Tile|
|Summit Brick Company||Colorado|
|McNear Brick & Block||California|
|Continental Brick Co.||West Virginia|
|Taylor Clay Products||North Carolina|
|Mangum Brick (MB Holdings)||Oklahoma|
|St. Joe Brick Works||Louisiana|
|Richards Brick Company||Illinois|
|Old Carolina Handmade Brick||North Carolina|
|Marion Ceramics||South Carolina|
|Kinney Brick Co.||New Mexico|
|Stiles & Hart Brick Co.||Massachusetts|
|Commercial Brick Corporation||Oklahoma|
|+ ≈ 14 Small Specialised Manufacturers in Many States|
Meridian Brick is by far the largest brick manufacturer by market share. Acme and General Shale, the number two and three manufacturers, have an estimated 13% and 10% market share respectively. Belden is the largest family-owned manufacturer, although since they sold Redland Brick to Glen-Gery their market share has decreased. Glen-Gery’s market share is now greater than 6% due to their acquisition of Sioux City Brick and four Redland Brick plants. Pine Hall Brick is the second-largest family-owned brick manufacturer in the country while Cherokee Brick is number three. Pine Hall Brick and Cherokee Brick would be prime acquisition targets for the larger players. Most large brick manufacturers operate in the Greater Texas and South East regions. It must also be noted that what really matters is market share in the regions each company competes in, not total market share of the industry as a whole. For example, Acme does not generally compete with Glen-Gery due to their target markets being so far away from each other, but both manufacturers have high market share in most markets they compete in.
|Brick Manufacturers by Company Size|
|Big Manufacturers||Medium Sized Manufacturers||Small Manufacturers||Tiny Manufacturers (≈ one plant with small capacity)|
|Meridian Brick (Boral and Forterra)||Belden Brick (250 million capacity)||Bilco Corporation (100 million capacity largest independent brick manufacturer in Texas)||McNear Brick & Block|
|Acme Brick (Berkshire Hathaway)||Brampton Brick||Hebron Brick Company (2 Plants)||Continental Brick Co. (15-20 million, 60 million capacity)|
|General Shale (Wienerberger)||Cherokee Brick (2 Plants) (230 million)||Pacific Clay Products (100 million) (including Yankee Hill Brick in Nebraska (30 million))||Taylor Clay Products|
|Glen-Gery (Brickworks) (400 million)||Pine Hall Brick (2 Brick Plants, 1 Paver Plant)||Pacific Coast Building Products|
- H.C. Muddox
- Interstate Brick
|Kentwood Brick (50 million)|
|Triangle Brick (Röben) (3 Plants 500 million)||Lee Brick (165 million)||Henry Brick (100 million)||BrickCraft (40 million)|
|Palmetto Brick (150 million capacity)||Endicott Clay Products (working up to 100 million)||McAvoy Brick (36 million)|
|Carolina Ceramics (80 million)||Mangum Brick (MB Holdings)|
|Statesville Brick (75 million)||St. Joe Brick Works|
|Kansas Brick & Tile|
Cloud Ceramics (2 Plants 70 million)
|Richards Brick Company|
|Summit Brick Company (2 Plants)||Marion Ceramics|
|Mutual Materials||Morin Brick|
|Bowerston Shale Company (2 Plants)||Old Carolina Handmade Brick (10-12 million)|
|Kinney Brick Co.|
|Stiles & Hart Brick Co.|
|Commercial Brick Corporation|
|Smaller Manufacturers of Specialty or Ancillary Products|
|Name||State with Manufacturing Presence In|
|Real Thin Brick||Washington|
|Total Brick Pavers||Florida|
|Nash Brick||North Carolina|
|Old Texas Brick (not manufacturer?)||Texas|
|D’Hanis Brick & Tile Company||Texas|
|Ragland Clay Products||Alabama|
|Renaissance Brick (Handmade Brick)||Utah|
|American Eagle Brick Company||New Mexico|
The companies in the above table are not included in my brick industry analysis due to their small size and/or specialised manufacturing focus. This table is not exhaustive. These companies could be acquisition targets for the larger manufacturers, but their size precludes them having much of an impact on the industry. These companies are either small brick manufacturers, or manufacturers of specialised products such as clay pavers or glazed brick. Clay pavers for example are manufactured by brick manufacturers but is not usually a brick manufacturer’s primary focus (Pine Hall Brick is an exception).
Brick manufacturing is a highly regionalised activity, so it is generally best to look at brick manufacturers based on which region they are located.
|Brick Manufacturers by Region|
|North East Region||Mid-West Region||South East Region||Greater Texas Region||Western Region|
|Glen-Gery (Brickworks)||Glen-Gery (Brickworks)||Meridian Brick (Boral and Forterra)||Acme Brick (Berkshire Hathaway)||General Shale (Wienerberger)|
|General Shale (Wienerberger)||General Shale (Wienerberger)||General Shale (Wienerberger)||Meridian Brick (Boral and Forterra)||H.C. Muddox and Interstate Brick (Pacific Coast Building Products)
|Belden Brick||Meridian Brick (Boral and Forterra)||Acme Brick (Berkshire Hathaway)||Triangle Brick (Röben)||Mutual Materials|
|McAvoy Brick||Belden Brick||Triangle Brick (Röben)||Bilco Brick||Summit Brick Company|
|Continental Brick||Brampton Brick||Cherokee Brick||Kentwood Brick||Pacific Clay Products|
|Morin Brick||Endicott Clay Products||Pine Hall Brick||Mangum Brick (MB Holdings)||McNear Brick & Block|
|Stiles & Hart Brick Co.||Bowerston Shale Company||Lee Brick||St Joe Brick Works||Kinney Brick Co.|
|Kansas Brick & Tile|
|Palmetto Brick||Commercial Brick Corporation|
|Pacific Clay Products (via Yankee Hill Brick in Nebraska)||Henry Brick|
|Hebron Brick Company||Carolina Ceramics|
|Richards Brick Company||Statesville Brick|
|BrickCraft||Taylor Clay Products|
|Old Carolina Handmade Brick|
In the North East Region there are seven clay brick manufacturers, with the three leading companies being Glen-Gery, Belden Brick and General Shale. Glen-Gery is the largest manufacturer in this region. There are four smaller manufacturers which consist of McAvoy Brick, Continental Brick, Morin Brick and Stiles & Hart Brick. Glen-Gery is the leading brick manufacturer in the North East and has substantial market share in the important New York market. Belden Brick is the largest family-owned brick manufacturer and has a substantial presence in the North East with most of their plants located in Ohio. General Shale’s presence in the North East is more limited but they have indicated that they wish to expand into new markets by acquiring smaller brick manufacturers in the region. This is evidenced by their recent acquisition of Watsontown Brick in Pennsylvania.
There are twelve clay brick manufacturers in the Mid-West Region, with the leading companies being Glen-Gery, Belden Brick and General Shale. Most brick manufacturers in the Mid-West have plants located in Indiana and Ohio. This area around Indiana and Ohio appears to be the most competitive with large and medium size manufacturers all having a presence in the area – Meridian Brick, General Shale, Glen-Gery, Belden Brick and Brampton Brick all have at least one plant in Indiana and/or Ohio. This is due to the abundance of suitable clay/shale and proximity to cities with high brick usage intensity and a large population (Chicago).
