Boral purchase by Lone Star Funds could be on cards in $6bn deal

An acquisition of Boral would give Lone Star Funds a major foothold in the Australian and US market. Picture: Richard Dobson

One of America’s largest private equity firms, Lone Star Funds, is believed to be weighing a potential acquisition of Australia’s largest building materials provider, Boral, in what could lead to a $6bn transaction within the next year.

Boral and Lone Star are known to each other following the joint venture Boral formed with Forterra for its US bricks operations in 2016. Forterra consists of the former Hanson’s building products division sold to HeidelbergCement in 2007.

In 2015, HeidelbergCement, including Hanson’s North American building products business, was offloaded to Lone Star, which later listed the operation on the London Stock Exchange.

Last year, Lone Star secured more than $US12bn ($17.7bn) in fresh funds and has raised $US84.6bn since its inception in 1995. The company has been a major investor in the area of building materials and last year purchased German building materials maker Xella, reportedly for about $US2.2bn.

It also owns the Stark Group, which is the largest retailer and distributor of building materials in the Nordic countries and was acquired by the private equity firm in 2017 for €1.025bn ($1.63bn).

An acquisition of Boral would give the company not only a major foothold in the Australian market, where Boral is the largest supplier of building and construction materials, but in the US, where it generates 32 per cent of its earnings.

The interest by Lone Star comes as some expect the departure of Boral’s managing director Mike Kane soon, with the expectation he would be eager to return to his home country of the US.

It also coincides with Boral’s share price trading at its lowest level in five years.

While Australia’s construction materials industry is facing headwinds, Boral has a strong pipeline of work for upcoming infrastructure projects, including WestConnex, Sydney Metro and Melbourne Metro Rail.

Some expect a break-up of the business could be on the cards under private equity ownership, but a challenge for Lone Star will be Boral’s $2.19bn debt pile compared to a $5.53bn market value and some say that the company needs to raise at least $500m of equity.

When Boral bought the US-based building materials firm Headwaters for $3.5bn in 2016, Macquarie Capital, Citi and JPMorgan worked on the raise.

Its shares in August tumbled 20 per cent on the day of its results — its largest fall in a decade — after the company warned of a sharply lower annual profit outlook — 5-15 per cent lower than the 2019 fiscal year — due to delays in infrastructure projects compounding a slowdown in the domestic residential construction market.

In August, Boral unveiled a long-awaited $US441m deal with Knauf to take control of its local USG Boral business and team up with the German giant to form a new Asian plasterboard venture.

Boral’s underlying profit for the 2019 financial year came in at $440m.