Clay product and refractory manufacturing

Two unlike businesses share this code. Nearly half of the 97 Canadian establishments — 46 of them — have one to four employees [A]: studio potteries and small ceramic makers, craft businesses limited by the maker's hands and not examined further. The industrial end is clay brick and refractories: a shale pit, a tunnel kiln that runs continuously, and a product that goes on the front of houses. The attraction is real — brick is heavy, so imports are limited, and Wienerberger, which holds the number one position in Ontario, calls it Canada's most attractive and dynamic real-estate market [A]. The cut is what existing kilns are worth. When Wienerberger bought Meridian Brick, the largest US clay facade maker by capacity and strong in Ontario, it announced $250M for a business with more than $400M of revenue, 20 plants and over 1,000 employees, and closed at a final cash price of $230M, recovering a further $23M for the plants the US Department of Justice made it divest [A]. That is under 0.6 times sales for the kilns, the clay reserves and the working capital together — one transaction clearing well below what the capacity would cost to build, because housing starts swing and a continuous kiln's gas bill does not. A new plant has to earn a return on new-build cost while competing against an owner who bought in at that price. Brampton Brick, the listed Ontario maker, left the other way: family holding companies of its own chief executive and a director bought it out at $12 a share [B] — a price for the equity, not for capacity. The 327 record cuts ready-mix and aggregates on the permit; brick shares the pit-permitting problem, but here it is the second reason, not the first.

Aggregate pits are among the best local businesses that exist — a haul radius is a natural monopoly and the product cannot be imported economically — which is exactly why the permit is the whole business and takes years, public hearings and reclamation bonding to obtain. Buying an existing permitted pit means paying for that moat in full. Ready-mix without owned aggregate is the low-margin half of the same industry, buying its input from the competitor.