West of Indiana there is much less competition. Glen-Gery is dominant here with plants in Illinois and Iowa servicing the market. Glen-Gery’s recent acquisition of Sioux City Brick gives Glen-Gery an extremely strong presence in this area. They are now the only brick manufacturer in Iowa. General Shale does not have a market presence in North and South Dakota, Minnesota, Iowa, Kansas or Missouri. For the markets they do compete in west of Indiana, they are not very dominant. In Nebraska they have the sixth market position in face bricks, in Wisconsin they have the fifth market position and in Illinois they are number three (note: all General Shale information sourced from Wienerberger 2018 Annual Report). East of Indiana General Shale’s presence is much stronger, with the number one market position in Indiana and the number two market position in Michigan and Ohio. I could not find much information about the other manufacturers, although I would presume that Meridian, Glen-Gery, Belden and Brampton would all have leading market positions in Ohio and surrounding states, like General Shale.
The smaller manufacturers present in the Mid-West are Endicott Clay Products, Pacific Clay Products (via Yankee Hill Brick), Hebron Brick Company, Kansas Brick & Tile, Bowerston Shale Company, Richards Brick Company and BrickCraft. There are five Mid-West manufacturers who operate west of Indiana. Endicott has a plant in Nebraska and focuses on high end architectural and commercial projects. Pacific Clay Products owns Yankee Hill Brick who also owns a brick plant in Nebraska. Hebron Brick Company is the only brick manufacturer in North Dakota and is employee owned while Richards Brick Company operates in St Louis, Illinois near the Missouri border. The only other Mid-West manufacturer west of Ohio is Kansas Brick & Tile who operate two plants in Kansas. There are only two small Mid-West manufacturers east of Indiana: BrickCraft who owns a plant in Indiana and Bowerston Shale Company who operates two plants in Ohio.
In the Southeast Region there are fourteen clay brick manufacturers: Meridian Brick, General Shale, Acme Brick, Triangle Brick, Cherokee Brick, Pine Hall Brick, Lee Brick, Palmetto Brick, Henry Brick, Carolina Ceramics, Statesville Brick, Taylor Clay Products, Old Carolina Brick and Marion Ceramics. The Southwest Region is home to many large brick manufacturers. Four of the six largest brick manufacturers have a significant presence in this region. Old Carolina Brick is the largest handmade brick manufacturer in the United States.
The Greater Texas Region is dominated by Acme, primarily due to their brand recognition in this region. The only other big manufacturers in this region are Meridian Brick, Triangle Brick and Bilco Corporation. Smaller manufacturers present are Kentwood Brick, Mangum Brick, St Joe Brickworks and Commercial Brick Corp. These companies are all minnows compared to Acme, Meridian, Triangle Brick and Bilco Brick. Acme is likely the largest manufacturer in this region.
In the Western Region, there are only seven clay brick manufacturers: Pacific Coast Building Products (H.C Muddox and Interstate Brick), General Shale, McNear Brick and Block, Mutual Materials Co., Pacific Clay Products Inc., Summit Brick & Tile and Kinney Brick Co. Pacific Coast Building Products owns two clay brick manufacturers: H.C. Muddox and Interstate Brick. Interstate brick operates in Utah while H.C. Muddox operates in Northern California. Pacific Coast Building Products also owns Gladding McBean which manufactures vitrified clay pipe, architectural terra cotta and other specialty clay products. General Shale’s western plant is in Colorado, which only barely qualifies them as having a manufacturing presence in the west. McNear Brick and Block is located near San Francisco and has a dominant presence in Northern California. Mutual Materials is a diversified supplier of masonry and hardscape products and is the largest supplier of masonry and hardscape products in the Pacific Northwest (mainly Washington). Mutual Materials manufactures the materials it supplies, including clay bricks. Pacific Clay states that they have the largest brick plant in the West with a capacity of 40 million bricks a year. Pacific Clay is the dominant supplier of clay products in Southern California. They also own a plant in Nebraska. Summit Brick Company has 2 plants in Colorado and appears to be the number two brick manufacturer in the state (General Shale is number one). Kinney Brick Co. is a small family owned manufacturer based in New Mexico.
Another point to note is that domestic manufacturers also compete with imports. For example Claymex, a large brick and roof tile importer, is capable of importing 200 million bricks and 34 million roof tiles per year. These imports are sold via distributors located in Texas, Louisiana, Arkansas, Oklahoma, Utah, Colorado and New York.
Overview of the Larger Manufacturers
Meridian Brick (Boral and Forterra)
Meridian Brick is a 50/50 joint venture between Boral and Forterra (formerly Hanson Brick) which manufactures 1,778 million standard brick equivalents a year, including 286m idle capacity. This makes the company the largest brick manufacturer in the United States. Both Boral and Forterra’s brick businesses were built by acquiring a large number of family-owned brick manufacturers.
Meridian operates 19 plants across 10 states and 1 province and has plants at the following locations:
- Texas (6 Plants)
- Ontario, Canada (2 Plants)
- Alabama (2 Plants)
- Oklahoma (2 Plants)
- Georgia (1 Plant)
- North Carolina (1 Plant)
- South Carolina (1 Plant)
- Michigan (1 Plant)
- Tennessee (1 Plant)
- Kentucky (1 Plant)
- Indiana (1 Plant)
Meridian operates 30 distribution and supply centres across 10 states throughout the United States. The company has distribution and supply centres in the following states:
- Texas (6 Locations)
- Tennessee (6 Locations)
- Georgia (4 Locations)
- Alabama (3 Locations)
- North Carolina (3 Locations)
- Oklahoma (2 Locations)
- Mississippi (2 Locations)
- South Carolina (2 Locations)
- Arkansas (1 Location)
- Virginia (1 Location)
Boral stated in their 2019 Annual Report that Meridian Brick made an $18.8 million loss before significant items, and a $410 million loss after significant items which includes a major $391.2 million write down of the joint venture’s value. Boral attributes the bad performance to a significant downturn in the Canadian housing market, which historically contributed a significant portion of earnings, as well as softer U.S housing starts and lower brick use intensity per housing start in the U.S. Meridian’s net assets amount to $AUD 457 million.
Mike Kane, Boral CEO and Managing Director stated in Boral’s 2019 Annual report that: “This year, we impaired our investment in Meridian Brick by US$122 million (A$174 million), as a result of continued underperformance. While our strategy is to exit bricks globally, we are working with our joint venture partners to return the business to profitability” (pg. 8). Kane stated in Boral’s 2019 earnings call that: “we have made just about all the portfolio changes with the last exception being the ultimate divestiture of the Meridian Brick business in the U.S. which will take several more years.” The sale of Meridian will be a major event in the North American brick industry, and it will be extremely interesting who ends up purchasing it.
Acme Brick (Berkshire Hathaway)
Acme operates 15 plants across 4 states. The company has plants in the following locations:
- Texas (7 Plants)
- Arkansas (4 Plants)
- Alabama (2 Plants)
- Oklahoma (2 Plants)
To reduce industry overcapacity, in the last few years Acme has been decreasing its manufacturing footprint considerably. In 2018 Acme closed two clay brick plants.
