Dive Brief:
- Granite Construction is expanding its reach in the Southeast. The Watsonville, California-based contractor and roadbuilder acquired two affiliated asphalt and aggregate companies in Memphis, Tennessee for $278 million, the firm announced on Dec. 5.
- Granite picked up Lehman-Roberts and Memphis Stone & Gravel, two sister companies focused on the highway paving and asphalt and aggregate mining industries, to build out its so-called “home-market” strategy, where it supplies projects in a given region from its own nearby plants.
- In a Securities and Exchange Commission filing, Granite said it financed the deal through a new $150 million term loan and a draw of $100 million from an existing credit line. The firm plowed $28 million in cash into the remainder of the purchase price. The deal follows the $26.9 million cash purchase of Coast Mountain Resources, an aggregate producer in British Columbia, Canada, in April.
Dive Insight:
Although Granite, along with other major construction firms, felt the bite from inflation and other headwinds in their profits during the third quarter, the firm also has an established materials business, where it benefits from supplying itself and other contractors with road building aggregates.
For example, while the firm’s overall profits slumped in the third quarter due to challenges in its Old Risk Portfolio, gross profit from its materials business increased by $7.4 million to $29.5 million, 34% higher than in 2022. The firm said higher sales prices for aggregates and asphalt were the primary driver of the unit’s bigger bottom line.
Indeed, Granite said with the Memphis acquisition, it has raised its 2024 target revenue guidance to a range of $3.8 billion to $4 billion, up from its previous goal posts of $3.35 billion to $3.45 billion.
Picks and shovels strategy
The firm claims to be one of the largest construction materials producers in the U.S., with materials operations across seven western states: Alaska, Arizona, California, Nevada, Oregon, Utah and Washington. Those plants produce more than 22 million tons of asphalt, concrete and aggregates each year.
CEO Kyle Larkin highlighted the health of the firm’s materials unit on its third quarter conference call Oct. 31, and hinted at more activity in the market sector ahead.
“We see further opportunities to strengthen our current home markets and to expand into new geographies,” Larkin said at the time. “We are now growing and plan to pursue opportunities to drive growth and expand our footprint in both our materials and construction segments.”
Of the current deal, Larkin said, "We are very excited to complete this acquisition of an outstanding materials-led business that expands our footprint in the Southeast.” He added that the move aligns with its strategy to develop “home markets that are served by highly successful companies of scale with great leadership.”
Founded in Memphis in 1939, Lehman-Roberts became affiliated with Memphis Stone & Gravel via a shared ownership structure in 1972. The fourth-generation family companies operate in the Tennessee, Mississippi and Arkansas markets, according to Lehman-Roberts’ website. The firms have completed paving projects at the U.S. Navy’s NSA Mid-South base in Millington, Tennessee; I-69 in Mississippi; and I-269 around Memphis.
