Acquiring Headwaters to strengthen USA business: Boral Limited (ASX: BLD) made an agreement with Headwaters, a leading building products manufacturer and fly ash marketer in North America, for an acquisition price of over US$2.6 billion. With this move, Boral intends to strengthen their US businesses, which would generate a revenue of over US$1.8 billion that is double the revenue from Boral USA. With the recent Trump’s election victory, the construction industry in the US seem to gain momentum. Accordingly, this acquisition could enhance the group’s exposure to the USA building and construction markets. The group expects to generate synergies of over US$100 million per annum within four years of transaction completion. BLD forecasts to generate US$30-35 million synergies in the first full year of ownership. The group estimates US$50-55 million at the end of the first full year post finishing transaction. Meanwhile, Boral has a Pro forma gearing of over 30% as at 30 June 2016 and aims a net debt to EBITDA ratio of over 2.5x post transaction close. 

Headwaters divisional performance (Source: Company Reports)
 
Concerns over higher acquisition costs: Boral stock lost over 14% in last one month due to investors’ concerns of higher acquisition costs to acquire Headwaters. The acquisition is at an implied multiple of over 10.6x enterprise value / adjusted EBITDA for the 12 months ending 30 September 2017. To fund the acquisition, Boral finished a fully underwritten institutional placement for A$450 million. The group completed its institutional placement and entitlement offer for raising about A$1.6 billion. This was via 1 for 2.22 pro rata accelerated renounceable entitlement offer with retail investors. Retail shareholders got the opportunity to acquire 1 new share in Boral for every 2.22 current shares in Boral at the offer price of A$4.80 per New Share.
 
Guidance: Boral Australia forecasted over ~$6.5m lower equity earnings for fiscal year of 2017 as compared to FY2016 on the back of Boral’s share of East Coast Bricks JV divestment in first half of FY2017. Moreover, the group estimates a pressure in Building Products performance and a low contribution from property for fiscal year of 2017. The group forecasts a weaker first half of 2017 impacted by weak WA activity ahead of the ramp-up in infrastructure work, exacerbated by wet weather in the first quarter of 2017. USG Boral might generate a better Asia and Australia performance via cost and synergy benefits, coupled with volume and price growth in major markets. Boral USA forecasts a better USA housing market for fiscal year of 2017.

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