Acme has a very strong company-owned distribution and supply centre presence with locations in the following states:
- Texas (20 Locations)
- Alabama (9 Locations)
- Louisiana (8 Locations)
- Arkansas (6 Locations)
- Tennessee (5 Locations)
- Florida (3 Locations)
- Oklahoma (2 Locations)
- Georgia (2 Locations)
- Kansas (2 Locations)
- Missouri (2 Locations)
- Mississippi (2 Locations)
- New Mexico (1 Location)
- South Carolina (1 Location)
There are no non-Acme owned distributors of Acme products in Louisiana, Kansas, Arkansas and Oklahoma and there is only one non-Acme owned Acme distributor in Alabama and Texas. Acme prefers to operate their distribution network themselves rather than using 3rd party distributors. Acme is extremely dominant in Texas, Alabama, Louisiana and Arkansas due to the strength of the Acme brand. This is what attracted Warren Buffett to the business.Side Note: Warren Buffett and Acme Brick
It was Acme Brick’s strong brand recognition which eventually attracted the world’s most famous investor – Warren Buffett – to the brick industry. In the year 2000 Buffett’s Berkshire Hathaway purchased one of America’s largest brick manufacturers: Acme Brick Company.
At that time Acme manufactured 11.7% of all bricks in the US and in 2008 Acme Brick became the largest brick manufacturer in the United States. Acme Brick Company described Warren Buffett’s decision to purchase the company like so:
Warren Buffett’s decision to add Acme Brick Company to his Berkshire Hathaway portfolio was typical of the Omaha investor’s approach to acquisitions. He has often reiterated that his investment strategy is based on the philosophy of only investing in companies and products that the average person can understand.
And Warren Buffett understood brick. Describing his first meeting with Acme Brick Company President and CEO Harrold Melton, Buffett noted that “when Harrold and I first met, he talked about how a home is the largest single investment made by most families. I must say, that like most people, I took the beauty and permanence of my brick home, purchased in 1958, for granted. Then I realized that my total expenditure in maintaining the brick exterior of my home for forty-two years was zero! How many thousands of dollars would I have spent maintaining another type of exterior during the ensuing four decades? Early in my business career, that money spent on maintenance would have been unavailable to invest in quality stocks and companies.
Buffett went on to say that “this incredible value that brick delivers has made Acme a household name in their primary market. We place a high value on investing in companies like these with strong brand positions in their markets like Coke, Gillette, GEICO, and American Express. We know that these companies achieve strong brand preference by consistently delivering superior products, service, and value (Source: ACME BRICK COMPANY: 125 YEARS ACROSS THREE CENTURIES, p. 113).
Buffet had this to say about Acme Brick in the 2000 Berkshire Hathaway Annual Report:
Acme produces more than one billion bricks per year at its 22 plants, about 11.7% of the industry’s national output. The brick business, however, is necessarily regional, and in its territory Acme enjoys unquestioned leadership. When Texans are asked to name a brand of brick, 75% respond Acme, compared to 16% for the runner-up. (Before our purchase, I couldn’t have named a brand of brick. Could you have?) This brand recognition is not only due to Acme’s product quality, but also reflects many decades of extraordinary community service by both the company and John Justin. I can’t resist pointing out that Berkshire — whose top management has long been mired in the 19th century — is now one of the very few authentic “clicks-and-bricks” businesses around. We went into 2000 with GEICO doing significant business on the Internet, and then we added Acme. You can bet this move by Berkshire is making them sweat in Silicon Valley.
General Shale (Wienerberger)
Wienerberger is the largest clay brick manufacturer in the world. They operate in the United States via General Shale. Wienerberger entered the U.S market in 1999 when they purchased General Shale for USD $260 million. The company has since acquired many other brick manufacturers including Darlington Brick and Clay Products for $10 million in late 1999 and Cherokee Sanford Group in 2000 for USD $81 million, the then sixth largest brick manufacturer in the United States. In 2006 Wienerberger acquired Colorado-based Robinson Brick Company for USD $88 million plus net working capital (about USD $28 million). This was Wienerberger’s first expansion west of the Mississippi. In 2007 Wienerberger acquired Canada-based Arriscraft for CAD $107 million. Arriscraft is a producer of manufactured stone in Canada and the United States. In 2017 General Shale acquired Columbus Brick Company for an undisclosed amount. Columbus Brick expanded General Shale’s presence in Mississippi, Alabama and Louisiana, both states with high brick usage intensity. More recently, in 2018 General Shale acquired Watsontown Brick in Pennsylvania, significantly expanding General Shale’s presence in the North East region.
General Shale operates 9 plants across 8 States.
The company has plants at the following locations:
- North Carolina (2 Plants)
- Mississippi (1 Plant)
- Indiana (1 Plant)
- Georgia (1 Plant)
- Colorado (1 Plant)
- Tennessee (1 Plant)
- Virginia (1 Plant)
- Pennsylvania (1 Plant)
General Shale operates 22 company-owned supply centres/distribution centres in 11 states across the United States. The company has a central base in Tennessee. General Shale operates distribution and supply centres at the following locations:
- Tennessee (6 Locations)
- North Carolina (4 Locations)
- Indiana (2 Locations)
- Illinois (2 Locations)
- Michigan (2 Locations)
- Alabama (1 Location)
- Colorado (1 Location)
- Montana (1 Location)
- South Carolina (1 Location)
- Virginia (1 Location)
- Wyoming (1 Location)
Glen-Gery operates 12 plants across 6 States and has 15 showrooms across 10 States. The company has plants at the following locations:
- Pennsylvania (5 Plants)
- Iowa (2 Plants)
- Ohio (2 Plants)
- Maryland (2 Plants) (including 1 Mothballed)
- Illinois (1 Plant)
- Virginia (1 Plant)
Since Brickworks acquired Glen-Gery in November 2018, they have acquired Sioux City Brick in Iowa and four of Redland Brick’s plants in Pennsylvania, Virginia and Maryland. Brickworks is in the process of rationalising its plant network. This process is expected to finish around 2022. As at September 2019, 50% of Brickworks’ North American revenue comes from the New York market. In 2017 the Mid-Atlantic plant in Pennsylvania was Glen-Gery’s largest facility, shipping over 45 million brick, most of it likely destined for New York City.
Glen-Gery is particularly dominant in Iowa and Pennsylvania. Pennsylvania is Glen-Gery’s central base. The Company operates 15 distribution and supply centres in the following states:
- Pennsylvania (4 Locations)
- Iowa (3 Locations)
- Maryland (1 Location)
- Nebraska (1 Location)
- Minnesota (1 Location)
- Kansas (1 Location)
- Virginia (1 Location)
- Michigan (1 Location)
- New York (1 Location)
- South Carolina (1 Location)
Glen-Gery has 500+ supplier locations across the United States.
Triangle Brick (Röben)
Triangle Brick is the US subsidiary of Röben, the largest privately owned clay brick manufacturer in Germany. Triangle Brick operates 3 plants across 2 States. The company has plants at the following locations:
- North Carolina (2 Plants)
- Texas (1 Plant)
The company can manufacture up to 500 million bricks annually. Triangle Brick’s most modern facility is its Texas facility in Clay County, close to the Oklahoma border. The plant, which has been in operation since 2016, can produce 100 million bricks annually which are sold throughout Texas, Oklahoma, Louisiana and Arkansas. Triangle Brick’s two other plants are located in North Carolina.
Triangle Brick, unlike many brick manufacturers does not operate distribution and supply centres outside of its corporate headquarters. Triangle Brick distributes many of its bricks in North Carolina via Lowes Home Improvement in addition to using independent distributors.
