8-K: CMC to Acquire Foley Products, Bolstering Precast Concrete Platform

Commercial Metals Company announced a definitive agreement to acquire Foley Products Company for $1.84 billion, significantly expanding its precast concrete business and enhancing its financial profile.

Summary

• Commercial Metals Company (CMC) has entered into a definitive agreement to acquire Foley Products Company (Foley) for a cash purchase price of $1.84 billion, subject to customary purchase price adjustments.
• Foley is the largest regional supplier of precast concrete solutions in the United States, with 18 facilities across nine states, primarily in the Southeastern U.S.
• The acquisition is expected to close in December 2025, pending customary regulatory review and closing conditions, including the expiration or termination of the HSR Act waiting period.
• CMC has secured a commitment for financing, including a 364-day senior unsecured bridge facility of up to $1.85 billion and a $600 million senior secured revolving credit facility, to fund the acquisition.
• The transaction is expected to be immediately accretive to earnings per share and free cash flow per share in the first year.
• Annual run-rate synergies of $25 million to $30 million of EBITDA are anticipated by year three, derived from operational optimization between Foley and the previously announced Concrete Pipe & Precast (CP&P) acquisition.
• The combined precast platform (Foley and CP&P) will position CMC as the third-largest precast player in the U.S. and a leader in the Mid-Atlantic and Southeast regions.
• Foley's forecasted 2025 EBITDA is approximately $180 million, implying a purchase price multiple of 10.3x, which reduces to ~9.2x when anticipated cash tax benefits of ~$200 million are included.
• Pro forma net debt to adjusted EBITDA is forecasted to be approximately 2.7x post-acquisition, with a target to reduce net leverage to below 2.0x within 18 months.
• The acquisition is expected to increase CMC's core EBITDA margin by 2.1 percentage points and unlevered free cash flow conversion by 4.2 percentage points on a pro forma basis.
• The Emerging Businesses Group and the precast platform are projected to contribute approximately 32% of CMC's total pro forma segment adjusted EBITDA in FY 2025, up from 15% contributed by the Emerging Businesses Group alone.

Sentiment

Score: 9

Explanation: The filing announces a significant strategic acquisition with strong positive financial projections, including immediate accretion to EPS and FCF, substantial synergies, and a clear path to deleveraging. The strategic rationale for expanding into the precast concrete market is well-articulated, indicating a transformative impact on CMC's business profile.

Positives

• Provides immediate platform scale in the strategically attractive precast concrete industry, positioning CMC as the #3 player in the U.S. and a leader in the Mid-Atlantic and Southeast.
• Acquires Foley, a best-in-class operator with industry-leading EBITDA margins (40%+) and strong free cash flow generation capabilities.
• Unlocks significant incremental upside and meaningful synergy opportunities ($25M-$30M annual run-rate EBITDA by year three) with the pending Concrete Pipe & Precast (CP&P) acquisition.
• Transforms CMC's financial profile, expected to be immediately accretive to earnings per share and free cash flow per share in the first year.
• Enhances CMC's core EBITDA margin by 2.1 percentage points and unlevered free cash flow conversion by 4.2 percentage points on a pro forma basis.
• Diversifies CMC's earnings mix, with the Emerging Businesses Group and precast platform projected to contribute 32% of total pro forma segment adjusted EBITDA, featuring higher and more stable margins and cash flow conversion, and being less capital intensive than steelmaking.
• Generates strong free cash flow, providing a clear path to deleveraging to below 2.0x net leverage within 18 months post-acquisition.
• Foley's comprehensive product offering and efficient operating model provide enduring competitive advantages and high customer value.

Negatives

• The acquisition will increase CMC's net debt to adjusted EBITDA to approximately 2.7x initially, requiring a focus on debt repayment.
• A non-refundable termination fee of approximately $64.8 million would be payable by CMC under certain termination circumstances related to regulatory approvals or failure to close.

