The Minneapolis-based investment banking firm says other factors behind the trend include: * The difficulty, due to environmental and other concerns, in bringing new land into aggregate production--even on sites next to existing mines.* The need to make costly capital improvements to increase productivity.* The benefits of leveraging mining and distribution facilities with higher volumes.

"Economies of scale will continue to play an important role in determining who wins and loses in this market," says William P. Watkins, vice presidentof middle market mergers and acquisitions for US Bancorp.

Last year, the industry benefited from the construction boom, which saw a 6% increase to $748 billion in overall construction in the US--driven in turn by private spending, with 11% increases in nonresidential construction, according to the report. The industry also is becoming more profitabledue to operational efficiencies, such as computerization of labor-intensive tasks, technological advances in equipment and betterplanning.

Last year, there were about 50 mergers, including Cemex, which bought Southdown. The average deal was valued at about $450 million, according to Securities Data Corp.

While Watkins believes construction will likely slow this year along with the overall economy, the industry will benefit from highway spending authorized under the Transportation Equity Act, which authorized $216 billion in new spending for a six-year period through 2003.

Instant Insights /

Consolidation in Construction Materials Industry Won't Slow With Economy, Report Says

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