Aggregates Manager

June 2014

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Page 18 of 207

M&A REPORT • 17 ents the performance of the index as compared to the Dow Jones Industrial Average and Standard & Poor's 500 for various periods. The CMI was one of the darlings of Wall Street during the residential boom from 2004 to 2007, far outperforming the market as a whole. During this time, there was tremendous M&A activity in- cluding strategic bolt-on, new platform, and mega deals. It was also during this time that debt, financing growth, bal- looned and cash levels plateaued. Chart 2 and 3 present total debt and cash/ short-term investments for the CMI from 2000 through 2013. The construction materials sector enjoyed the benefits of record growth in the residential market, a strong fed- eral highway program, and healthy state budgets from 2000 through 2007, as shown in Chart 4 and 5. As we know, things changed in 2008 and the public companies — the CMI companies — experienced sharp drops in their stock price, volumes, and earn- ings. As shown in Chart 1, the CMI far underperformed the market throughout the last five years and underperformed the market in 2013. The dependence on a decimated residential sector, un- certainty surrounding transportation funding, and unsustainable leverage left the sector out of favor with investors. The buyers went to the sidelines, leaving the market void of traditional buyers. M&A transactions continued; however, there were fewer deals, and they consisted of only the small stra- tegic acquisitions. There was a big disconnect between buyers and sellers on price as sellers were convinced there would be a return to the "glory" days as they anticipated a traditional V-shaped recovery. At the same time, the buy- ers were touting the idea of the "new normal." We were in unchartered terri- tory — an economic recovery, the pace of which nobody in the industry had experienced in their careers. In 2008, everyone knew 2009 would be tough; Chart 2: Total debt (CMI companies) - 20,000 40,000 60,000 80,000 100,000 120,000 $Millions - 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 $Millions $ $50 $100 $150 $200 $250 $300 $350 $400 $450 $500 Billions Single Family Multifamily Chart 4: Total residential construction Chart 3: Cash and short-term investments (CMI companies) Source: CapIQ Source: CapIQ Source: FMI 1st Quarter Outlook 2014

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