Risks

• Changes in economic conditions affecting demand for products or construction activity generally, and the impact on the highly cyclical steel industry.
• Rapid and significant changes in the price of metals, potentially impairing inventory values or reducing profitability of downstream contracts.
• Excess capacity in the industry, particularly in China, and product availability from competing steel mills and other steel suppliers, including import quantities and pricing.
• Impact of geopolitical conditions, including political turmoil and volatility, regional conflicts, terrorism, and war on the global economy, inflation, energy supplies, and raw materials.
• Increased attention to environmental, social, and governance (ESG) matters, including any targets or other ESG, environmental justice, or regulatory initiatives.
• Operating and startup risks, as well as market risks associated with the commissioning of new projects, could prevent realization of anticipated benefits and result in investment loss.
• Impacts from global public health crises on the economy, demand for products, global supply chain, and operations.
• Compliance with and changes in existing and future laws, regulations, and other legal requirements and judicial decisions, including increased environmental regulations associated with climate change and greenhouse gas emissions.
• Involvement in various environmental matters that may result in fines, penalties, or judgments.
• Potential limitations in CMC's or its customers' abilities to access credit and non-compliance with contractual obligations.
• Financial and non-financial covenants and restrictions on the operation of the business contained in agreements governing debt.
• Ability to successfully identify, consummate, and integrate acquisitions and realize any or all of the anticipated synergies or other benefits of acquisitions.
• Effects that acquisitions may have on financial leverage.
• Risks associated with acquisitions generally, such as the inability to obtain, or delays in obtaining, required approvals under applicable antitrust legislation and other regulatory and third-party consents and approvals.
• Lower than expected future levels of revenues and higher than expected future costs.
• Failure or inability to implement growth strategies in a timely manner.
• Impact of goodwill or other indefinite-lived intangible asset impairment charges.
• Currency fluctuations and global factors such as trade measures, military conflicts, and political uncertainties.
• Availability and pricing of electricity, electrodes, and natural gas for mill operations.
• Ability to hire and retain key executives and other employees.
• Competition from other materials or from competitors that have a lower cost structure or access to greater financial resources.
• Information technology interruptions and breaches in security.
• Availability and pricing of raw materials and other items over which CMC exerts little influence, including scrap metal, energy, and insurance.
• Unexpected equipment failures.
• Litigation claims and settlements, court decisions, regulatory rulings, and legal compliance risks, including those related to the Pacific Steel Group litigation.
• Risk of injury or death to employees, customers, or other visitors to operations; and civil unrest, protests, and riots.

Future Outlook

CMC expects the acquisition of Foley, combined with the pending CP&P acquisition, to transform its financial profile by adding a complementary new earnings driver with sustainably higher and more stable margins and cash flow. The company anticipates immediate accretion to earnings per share and free cash flow per share, significant operational synergies, and a clear path to deleveraging to below 2.0x net debt to adjusted EBITDA within 18 months. CMC intends to continue using the 'Foley Products Company' name, recognizing its legacy and reputation.

Management Comments

• Peter Matt, President and Chief Executive Officer, stated, 'The acquisition of Foley presents a unique opportunity to create immediate scale for our precast platform while adding a best-in-class business with industry-leading margins to CMC's portfolio.'
• Matt added, 'We believe precast has significant value creation potential for CMC, and the addition of Foley will help unlock further upside from our pending acquisition of CP&P.'
• Matt also noted, 'Our new precast platform is also expected to transform CMC's financial profile, bringing sustainably higher and more stable margins and cash flow, along with significant synergy opportunities as we apply best practices across the network.'

Industry Context

The acquisition positions CMC as a major player in the U.S. precast concrete industry, a large and growing market valued at approximately $30 billion, with a forecasted demand CAGR of 5% to 7% from 2024 to 2028. Precast concrete serves mission-critical applications in construction, offering benefits like reduced labor, shorter project durations, and high quality. This move enhances CMC's exposure to powerful structural trends in construction and addresses industry challenges, leveraging its existing leadership in early-stage construction and deep customer knowledge. The precast sector is characterized by strong financial characteristics, including attractive margins and cash flow stability, and is less capital-intensive than CMC's traditional steelmaking business.