Belden Brick is the largest family-owned brick manufacturer in the US, with the fifth generation of the Belden family taking the helm in early 2019. Belden Brick is the parent company of two different businesses within the brick industry: Belden Brick Co. and Belden Brick Sales & Service, which includes Belden Tri-State and Belden Brick Sales Co. Belden Brick Sales has a location outside Detroit while Belden Tr-State is based in Manhatten, NYC, has an office in Philadelphia, and owns stocking yards in New Jersey.
Belden Brick operates 6 plants across 2 States. The company has plants at the following locations:
- Ohio (9 Plants)
- Connecticut (1 Plant) (Redland Brick)
The Company operates 3 distribution and supply centres in the following states:
- Michigan (1 Location)
- New York (1 Location)
- New Jersey (1 Location)
In November 2019, Brickworks announced that Belden Brick had sold much of its Redland Brick business to Brickworks. Belden Brick had purchased Redland Brick in 1996 and in 2011 acquired Virginia-based Lawrenceville Brick which was subsequently integrated into Redland Brick’s plant network. Redland Brick operates 5 plants: the Cushwa and Rocky Ridge plants in Maryland, the Lawrenceville plant in southern Virginia, the Harmar plant in Pennsylvania and the KF plant in Connecticut. In some sources the KF plant is not mentioned as being owned by Redland Brick, although the Redland Brick website includes the KF plant as being owned by Redland. I will discuss Brickworks’ acquisition of the Redland plants later in this article.
Brampton Brick operates 2 plants across 1 Province in Canada and 1 State in the United States. Brampton Brick is the second largest brick manufacturer in Canada. The company has clay brick plants at the following locations:
- Ontario, Canada (1 Plant)
- Indiana (1 Plant)
Bricks are just one of many products manufactured and distributed by Brampton Brick. The company does not appear to operate any distribution and supply centres specifically for its brick business. According to Brampton Brick, the Ontario brick plant is the largest plant in North America. In late 2018 the plant produced 800,000 bricks per day (200 million per year) with only seven machine operators. In a video from early 2017 the Senior Vice President of Manufacturing at Brampton Brick said that the Ontario facility produces 300 million clay bricks a year. Thus, the facility is operating at sub-optimal capacity. Brampton’s Indiana plant employs 32 people, with the capacity to produce 100 million bricks a year. It’s products are distributed across the United States.
Unlike most North American brick manufacturers, Brampton Brick is publicly listed and trades on the Toronto Stock Exchange. The Company has 10,961,654 common shares outstanding as at December 31, 2018 comprised of 9,223,023 Class A Subordinate Voting shares and 1,738,631 Class B Multiple Voting shares. The Class A Subordinate Voting shares trade on the Toronto Stock Exchange under the ticker symbol “BBL.A” and have a market capitalisation of CAD $55 million as of October 2019. Class B shares do not trade on the exchange. Jeffrey Kerbel and other insiders own the majority of the company’s A and B class shares. The Class B voting shares are all owned by insiders. Ernest Wong at Seeking Alpha did a nice summary of the company in his analysis of the company in 2015.
Consolidation in the Clay Brick Manufacturing Industry
Over the previous three decades significant rationalisation has occurred in the U.S brick industry. Of the seven largest manufacturers in 1995 three have been acquired. Cherokee Sandford Group was acquired by General Shale, US Brick was acquired by Hanson Brick (now Meridian) and Bickerstaff was acquired by Boral (now Meridian).
The industry further consolidated when Hanson and Boral merged to form Meridian Brick, meaning that there are now only four big companies in the brick industry. The market share of these four companies is increasing as more family-owned brick manufacturers are acquired by the big four.
Also, note that the number of bricks manufactured has decreased over the years: from 7 billion in 1995, to 6.7 billion in 2007 and just 5.1 billion in 2018. Despite the rationalisation which has already occurred, there is still plenty of room for further consolidation. For example, in the UK three brick manufacturers control 90% of the country’s brick manufacturing capacity and in Australia two manufacturers control 77% of the market.
Brickworks’ Acquisition of Sioux City Brick and Redland Brick Assets
Brickworks’ recent acquisitions of Sioux City Brick in Iowa and four Redland Brick plants across Maryland, Virginia and Pennsylvania significantly improve Glen-Gery’s competitive position. This part of the article will briefly discuss the impact these acquisitions will have on the competitive dynamics of the Mid-West and North East regions for Glen-Gery and their competitors.
Sioux City Brick
In August 2019 Brickworks acquired Iowa brickmaker Sioux City Brick for US $32 million (AUD $47 million). Sioux City Brick operates two plants in Iowa; one in Sergeant Bluff near Sioux City, Iowa and the other in Adel near Des Moines, Iowa. These two plants have a production capacity of 160 million bricks a year. Mark Mahoney, CEO of Sioux City Brick told the Sioux City Journal that Brickworks approached Sioux City with an unsolicited offer to purchase the company. Mahoney stated to the Sioux City Journal that “We were not looking to sell, but the offer was — they’re looking to make an entry into the U.S. market…It was a strategic buy for them. These guys are coming in to consolidate part of the industry.” Brickworks has since closed the nearby Redfield plant and shifted production to the Adel plant.
Major cities within the natural delivery radius (assumed to ≈ 250 miles) of the Sergeant Bluff plant include: Minneapolis, Omaha, Lincoln, Des Moines, Rochester, Sioux Falls, Cedar Rapids and St Cloud. Major cities within the natural delivery radius of the Adel plant include: Chicago, Milwaukee, Kansas City, Omaha, Sioux City, Lincoln, Minneapolis, Rochester, Cedar Rapids and Rockford. Chicago is a very significant market due to its large population. The two Sioux City plants primarily compete with Endicott Clay Products (via their plant in Endicott, Nebraska in southeast Nebraska), Yankee Hill Brick (via their plant in Lincoln, Nebraska) and Kansas Brick & Tile (including Cloud Ceramics) (via their plants in Concordia, Kansas and Hoisington, Kansas). Endicott Clay Products is currently implementing a multi-staged 3 – 7-year expansion program which will increase the plant’s manufacturing capacity to 100 million bricks a year, depending on economic activity. This bucks the industry trend of reducing capacity.
All other competitors (excluding the above three) are located further away from the core market’s serviced by the Sioux City plants and are generally at a disadvantage when servicing these markets due to transport costs. These competitors include General Shale, Summit Brick Company, Hebron Brick Company and Richards Brick Company, in addition to the many other brick manufacturers which compete in and around the Chicago market. Glen-Gery’s substantial presence in the Mid-West should drive improved profitability in coming years.
In November 2019, Brickworks acquired four plants from Redland Brick for up to USD $48 million (AUD $70.5 million). These four plants are in Maryland (2 plants), Pennsylvania and Virginia and have the capacity to produce 250 million bricks per year, although current sales are only 80 million bricks per year. The purchase includes the Cushwa, Harmar, Rocky Ridge, Lawrenceville Brick and Tru-Brix product lines. Additionally, Brickworks will acquire all KF-branded products remaining in the KF yard and will become a distributor for these products following completion of the transaction in early 2020.
Redland Brick describes the products manufactured by each plant (excluding the Lawrenceville plant) as follows:
Redland Brick Inc., a wholly-owned subsidiary of Belden Holding & Acquisition Company, Inc., is located in Williamsport, Maryland. Redland Brick has five brick manufacturing plants including two in Maryland, and one each in Pennsylvania, Connecticut, and Virginia. Redland Brick produces a wide range of brick products, featuring both molded and extruded styles.
