Suncrete, Inc. - RMIX

The hunt for the next AI play expands into the ready-mix concrete market

In general, I am not a fan of rollup strategies, and I tend to take a pretty dim view in general of companies that regularly attempt to supplement their own businesses through acquisitions.

I recognize that in some cases it’s a valid strategy of adding products or capabilities more quickly and cost-effectively than it can be by developing them on your own (CSCO is (or rather was) the poster-child for this strategy), but it is also a strategy companies deploy to mask weaknesses in their own business while still claiming to be able to show top-line growth. Even in those rare cases where a company will break-out “organic” growth from “acquired” growth in their earnings releases, there are still too many ways that they are able to game the “organic” growth calculations and thus deceive investors for that to be entirely trustworthy.

(In the past I have highlighted dozens of companies that have reported, and at least appeared to show, strong topline growth, when in fact if you removed the effect of their acquisitions it showed their base business was facing difficulties and contracting (I won’t point them all out to you here, but you’re free to browse through my catalog of ideas for examples).)

Rollups tend to be a different animal altogether. Here the promise is that if you combine a dozen different companies under a single management and financial system, that you can strip away a large portion of the underlying costs (by basically firing most of their management and back-office staff and often much much more) that will then flow down to shareholders. Pretty much every single one of these stories relies on a significant increase in leverage (some stock typically gets issued, but they’re mostly done for cash) which in turn transforms them from earnings stories into “adjusted” EBITDA stories (or, in this case, not just “adjusted EBITDA, but also “supplemental adjusted” EBITDA).

Suncrete (RMIX), according to the company’s management, is trying to rollup the ready-mix concrete segment that they believe is ripe for consolidation.

“We believe Suncrete occupies a highly differentiated position within the ready-mix industry. This sector remains highly fragmented, with many privately owned operators facing generational transition and increasing demand for scale, operational support, and succession solutions.”

While the company released a fairly bullish presentation of their recent results, some pro forma filings related to recent acquisitions show that their road to consolidation just may be a bit bumpier than expected.