Aggregate growth

In 1933, Trinity Industries was founded as a Dallas-based manufacturer of small butane tanks. Over time, the company steadily expanded its offerings to serve the energy, chemical, agriculture, transportation and construction sectors.

In November 2018, Trinity spun off its infrastructure-related business into a separate entity, Arcosa Inc. The newly formed Dallas-based public company touts three divisions: Construction Products, Energy Equipment and Transportation Products.

While Arcosa Inc. might be a newer name in the industry, its history of producing construction products dates back to the early 1990s when Trinity Industries Inc. began expanding its operations in Texas.

Today, the company’s construction materials portfolio includes natural aggregates, recycled aggregates and specialty materials such as natural sand, gravel and limestone base. These operations are run out of more than 11 locations. The company also is one of the largest producers of rotary kiln expanded shale and clay lightweight aggregate in North America, with production facilities in California, Colorado, Texas, Louisiana, Alabama, Kentucky, Indiana and Arkansas.

According to Reid Essl, president of Arcosa Construction Products, these products serve a diverse range of customers and building projects, with most going to infrastructure-based initiatives.

“We estimate that roughly half of our end markets are related to infrastructure, with the other half split across residential, non-residential and specialty markets,” he says.

At the end of 2019, the company operated 23 quarries and 14 specialty materials production facilities across North America. More than half of these quarries were in Texas, Oklahoma and Louisiana, and the company also featured operations in nine other states and British Columbia. Additionally, the company touts a Construction Site Support division based in Michigan with five facilities.

To facilitate all these operations, Arcosa boasted an employee base of 6,200, including 1,200 in the Construction Products group at the end of last year.

The Cherry on top

Despite Arcosa’s robust network and customer base, Essl says the company wanted to expand its offerings even more in the recycled aggregates market.

In January, Arcosa made major inroads in this endeavor when it announced that it had completed the acquisition of Houston-based Cherry Industries Inc. and its affiliated entities for $298 million. This acquisition yielded 12 Houston area locations and added roughly 300 more employees to the company’s workforce.

“We are very excited about this acquisition,” Arcosa President and CEO Antonio Carrillo said upon the announcement of the deal. “The transaction is aligned with our strategic plan, accelerating the growth of our high-value Construction Products segment and enhancing our geographic position within Texas. Cherry’s unique platform will provide additional organic and acquisition growth opportunities in Houston and adjacent markets in Texas and the Gulf Coast. Cherry’s unique business model of offering aggregates in combination with recycled aggregates represents an opportunity for Arcosa to replicate in other regions. … Cherry is the largest recycled aggregates company in the country, and we look forward to building on Cherry’s leadership position.”

Essl notes that the company’s interest in growing in Texas and the Gulf Coast can be attributed to Arcosa’s current operations in these areas and the attractive positive private and public demand drivers in the region.

“Texas and Gulf Coast states continue to experience population growth, public infrastructure spending and corporate relocations,” he says. “However, we are also looking to expand in other geographies that have similarly attractive market characteristics. We currently have quarry operations in 11 states, and those other operations could serve as a foothold from which to grow.”

Essl says that the Cherry acquisition was facilitated by the leadership at Norman, Oklahoma-based ACG Materials, which Arcosa also acquired for roughly $315 million in 2018.

“The team at ACG Materials, who we became familiar with after we acquired the company in December 2018, introduced us to the Cherry leadership team, and we quickly realized the strategic fit of the business with Arcosa’s platform. … We are confident in the long-term fundamentals of infrastructure spending in Texas, driven by population growth, strong fiscal health and major highway investments throughout the state,” Essl says.

In 2019, prior to the Cherry acquisition, Arcosa’s natural aggregates and specialty materials businesses combined to produce approximately 16 million tons. The Cherry business added roughly 6 million tons of production. Essl says each of the company’s locations uses various crushing and screening assets to produce the variety of aggregate products it offers, and that Arcosa will continue to invest in crushing and processing equipment across its portfolio to optimize its volumes and grow its business.

Besides investing in its equipment and processes to help increase its profitability, Essl says M&A continues to be a priority for accelerating Arcosa’s growth.

Essl says that building through M&A has been a critical part of Arcosa’s strategy and has helped substantially bolster the revenues of its Construction Products division over the last decade.

“We’ve been very active in acquiring companies in the Construction Products space because of the attractive industry fundamentals,” he says. “In fact, we have grown our combined construction aggregates and specialty materials revenues from $65 million in 2012 to over $545 million in 2019, including [with the] Cherry acquisition. Just in the last 18 months, we’ve completed the two major acquisitions [with ACG and Cherry] and three smaller complementary acquisitions. We plan to continue to be active in the M&A market to acquire new businesses in the natural aggregates, recycled aggregates and specialty materials industries.”

Beyond M&A, Essl says the company has had success growing organically by focusing on serving its customers throughout the regions in which it operates.

“We’ve had success growing organically through greenfield plants and capacity expansions that serve unmet customer needs,” he says. “For example, we largely built our presence in North Texas buying raw land with attractive aggregate reserve positions that served unmet needs in the Dallas-Fort Worth area. Similarly, Cherry has expanded organically by adding new facilities across Houston as their customers required recycled aggregates in new geographies. Maintaining and building on this customer focus will be an important part of our organic growth in the future.”

Pushing recycling

Essl says that beyond the core fundamentals of ACG and Cherry, being able to further establish Arcosa as a supplier of recycled aggregates made these attractive deals for the company. He says that as resource scarcity and various environmental, social and governance (ESG) benefits continue to make the use of these recycled materials more appealing, the company hopes to capitalize on new opportunities. Additionally, he says that increased product acceptance of recycled aggregates by departments of transportation (DOTs) across the country could lead to continued opportunities in the coming years.

“Infrastructure in metropolitan areas across the United States continues to age as most city construction phases have spanned decades,” he says. “As populations grow, this infrastructure needs to be replaced and expanded. Crushing and recycling of concrete provides an aggregate source closer to city centers, lessening transportation costs and reducing the amount of materials going into landfills.”

“Recycled aggregate production has evolved over the years to include stabilized materials that meet certain express specifications,” Essl continues. “This advancement has allowed recycled aggregates to be used in an increasing number of project designs. We expect this trend to continue and industry participants will continue to work with engineers and state DOTs to broaden recycled aggregate product applications.”

Although recycled aggregates can be an economical and environmentally conscious alternative to virgin materials, Essl says that the company works diligently to try to promote these benefits to the larger building community.

He says that Arcosa employs a group of industry experts in its Construction Products division to sit on specification committees and participate in industry trade organizations to help advocate for the use of these materials. These experts also work to educate project decision-makers on material applications and the ESG benefits of recycled aggregates.

Vision for the future

Thanks in large part to the acquisition of Cherry Industries, Arcosa’s revenues increased 41 percent to $149.4 million in the first quarter.

“Our first quarter results demonstrate Arcosa’s outstanding earnings power when infrastructure markets are strong. Our Construction Products businesses had an excellent quarter, with the Cherry acquisition exceeding our expectations,” Carrillo said via the company’s first quarter earnings report.

And even though the company has made significant progress in expanding its market reach within its first couple years as its own entity, it remains poised to keep building on its early growth, Essl says.

“We have laid out four pillars of our long-term vision: Grow in attractive markets, reduce the cyclicality of our business, improve our returns on invested capital and integrate ESG initiatives into our long-term strategy. We believe the Cherry acquisition and the others that we’ve made will advance all four parts of that vision, and we’re excited to continue to pursue that vision with our new businesses.”

The author is the editor of Construction & Demolition Recycling and can be reached at aredling@gie.net.