Our molded brick plants, Cushwa and Rocky Ridge, have established themselves as the premier molded brick producers in the U.S. These soft mud products are used by designers, architects, developers, and homeowners and can be found on diverse projects ranging from America’s prestigious universities to stadiums to dream homes. Our molded products are made the same way bricks have been made for centuries.
The Cushwa plant also produces authentic Handmade brick. Our handmade brick are handcrafted by experienced brick makers and cannot be replicated by any of today’s brick making machines. The rich color and individualism of each brick allows any designer or homeowner to make their project an instant classic that will stand the test of time.
Our modern Harmar plant, located in suburban Pittsburgh offers a variety of products including fireclay, red shale, and sand coated bricks. The Harmar plant, commissioned in 2001, is completely automated and represents the U.S. brick industry’s state of the art technology. Harmar’s fireclay products, available in multiple sizes, are specified primarily by architects for institutional, retail, office, and warehouse projects. The plant’s sand coated and red shale products are used on commercial, institutional, and residential projects. Homebuilders and masons prefer Harmar’s consistent size, strength, and excellent installation properties. The Harmar plant also produces a high strength red clay paver which can exceed 20,000 psi.
The plant Brickworks did not buy:
Redland’s KF plant, located in South Windsor, Connecticut is a modern extruded plant that supplies quality brick products for New England and the Mid-Atlantic markets. KF’s product line includes a wide assortment of red brick colors and textures that are tailored to the traditional architecture of New England and the brick styles of Colonial America. KF’s unique firing characteristics produce intense dark flashed bricks that are excellent for matching many early 20th century buildings.
The media release also stated that:
The transaction will expand Glen-Gery’s reach in the Southern U.S. region, and the addition of Redland Brick’s modern manufacturing plants will strengthen Glen-Gery’s ability to more efficiently meet the growing supply demands of distributors and customers. In addition, Redland Brick’s well- respected brands will further extend Glen-Gery’s industry-leading selection of product styles, colors and textures. In particular, Redland Brick’s Cushwa brand will expand Glen-Gery’s premium product line of innovative brick designs for the high-style needs of architects, interior designers and design professionals.
Cushwa handmade brick is one of the major handmade brick brands in the United States, with the other major brands being Old Carolina Brick, manufactured in North Carolina and ‘Handmade Brick by Glen-Gery’, manufactured at Glen-Gery’s York plant in Pennsylvania.
In the media release Belden Brick said:
…Belden Brick Chairman and CEO, Robert F. Belden said that the acquisition of the Redland Brick assets by Brickworks is a positive for all involved. “The hard work and success of Redland Brick and its employees gained the attention of Brickworks, an international building products leader. Redland’s staff who will be joining Glen-Gery will now have the advantage of being part of this highly successful company with exciting plans for the future in the U.S. market. As part of the Glen-Gery family, these Redland staff will share a long and proud heritage of fine brick making. For Belden Brick, the acquisition allows us to focus on our operations in Ohio.”
This appears to be a change in strategy for Belden Brick. In an article published in 2017, Belden Brick CEO Robert Belden said this:
Since its inception, the company has survived massive fluctuations in market conditions that have reshaped the competitive landscape. Many families in the brick-making industry sold their companies. Other than Acme Brick, owned by Berkshire Hathaway and one of the biggest players in the field, others in the industry are, for the most part, owned by foreign entities. Because of this, growth, in terms of acquisitions, is not easy.
… Robert says the company is opportunistic in its approach to acquisitions, and has explored every brick operation that has been for sale for the past 35 years. It bought Redland Brick Co. and its three locations outside of Pittsburgh, in Connecticut and Maryland, in 1996; and in 2011, acquired the assets of Lawrenceville Brick, a Virginia-based company, which it folded into the Redland entity.
Cities within the natural delivery radius (assumed to ≈ 250 miles) of the Redland plants include: Cleveland, Pittsburgh, Philadelphia, Columbus, Washington DC, Baltimore, Charlotte, Raleigh, Greensboro, Durham, Fayetteville, Allentown, Virginia Beach, Norfolk, Arlington, Richmond, Newport News, Alexandria, Hampton, Newark, Paterson and Jersey City. The Maryland and Pennsylvania plants primarily compete with Watsontown Brick (via their three plants in Watsontown, Pennsylvania), General Shale (via their plant in Virginia), Belden Brick (via their five plants in Ohio and one plant in Connecticut), Bowerston Shale Company (via their two plants in Ohio), Continental Brick (via their plant in West Virginia) and Stiles & Hart Brick (via their plant in Massachusetts). The Lawrenceville Brick plant in Virginia also competes with manufacturers with plants in North Carolina including: Meridian Brick, General Shale, Triangle Brick, Pine Hall Brick, Lee Brick, Statesville Brick, Taylor Clay Products and Old Carolina Handmade Brick. The Carolinas are home to many brick manufacturers and are a much more competitive market compared to other areas of the United States.
I speculate that Belden sold the Redland plants for the following reasons:
- To focus on their Ohio plants (as stated by Belden Brick)
- Redland Brick’s low capacity utilisation (32%)
- The price Brickworks was prepared to pay (USD $48 million) which was underpinned by the synergy benefits Brickworks will receive when the Redland plants are integrated with the Glen-Gery plants
- There are only a handful of other brick companies large enough to buy the plants and most of them would not be able to offer the price Brickworks did since they would not receive as many synergy benefits as Brickworks
One looming question is what will Belden Brick do with the money they receive from the sale of Redland Brick? Will they use the money to upgrade or build new plant/s in Ohio? Will they use it to pay back debt, keep it in the bank for another day or will they move the money out of the business to be used at the personal leisure of the owners? Brickworks would probably prefer that Belden choose the latter option.
As a result of this acquisition Glen-Gery is the undisputed leader in the North East region of the United States. The only other brick manufacturers with plants in the North East and/or Ohio are: Belden Brick, General Shale (via Watsontown Brick and their Virginia plant), McAvoy Brick, Continental Brick, Morin Brick, Stiles & Hart Brick and Bowerston Shale Company. By acquiring substantially all of Redland Brick’s assets close to New York, Glen-Gery’s dominant presence in the New York market is ensured.
The acquisition of Redland Brick effectively blocks any other large brick manufacturer from entering the New York market via acquisition. Belden Brick appears unlikely to sell and all other manufacturers are too small to make much of an impact on the market if they are acquired. Brampton Brick, with one US plant in Indiana, is the only other large manufacturer which is a realistic acquisition target, although most of Brampton’s assets are in Canada. Of the smaller family-owned manufacturers, Bowerston Shale Company with its two plants in Ohio appears to be the most likely acquisition target for General Shale or any other competitor looking to gain a foothold in the region.
Brickworks paid AUD $47 million for Sioux City Brick and up to $70 million for the four Redland plants, in addition to the AUD $151 million paid to purchase Glen-Gery. This brings the total North American acquisition costs to AUD $268 million. For comparison, Brickworks statutory profit in FY19 was AUD $155 million. To fund the $151 million Glen-Gery purchase Brickworks sold 7.9 million shares in Washington H. Soul Pattinson which resulted in proceeds to Brickworks roughly equal to the cost of the Glen-Gery purchase. The sale of the Soul Pattinson shares occurred when the Soul Pattinson share price was at all time highs. For all intents and purposes Brickworks swapped 7.9 million shares in Soul Pattinson for ownership of Glen-Gery.
