Green agenda drives consolidation

By Nick Gillott, Neil McInnes and Matthew Bryden-Smith

The UK’s transition to Net zero has led to bumper M&A involving construction materials suppliers. Nick Gillott , Neil McInnes and Matthew Bryden-Smith explain why buyers are targeting recycling capabilities as they seek to create complete service companies. 
 

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The number of M&A transactions involving UK aggregates and other construction materials suppliers trebled between 2021 and 2023.

This upward trend is continuing as large consolidators look to snap up small and medium-sized players. Top of their shopping list are companies which can make group operations more sustainable by localising them or adding recycling capability.

2024 has been a busy year for our team, and our transactions reflect the wider trends influencing dealmaking in this sector.

 

Construction suppliers deals: how we helped in 2024

September 2024: Stellex invests in Fox Brothers

We advised UK-based Fox Brothers Holdings on securing investment from US private equity firm Stellex Capital. Fox Brothers is a fourth-generation family firm that has grown through an aggressive acquisition strategy from a muck-away and haulage company into an integrated construction materials and waste management provider. The Stellex transaction saw it merge with quarry operator and recycled aggregates specialist J A Jackson.

July 2024: Hillhouse Group acquires Skene Group

We advised quarry materials supplier Hillhouse Group on its acquisition of Skene Group Construction Services. Hillhouse is based in the West of Scotland, and the acquisition expands its geographical footprint to the East, which is served by Skene. Both are longstanding family-owned businesses. 

May 2024: PJ Thory and Gemmix buy Heidelberg assets

The Competition and Markets Authority (CMA) required Heidelberg Materials to sell off some assets following its acquisition of Mick George Group. Aggregate supplier PJ Thory acquired three of its quarries, and Gemmix snapped up five of its ready-mix concrete sites. We advised both acquirers.

Buyers seek sustainable capabilities

The construction industry has a mountain to climb if it’s to help the UK meet its Net zero ambitions.

The buildings and construction sector accounted for 21% of global greenhouse emissions in 2022, according to a UN Environment Programme (UNEP) report.

The most recent Government data shows that construction, demolition, and excavation generated 61% of the UK’s waste in 2020.

Several forces are driving the industry towards a greener mode.

Regulation

UK construction waste is subject to the Environmental Protection Act 1990, the Waste (England and Wales) Regulations 2011, and the Environment Act 2021.

Procurement

All UK Government procurements have a 10% ESG weighting. In addition, developers are evaluating the environmental impact of their supply chain in compliance with sustainable reporting requirements.

HMRC 

The UK landfill tax encourages waste producers and the waste management industry to switch to more sustainable alternatives for material disposal. It rises in line with the Retail Price Index.

Stakeholders

Sustainability has risen to the top of the agenda for multiple groups, including investors and debt providers (who have their own ESG targets), and local communities.

The above examples aside, construction materials suppliers are realising that a greener approach means better business. A circular model can reduce costs and offer customers an attractive end-to-end service.

Historically, different providers would fulfil each part of the supply chain. Now, the ideal is to have one company transport aggregate to a construction site and use the same fleet to pick up waste for recycling or landfill at its own facilities or quarries. Not only does this provide customers with a one-stop shop, but it reduces carbon emissions from empty lorries on the road.

Trade buyers dominate transactions 

M&A in many sectors is highly susceptible to macroeconomic trends. Dealmaking in the retail sector, for example, went on pause during the depths of the cost of living crisis.

However, deal volumes in the construction materials sector have remained robust despite industry challenges, such as labour shortages, inflation, and rising interest rates.

This may be because the sector is dominated by businesses that have been family-owned for multiple generations. Their experience of the industry’s peaks and troughs gives them a long-term investment outlook compared to the typical private equity model, which seeks a three to-five-year exit.

That said, there are opportunities for the right private equity company and the right asset. For example, Stellex, which invested in Fox Brothers, is a future-thinking investor with a history of driving growth through operational transformations. It recognised the long term benefits of backing Fox’s merger with J A Jackson.

We’ve also noticed a trend for ‘private equity-type’ deal structures in trade-to-trade sales. For example, transactions in which the seller stays and retains an equity stake in their business.

Consolidation and competition

Venture capital and the construction trade are backing sustainability-targeted innovation: 

  • In September 2024, Low Carbon Materials (LCM) secured £3 million of growth acceleration funding to decarbonise carbon and asphalt   
  • In September 2023, Holcim invested in cleantech startup Neustart, a specialist in CO₂  mineralisation for permanent carbon removal
  • In June 2023, Material Evolution completed a £15 million Series A fundraising to scale up production of its low-carbon cement

Autumn Budget impact 

“A rise in both capital gains tax (CGT) and the tax rate applied to carried interest had been widely expected in October’s Budget but the level of increase remained a key question. Effective immediately, the Government has announced that CGT (at the highest level) will rise from 20% to 24%, and from April 2025 the tax on carried interest from 28% to 32%. 

While any increase in taxation has impact, the level announced still presents an attractive environment for management incentives and investors and is unlikely to discourage ongoing deal activity.  The revised rate still represents a favourable reward for taking entrepreneurial risk and, indeed, entrepreneurship continues to be encouraged, with Business Asset Disposal Relief (BADR) being retained, albeit with the rate increasing over two years to 18%. We therefore expect the impact on M&A to be less severe than anticipated with the announcements ensuring the UK remains an attractive and internationally competitive environment for investors. 

The bigger impact on the deals market will likely come from the increases in Employers’ National Insurance and the national minimum wage, and the subsequent impact on underlying earnings and valuations.

Also highlighted was the Government’s plans to reform carried interest rules to make them "simpler, fairer and better targeted" from April 2026. This gives fund managers sufficient time to fully understand the proposed changes to ensure that both existing and new structures remain compliant with any updated HMRC guidance.”

Keely Woodley, Head of Deals Advisory and Consulting

Autumn Budget 2024

You can find more insight on our Autumn Budget hub

Visit the hub

A positive outlook for UK construction

The most recent S&P Global UK Construction Purchasing Managers Index (September 2024) shows that the UK construction industry accelerated to its fastest for nearly two-and-a-half years. New work has expanded due to increased client spending and improving economics. 

In addition, the new UK Government has pledged to “Get Britain building again,” starting with 1.5 million new homes and a 10-year infrastructure strategy. 

At the same time, it has promised to make the UK a “world leader” in environmental protections. 

We expect these conditions to further accelerate dealmaking in this space while rewarding businesses whose past acquisitions will position them to benefit.

For more insight and guidance, get in touch with Nick Gillott, Neil McInnes or Matthew Bryden-Smith.

Get in touch with our experts

Nick Gillott
Nick Gillott
Head of Industrials, Corporate Finance...
Birmingham
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Neil McInnes
Neil McInnes
Partner, Corporate Finance
Edinburgh, Glasgow
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Matthew Bryden-Smith
Matthew Bryden-Smith
Partner
Manchester
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