Oldcastle Architectural acquires deck profile maker AERT

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Advanced Environmental Recycling Technologies Inc. AERT's ChoiceDek brand of decking is sold at the national retail chain Lowe's.

Concrete masonry manufacturer Oldcastle Architectural Inc. will expand its reach into outdoor lawn, garden and paver products with the acquisition of composite deck profile maker Advanced Environmental Recycling Technologies Inc.

The $117 million cash deal was announced March 17.

Based in Springdale, Ark., AERT was an early innovator in using recycled polyethylene and wood fiber to extrude durable decking, which it sells under the ChoiceDek and MoisureShield brands.

The company opened in 1989 and also makes fencing and door and window components.

Atlanta-based Oldcastle Architectural is a U.S. subsidiary of CRH plc, which has its headquarters in Dublin and posted sales of 27.1 billion euros ($29.13 billion) in 2016. Oldcastle says it is North America's largest producer of concrete masonry products, such as stone veneers, glazed-face bricks, decorative pavers and retaining walls, as well as a regional leader in clay bricks.

The acquisition makes sense for both companies in terms of products and customers, AERT CEO Tim Morrison said in a March 17 conference call.

"Both companies are quality companies with innovative products," Morrison said. "They sell to the same set of customers who really want to increase the beauty and functionality of their back yards. I think there's a lot of synergies there. Oldcastle also is a phenomenal company in terms of resources and R&D and that opens a lot of opportunity for us."

The acquisition enables Oldcastle to enter the attractive and growing category of composite decking while enhancing AERT's commitment to safety, productivity and innovation, a news release about the deal says.

AERT showed off its cool-deck technology earlier this year at the International Builders' Show in Orlando, Fla. The company developed a proprietary way to optimize heat reflection with a coextrusion process for the MositureShield Infuse product line. The company says the boards absorb less heat than traditional capstocks.

"AERT developed technologies that reject over 30 percent of the heat from the sun, resulting in a noticeably cooler board," Morrison said. "Excessive heat is the most common complaint from owners of composite decking." Shipments began earlier this year, he added.

The decking market is poised for continued growth as sales of synthetic boards made of PVC or PE-wood composites take share from pressure-treated wood. The overall decking sector has been growing at a rate of 2 to 3 percent annually, reaching about $4.4 billion in 2016. Sales of synthetic decking have outpaced the market with 6 to 7 percent annual growth. The synthetic market segment generates about $1.1 billion in annual sales.

AERT saw a 3.2 percent increase in sales last year to $85.3 million. Its gross margin increased $5.3 million to $22.4 million with $2.2 million in profit compared to a net loss of $900,000 in 2015.

Going forward, AERT management will stay on and the workforce won't see any changes, Morrison said.

AERT products are extruded in Springdale but the plastic recycling, blending and storage facility is in Lowell, Ark., and the plastics recycling, cleaning and reformulation facility is in Watts, Okla.

"For now, it's business as usual," Morrison said. "They're acquiring AERT for the technology and our products so we don't see any major changes."

Chief Financial Officer Brian Hanna described the acquisition as a "merger in terms of operations and future marketing."

Both said the deal should be good for the businesses, their employees and shareholders.

"If you look at the marketing opportunities, people like the combination," Morrison said. "Take some of our new products and combine that with the product lines of Oldcastle Architectural and it's a really nice look. It's a similar customer."

AERT shares trade on the Over-the-Counter QB stock exchange. At the time of the transaction, each share of common stock will be converted into the right to receive 13 cents and each share of preferred stock can be converted into $2,603.48. The per-share prices take into consideration AERT's estimated net debt of $38.9 million and transaction expenses of $12.4 million.

The transaction was unanimously approved by both AERT's and Oldcastle's board of directors. The deal is scheduled to close in the second quarter.

"This is a compelling transaction that maximizes shareholder value," Morrison said in a news release. "We believe this is the right partnership to meet the evolving needs of our customers while furthering our ability to create best-in-class products. We are excited for the opportunities for AERT under Oldcastle Architectural's ownership, and we look forward to being a part of this dynamic new chapter."