The Sioux City and Redland acquisitions were both funded through debt. I estimate that after these acquisitions Brickworks has somewhere around $308 million AUD left in available debt facilities (the USD denominated syndicated loan facility is likely used up). The Sioux City acquisition is expected to deliver 3% EPS accretion in the first 12 months after the purchase and the Redland acquisition is expected to deliver 3% EPS accretion over 3 years from the date of purchase. It is difficult to determine whether the price paid was reasonable, since we have no in-depth information about the profitability of these businesses.
That said, Brickworks has a very long and generally very successful history of making acquisitions. The Austral Bricks (outside of Queensland and New South Wales), Austral Masonry, Austral Precast, Southern Cross Cement and Bristile Roofing businesses were built primarily, if not entirely through acquisitions. Since Managing Director Lindsay Partridge has been in charge, he has overseen a consist acquisition program. See the below graphic.
Over the years Brickworks has generally paid a reasonable price for these companies. In some cases with the benefit of hindsight we can see that Brickworks did overpay for some of its acquisitions. Probably the one mistake Brickworks did make was entering the timber business (most of these assets have been sold). Based on this experience, I’d say that Brickworks likely did not grossly overpay for the U.S acquisitions. Time will tell whether this sentiment is correct.
Glen-Gery’s current EBIT margin is 5% compared to Building Products Australia’s (including non-brick operations) EBIT margin of 8%, in financial year 2018 it was 10%. Glen-Gery’s EBIT margin will be higher than 5% once the plant rationalisation plan is complete due to lower gas and labour costs relative to Australia, provided there is not a recession. Brickworks states in their 2019 Annual Report that they expect the rationalisation program to take three years to complete.
Below are the historical financials for Glen-Gery. Glen-Gery is much less efficient compared to Austral Bricks due to capacity under-utilisation.
|Year:||2014 (USD)||2015 (USD)||2016 (USD)||2017 (USD)||2018 First Half (Jan - Jun) (USD)||2019 (23 Nov - 31 Jul) USD|
|Revenue||$107 million||$117 million||$122 million||$115 million||$53 million||$80 million|
|Adjusted EBITDA||$11 million||$12 million||$17 million||$15 million||$5 million||$8 million|
|Adjusted EBITDA Margin||10.9%||10.4%||13.8%||13.1%||9.3%||10.0%|
The 2014 to 2017 financial years are extracted from Ibstock Plc Annual Reports and are based on a calendar financial year (1 January to 31 December). The 2018 half year result is also extracted from Ibstock Plc and is based on data for January to June 2018. The 2019 data is from Brickworks and is based on data for 23 November 2018 (the date of acquisition) to 31 July 2019 (end of financial year for Brickworks). Therefore the 2018 and 2019 years are not useful for comparison purposes.
Brickworks has stated that Brickworks North America will generate circa AUD $290 million in sales revenue per annum after the Redland purchase completes. At Glen-Gery’s current EBIT margin of 5%, this translates to AUD $14.5 million in EBIT. The below table shows expected EBIT at different EBIT margins assuming $290 million in sales.
|EBIT Assuming $290 million in Sales|
|EBIT Margin||Expected EBIT (AUD)|
A 5% EBIT margin would be a low case scenario while 15% EBIT margins would be extreme. In the longer term, EBIT margins should increase from 5% as capacity utilisation improves. I estimate that the most likely EBIT margin is between 5% and 10%, with 8% a middle ground scenario. This would mean that expected EBIT would be around $23.2 million. I expect EBIT margins to be above 5% during the 3-year integration period for the Redland Brick plants. The EBIT contribution for the FY2020 financial year is expected to be substantially lower than $17.4 million due to the Redland acquisition not finalising until February 2020.
Brickworks North America After 2022
The share market tends to look ahead six months to a year in time when assessing the prospects of a business. Here I will assess the possible longer-term future for Brickworks North America after 2022. Why 2022? 2022 is the year that the Redland Brick plants are expected to be fully integrated into the Glen-Gery network. Brickworks is very unlikely to make any more acquisitions at least for a little while as they work on integrating Glen-Gery, Sioux City and Redland Brick. Once Brickworks owns a fully utilised plant network in the North East, what will Brickworks do? Will Brickworks stay in the Mid-West and North East, or will they expand? Will they remain just a brick manufacturer or will they diversify into roofing and other products like they have in Australia? In this section I will discuss the possible ways that Brickworks could expand via acquisition within the clay brick industry.
The quickest and cheapest way to expand is to acquire other brick manufacturers, but to analyse this we must determine what Brickworks acquisition criteria would be. Ultimately, expansion plans will be guided by the synergy benefits Brickworks can generate from the acquisitions. In my old Glen-Gery article I discussed the different expansion routes Brickworks could take: North East expansion, Mid-West expansion, West Coast expansion, Southern expansion and Canadian expansion. Some of these options are more realistic than others.
Brickworks’ Acquisition Criteria
While I do not know what Brickworks’ actual acquisition criteria would be, I can make the following educated guesses:
- Acquisition targets will be in the North East or Mid-West regions, or in a state directly adjacent to these regions
- Acquisition targets will be in the proximity of Glen-Gery plants to take advantage of synergies. Additionally, the acquisition target would have modern plants with adequate clay/shale reserves, a good safety record, and competent management and employees
- Acquisition targets will have a non-residential, multi-family, premium product, commercial and/or architectural focus
- Acquisition targets will be of adequate size, i.e. Brickworks will not be acquiring any of the very small manufacturers
- Acquisition targets will ideally have minimal defined benefit pension scheme liabilities
Brickworks likely acquisition preferences:
- First Preference: Manufacturer has premium architectural focus and Brickworks can extract synergies from the acquired company when integrated into existing plant network (or with plants to be acquired in the future)
- Secondary Preference 1: Manufacturer has a premium architectural focus, but Brickworks cannot extract many synergies from the acquired company
- Secondary Preference 2: Manufacturer does not have a premium architectural focus, but Brickworks can extract synergies from the acquired company when integrated into existing plant network
Brickworks has stated that their target market is the North East and Mid-West, so it is most likely that any manufacturers they acquire will be in these regions, or in states directly adjacent to these regions (North Carolina, Colorado etc.). This also has the added benefit of reducing the number of manufacturers which can be acquired by competitors who want to enter Glen-Gery’s markets.
Additionally, by acquiring manufacturers in the North East and Mid-West, Glen-Gery can take advantage of the synergies available when acquired plants are integrated with existing Glen-Gery plants. This involves brick production being shifted from the less efficient plants to more efficient plants. This reduces fixed costs (i.e. you only pay for one plant instead of two) and capacity utilisation can be increased. This is a classic case of operating leverage in a manufacturing business. By rationalising Glen-Gery’s plants, fixed costs can be reduced, and fixed cost recovery can improve. As a result, Glen-Gery will become more profitable and will be able to better withstand periods of low brick demand (such as during a recession). Another benefit is that Glen-Gery will be able to offer owners of plants close to Glen-Gery a higher price than competitors, since only competitors with plants nearby can take advantage of any available synergies. This will underpin Brickworks’ ability to acquire smaller brick manufacturers. The third criteria, that the company will be focused on non-residential markets, will be satisfied by most brick manufacturers in the North East and Mid-West, since this is the major market for bricks in this region.