Comparison to Industry Standards

• Foley's EBITDA margin of 40%+ is described as 'industry-leading,' indicating superior profitability compared to typical precast concrete companies.
• The combined CMC precast platform (Foley and CP&P) will operate 35 facilities across 14 states, making it the #3 precast platform in the United States, demonstrating significant scale within a fragmented industry.
• The precast concrete industry generally exhibits a 5% to 7% demand CAGR (2024-2028) and strong financial characteristics, including attractive margins and cash flow profiles, which Foley exceeds.
• Foley's efficient operating model, including centralized production planning and strategic use of automation, contributes to its low-cost structure, which is a key differentiator in the industry.
• The acquisition multiple of 10.3x Foley's forecasted 2025 EBITDA (9.2x effective with tax benefits) is presented as consistent with similar transactions over the last decade in the sector, suggesting a fair valuation for a 'best-in-class' asset.

Management Changes

Corporate Governance

Legal Proceedings

• The filing mentions 'risks related to the unfavorable judgment against us in the Pacific Steel Group (PSG) litigation' as a general risk factor for CMC, not specifically tied to the Foley acquisition.

Related Party Transactions

• The filing refers to 'Affiliate Agreement' and states that, except as set forth in Section 5.22 of the Disclosure Schedule, no officer, director, or equityholder of the Companies (including any Seller) or their affiliates, spouse, sibling, or descendent has any ownership, financial, or other material interest in any material asset of the Companies or owes any indebtedness to any Company, or has contracts/arrangements with any Company other than ordinary course employment, compensation, or incentive arrangements.

Stakeholder Impact

• **Shareholders:** Expected to benefit from immediate accretion to earnings per share and free cash flow per share, enhanced financial profile, and a clear path to deleveraging, potentially leading to increased shareholder value.
• **Employees (Foley Companies):** Key management personnel (Keith Haas, Dennis Morrissey, Emily Brown) will enter into employment agreements with CMC. Non-union employees will receive base salary/hourly wage rates no less than prior to closing for one year and substantially similar employee benefits (excluding equity-based compensation).
• **Customers:** CMC expects to bring enhanced value through an expanded commercial portfolio, cross-selling opportunities, and improved product capabilities across geographies.
• **Creditors:** CMC has secured committed financing for the acquisition and plans to prioritize debt repayment to reduce net leverage, indicating a commitment to maintaining a strong balance sheet.
• **Suppliers:** The acquisition is expected to create opportunities for optimized procurement and logistics across the combined precast platform.

Next Steps

• Satisfy or waive customary closing conditions, including regulatory approvals (e.g., HSR Act expiration/termination).
• Complete the Oaktree Distribution prior to closing.
• Procure a six-year tail on the current directors and officers liability insurance policy for Indemnitees.
• Provide Phase I Environmental Site Assessments for all Owned Real Property and Leased Real Property (except office space) conducted after October 1, 2025.
• Cause the stormwater permit for the Cantonment, Florida location to be transferred from Southeastern Pipe and Precast into the name of Holdco or one of its Subsidiaries.
• Obtain releases from specified Persons listed on Section 8.18 of the Disclosure Schedules.
• Prepare and file all necessary Tax Returns and other documentation with respect to Transfer Taxes.
• Prepare a draft allocation of the Aggregate Tax Consideration among the underlying assets of Holdco and its Subsidiaries within 90 days following the final determination of the Closing Cash Payment.
• CMC will prioritize debt repayment to reduce net leverage to its target level of below 2.0x within 18 months post-acquisition.

Key Dates

Recommendation

The acquisition of Foley Products Company is a highly strategic and financially attractive move for Commercial Metals Company. It immediately scales CMC's precast platform, positioning it as a top-tier player in a growing and stable industry. The expected immediate accretion to EPS and free cash flow per share, coupled with significant synergy opportunities and a clear path to deleveraging, indicates strong financial benefits. The precast segment's higher and more stable margins, along with lower capital intensity compared to steelmaking, will transform CMC's overall financial profile, making it a more resilient and diversified company. This transaction is a strong positive catalyst for long-term shareholder value.

Keywords

Commercial Metals Company, Foley Products Company, Acquisition, Precast Concrete, Construction Materials, Merger, EBITDA, Synergies, Debt Financing, SEC Filing, 8-K, Building Products, Infrastructure