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Cash shell to acquire profitable unit of £25bn building materials giant
Thursday 22 Dec 2016 Author: Daniel Coatsworth

A Channel Islands construction firm previously owned by one of the world’s biggest building materials businesses will join the UK stock market early in 2017.

Cash shell SigmaRoc (SRC:AIM) is paying £45m for Ronez, a profitable quarries-to-road paving group with operations in Jersey and Guernsey. The deal is structured as a reverse takeover which means the acquirer is smaller in size than the target.

Ronez is being acquired from £25bn construction giant LafargeHolcim (LHN:VTX).

The shares will continue to trade under the name of SigmaRoc despite Ronez being its only asset alongside some cash. That’s because SigmaRoc intends to buy more construction businesses in the UK and Western Europe, so its name will be the identity of the holding company.

It believes there are lookalike opportunities to Ronez, with large construction groups selling non-core but profitable and cash generative businesses.

Efficiency target

SigmaRoc is paying nine times the £5m EBITDA (earnings before interest, tax, depreciation and amortisation) generated by Ronez in 2015. While that looks a fairly high price, SigmaRoc argues the business could be run more efficiently by a smaller operator so EBITDA can easily be improved.

Chief executive Max Vermoken says the Channel Islands have ongoing demand for construction activity, particularly for sea defences and road work. ‘It is economically inefficient to import building materials to the Channel Islands so local operators like Ronez have a stable market in which to operate,’ he adds.

Ronez is a vertically integrated business, whereby its quarries produce aggregate material, it sells ready-mix concrete and asphalt, and it undertakes road surfacing. Ronez has a monopoly position in many of these product and service lines in the Channel Islands.

The business made £2.5m pre-tax profit in 2015 and SigmaRoc intends to pay dividends in the future.

Big names

The group has raised £50m to fund the acquisition, attracting some high profile investors. Once the deal completes, major investors will include asset manager Miton (MGR:AIM) and Pula which is the investment vehicle for Stephen Lansdown, the co-founder of FTSE 100 financial services group Hargreaves Lansdown (HL.).

The shareholder register also includes Bailiwick Investments, a Guernsey-based investment fund which also has a stake in AIM-quoted aggregates business Breedon (BREE:AIM).

SigmaRoc shares are currently suspended until the deal completes on 5 January. At that point it will undergo a 104:1 share consolidation and recommence trading. We think the company’s new asset and strategy looks very interesting, so get ready to buy once the shares come out of suspension. (DC)

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