Brickworks’ criteria around quality and size can be illuminated based on Brickworks statement that they do not want to buy Stiles & Hart. Stiles & Hart services the Boston area and has a limited presence in surrounding areas. The company manufactures clay bricks and pavers and is a distributor for Pine Hall Brick. Stiles & Hart Brick Co. uses old brick manufacturing technology, owns a unionised plant and has very substantial unfunded pension liabilities making the company a high cost producer. In a Boston Globe article discussing Stiles & Hart’s mounting pension liability, Stiles & Hart’s owner offered to give the company to Brickworks for free if it assumed Stiles & Hart’s pension liability. Mark Ellenor, President of Brickworks Building Products North America was quoted as saying in response to the offer that it ‘doesn’t fit with our model’. Thus, it is unlikely that Brickworks will ever acquire Stiles & Hart. This shows that Brickworks is interested in buying larger companies with modern and efficient plants rather than ‘fixerupers’.
It must also be noted that many smaller manufacturers are proudly American owned and proudly family owned, so they may be reluctant sellers. Ultimately, it will be the economics of these small businesses which will determine their success and unfortunately the odds are not stacked in their favour. The next section will discuss potential acquisition prospects in each region. Many of these companies are likely too small to be of interest to Brickworks, but you never know. Maybe some of them may be bigger than I think.
North East Region
Continental Brick is the only brick manufacturer in West Virginia and manufacturers 15 to 20 million bricks annually. The company has one plant with two kilns and a maximum manufacturing capacity of 60 million bricks a year. Forty percent of Continental Brick’s products are distributed in the Baltimore-Washington-Northern Virginia market. Glen-Gery recently closed its Capitol plant located in Manassas, Virginia (which serviced similar markets to Continental Brick) and is reportedly ‘searching for a new location’. The ‘new location’ mentioned in the linked article is likely one of the four plants which were recently purchased from Redland Brick.
In light of the Capitol plant closure, Glen-Gery moved its production from their Capitol plant to their York plant in Pennsylvania. This improves capacity utilisation at the York plant, improves fixed cost recovery and enables Glen-Gery to supply the market year-round. Due to Continental Brick’s small size I doubt that they will be a likely candidate for an acquisition.
McAvoy Brick operates one brick plant near Phoenixville, Pennsylvania. In a 2005 article in Landscape Architect, it was stated that the company produces up to 36 million bricks per year. This company is likely too small to be acquired by Brickworks.
Morin Brick operates one brick plant in Auburn, Maine. They are the last remaining brick manufacturer in Maine and are the only company who still makes waterstruck brick. The company’s bricks are specified in the construction of schools, colleges and universities and many commercial projects throughout New England. Morin Brick is owned by real estate firm R.J. Finlay & Co. Due to Morin Brick’s focus on premium waterstruck brick, the company may be an acquisition target for Brickworks, although the company appears to be quite small. Waterstruck brick is very popular at University campuses throughout the North East.
Brampton Brick, as discussed above, operates one brick plant in Indiana and one in Ontario, Canada. Brampton is one of the few large companies with a presence in the Mid-West. Brickworks could either acquire the Brampton plant in Indiana or acquire Brampton in its entirety. This would only occur if Brickworks is happy with the exposure to the Canadian market and is happy to expand outside of bricks. Brampton is also controlled by insiders, so those insiders would have to be convinced to sell the company if this were to occur. Additionally, if they purchase Brampton, Brickworks would become the second largest brick manufacturer in Canada. This could restrict Brickworks future acquisition prospects in Canada due to competition concerns. Long term gas supply reliability would be a key factor in whether Brickworks is willing to enter the Canadian market.
Bowerstone Shale is an Ohio-based brick manufacturer with two plants. One is in Hanover, Ohio and the other is in Bowerston, Ohio close to Pittsburgh and Columbus, Ohio. I could not find much information about the company online other than the basic information on their website. A 2015 media article states that Bowerston Shale had 30 employees and sells its products to architectural, commercial and residential markets. This indicates that the company is relatively small. For comparison, Watsontown Brick which was acquired by General Shale in late 2018, employs 50 people, operates three plants and manufactures 92 million bricks a year. Based on this I would guess that Bowerston likely manufactures less than 90 million bricks a year.
Glen-Gery’s Iberia and Caledonia plants are located approximately 80-90km from Bowerston’s Hanover plant and about 300-320 km from Bowerston Shale’s plant in Bowerston. This indicates that there may be possible synergy benefits from Glen-Gery acquiring the company, since one or more of the plants (either Glen-Gery’s or Bowerston’s) could be closed and production shifted to the most efficient plants. This increases capacity utilisation and fixed cost recovery. Whether or not Glen-Gery will want to purchase Bowerston will depend on the quality of Bowerston’s plants and people, whether the owner is willing to sell and how big the company is. General Shale may also wish to acquire the company. General Shale has the number two market position for face bricks in Ohio serviced from brick plants located in surrounding states.
Mid-West and Western Regions
There are only a handful of other brick companies in the Mid-West and Western United States. Of these, only a few would be likely acquisition targets for any of the large brick manufacturers, including Brickworks. For most of these acquisitions there would be few manufacturing synergies, particularly for plants located in the Western region. Brickworks will most likely acquire Mid-Western, Western and North Eastern brick manufacturers if they do not want to enter the more competitive South East and Greater Texas regions.
In Nebraska there are two brick manufacturers: Endicott & Yankee Hill Brick. Both of these companies have a good presence in Glen-Gery’s target market, although manufacturing synergies likely would not be very substantial for any acquirer. Endicott has a premium product focus, so this company may be a likely acquisition target for Brickworks. If Brickworks wants to expand its presence in the west, they could acquire Kansas Brick & Tile and/or Summit Brick Company. Both manufacturers have a strong presence in their respective states (Kansas for Kansas Brick & Tile; Colorado for Summit Brick Company), although manufacturing synergies may be limited. If Brickworks wants to expand even further west, then the most obvious acquisition would Pacific Clay Products, with their presence in Utah and California.
South East Region
The South East region has by far the most opportunities for consolidation in the industry and will likely be where most of the large manufacturers consolidate their operations in the coming decades. For Glen-Gery, their focus will likely be in the Carolinas. The Lawrenceville plant acquired by Glen-Gery as part of the Redland Brick acquisition already gives Glen-Gery some exposure to the south east. This exposure can be increased through acquiring manufacturers in North Carolina, South Carolina and/or Georgia (all areas adjacent to Glen-Gery’s existing operations and/or where large family-owned manufacturers operate). By purchasing multiple brick manufacturers in this region, significant value can be created through consolidation and rationalisation of under-utilised facilities across acquired companies. This is true for General Shale and Acme as well, and these companies will be key competitors for acquisitions in the region, with General Shale being a particularly active acquirer in recent years.
Premium product manufacturers such as Old Carolina Handmade Brick in North Carolina would likely be a highly desirable acquisition for Brickworks. Old Carolina is the largest handmade brick manufacturer in the US, with annual production levels of 10 to 12 million bricks a year. While handmade bricks often cost 50 to 75 percent more than extruded brick to produce, after accounting for their larger size compared to extruded brick, they only cost 8 to 12 percent more to build with. For some, an extra 8 to 12 percent is good value for money when you consider the unique nature of handmade brick. Old Carolina Brick’s VP, Art Burkhart said this in a 2013 article:
“So many of the jobs that we’re doing right now are custom,” says Burkhart. “They’ll say, ‘Well, I like this Savannah Grey brick that you have, but can you make it less white?’ or ‘Can you make this brick a little darker?’ We try to accommodate the customers and tweak it for whatever they want.”…. “In the beginning, it was the South and the Southeast,” says Burkhart. “That was our bread and butter for many years. But we have a lot of influx from the North and the Midwest; people come to the South for vacations, and they are impressed by the Low Country homes around Hilton Head and Buford, SC. Greenwich, CT, is also a hotbed for us. What has amazed us is that, only about five or six years ago, we started selling our product in California. We did a winery there, and people would visit it; and all of a sudden our brick has caught on from Los Angeles to San Francisco. Two years ago, we started a project in Brazil. We just finished a large hotel, and they’re getting ready to do some more buildings there.”…”Our brick is more expensive,” says Burkhart, “and people who are affluent and have discriminating tastes want something a little bit different. They want something that’s a cut above the ordinary, just as when they hire an architect because they want their homes to fit in with the landscape. That’s a lot of our clientele, probably about 75 percent. The CEO and founder of a ladies’ clothing company had searched all over the country until he finally found us, and when he flew down to Salisbury, NC, he said, ‘This is the brick I want because it will give that soft patina and soft tones.’ We had one person say, ‘Your brick is the Rolls-Royce of the brick industry.'”
This company is right up Brickworks’ alley. There could also be an opportunity to export handmade brick to Australia, since high labour costs preclude CSR or Brickworks from manufacturing this product in an economical manner at scale; although I am not sure of the economics of exporting handmade bricks to Australia. Would the premium selling price justify the costs of manufacture and shipping to Australia?
While the South East region is generally more competitive than other regions, the consolidation benefits will help outweigh this negative. General Shale has a substantial presence in North Carolina, Virginia and Georgia, so if Glen-Gery wants to enter these markets they will have to establish a fully-utilised plant network (probably through acquisition) to compete. The main drawback of investing in the South East is the region’s focus on primarily residential markets instead of the architectural market dominant in the Mid-West and North East regions.
The acquisition targets for Brickworks would likely be:
- Pine Hall Brick
- Lee Brick
- Palmetto Brick
- Old Carolina Handmade Brick
The above four companies (with the possible exception of Old Carolina Brick) are also likely desirable acquisition targets for General Shale and Acme Brick. Cherokee Brick, the only other large family-owned brick manufacturer in the South-East, would be a highly desirable acquisition for General Shale or Acme Brick due to the synergy benefits which could arise when the Cherokee plants are integrated with their existing plants. Cherokee Brick’s core markets of Georgia and Mississippi are likely too far away from Glen-Gery’s target markets to be a desirable acquisition.
Greater Texas Region
Brickworks is unlikely to enter the Greater Texas region due to the dominant presence of Acme Brick and the other large manufacturers such as Meridian Brick and Triangle Brick. Brickworks will likely only enter this market if one of the companies Brickworks acquires happens to have plant/s in Greater Texas, but this probably would not be the main reason for the acquisition. Unlike other regions, the large manufactures dominate and their is limited options for further consolidation which is one of the key reasons Brickworks entered the US market in the first place.
As stated above, Boral intends to divest the Meridian Brick business in the next few years. The question is: who will buy it? Will Boral sell its 50% stake to Forterra? Will Forterra want to sell out too? Forterra is affiliated with private equity firm Lone Star Funds; will they want to purchase the company? The Australian has reported that Lone Star Funds is considering acquiring Boral, but that would be a gigantic acquisition if that happens (Boral Market Cap = $5.8 billion). If the whole business ends up for sale, who will buy Meridian? In the brick industry, the only companies with the capability to purchase the company are Acme, General Shale, Glen-Gery and maybe even Triangle Brick’s parent company. Acme and General Shale’s markets overlap substantially with markets Meridian is active in. This means both companies will be able to extract synergies from the acquisition, but they will have to receive approval from competition regulators prior to the acquisiton. Glen-Gery would extract significantly less synergies but would be most likely to be approved to acquire the company by competition regulators. Or will a company outside the brick industry buy the company? I don’t know.
Long Term Gas Supply
Brickworks pays around $3/GJ of gas in the US versus $10/GJ in Australia. Management of Brickworks has stated many times that this is a key reason why Brickworks decided to enter the US market. Even so, perhaps the most significant long-term risk for Brickworks North America – barring a recession or management issues – is a ban on fracking. The shale gas revolution made possible by hydraulic fracturing resulted in plentiful supply of gas and reduced prices. Any ban or restriction would likely raise gas prices considerably and result in a situation like what exists in Australia. For example, leading Democratic presidential candidate Elizabeth Warren tweeted that if she becomes president she will ban fracking. While a drastic move such as this appears unlikely (and environmentally damaging), there is no denying that there is a segment of the American population who are opposed to fracking, or any type of fossil fuel extraction, which is something to watch in the future, even if it is not a risk at this moment.
Competition for Acquisitions
The US brick industry is in the process of consolidation. While this is a good thing for Brickworks, they are not the only one looking to expand their presence. While Meridian and Acme Brick have not been making any acquisitions (both have been reducing capacity), General Shale has been active. In October 2017 General Shale acquired Columbus Brick Company, expanding General Shale’s presence into Louisiana and Mississippi and strengthening their presence in other southern states. Then in December 2018 General Shale acquired Watsontown Brick Company, extending the company’s presence in the North East region. Watsontown Brick could have been a good acquisition for Brickworks, but General Shale got to them first. The same could happen for other acquisitions. 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’ (Wienerberger Results 2018 Presentation slide 34.), so they are not going to stop expanding any time soon. General Shale’s acquisition strategy is discussed in the below extracts from their 2018 Annual Report.
The core things you should get out of this article are:
- Brickworks has many potential acquisition opportunities to fuel future growth
- Glen-Gery is the dominant manufacturer in the North East and Mid-West
- Glen-Gery’s target markets are less competitive than other regions due to minimal presence of the other large manufacturers
- General Shale and Belden Brick are Glen-Gery’s major competitors. Any moves they make should be watched closely.
Brickworks’ two acquisitions so far are the best acquisitions Brickworks could have possibly made. This gives me confidence that the Brickworks/Glen-Gery management teams will make the right decisions in the future. The present industry-wide capacity under-utilisation means that Brickworks can create significant value from acquisitions. Industry-wide capacity under-utilisation also has drastic effects on the smaller manufacturers – if capacity utilisation is at 50% in a bull market, what will happen to those manufacturers if a recession strikes and capacity utilisation rates drop to 25%? Bankruptcies probably. This is likely at least one of the reasons why the large family owned manufacturers have been willing to sell their companies to the large manufacturers. Medium sized manufacturers in the South East will play a very important role in the consolidation of the brick industry.
The economics of the industry mean that in the long term the smaller companies will struggle while the big companies succeed. Dennis Knautz, the long-time CEO of Acme Brick said it best:
“Brick is heavy, it doesn’t travel well. The natural delivery radius is about 250 miles around the brick manufacturing plant…The brick industry has a major barrier to entry. 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” (emphasis added, source: Acme Brick Company: 125 Years Across Three Centuries pg. 146-147).
Are the bankers going to back the Mom and Pops financially? In my opinion, the answer to Knautz’s question is no and Brickworks, along with the other large manufacturers, will be a beneficiary of that. So, will Brickworks succeed in the North American brick market? I think they will.