Deere Buying Wirtgen

In one of the biggest deals in the construction equipment markets in recent years, Deere & Co. said it has signed a definitive agreement to acquire the Wirtgen Group, Windhagen, Germany, a privately-held international manufacturer of road construction equipment.

The acquisition of Wirtgen adds the Wirtgen, Vögele, Hamm, Kleemann, Benninghoven, and Ciber brands to Deere’s portfolio and expands its reach into milling, processing, mixing, paving, compaction and rehabilitation equipment for road construction and road rehabilitation and plants for mining and processing minerals or recycling material and for the production of asphalt.

The purchase price for the equity is €4.357 billion in an all-cash transaction. The total transaction value is approximately €4.6 billion (US$ 5.2 billion based on current exchange rates), including the assumption of net debt and other consideration.

The Wirtgen Group had sales of €2.6 billion in the year ending December 31, 2016. Deere said it expects the transaction to be accretive to earnings per share and currently expects to fund the acquisition from a combination of cash and new equipment operations debt financing.

The Wirtgen Group has a approximately 8000 employees and sells products in more than 100 countries through a network of company-owned and independent dealers.

“The acquisition of the Wirtgen Group aligns with our long-term strategy to expand in both of John Deere’s global growth businesses of agriculture and construction,” said Samuel R. Allen, Deere & Co. chairman and chief executive officer. “Wirtgen’s superb reputation, strong customer relationships and demonstrated financial performance are attractive as we expand the reach of John Deere construction equipment to more customers, markets, and geographies.”

Max Guinn, President of Deere’s Worldwide Construction & Forestry Division, said, “This transaction enhances our global distribution options in construction equipment and enhances our capabilities in emerging markets. Spending on road construction and transportation projects has grown at a faster rate than the overall construction industry and tends to be less cyclical. There is recognition globally that infrastructure improvements must be a priority and roads and highways are among the most critical in need of repair and replacement.”

Deere said it plans to maintain the Wirtgen Group’s existing brands, management, manufacturing footprint, employees and distribution network. The combined business is expected to benefit from sharing best practices in distribution, customer support, manufacturing and technology as well as in scale and efficiency of operations.

The transaction has been approved by Deere’s Board of Directors. The purchase is subject to regulatory approval in several jurisdictions as well as certain other customary closing conditions. The companies said they expect to close on the transaction in the first quarter of Deere’s 2018 fiscal year.

Baird analyst Mircea Dobre called the acquisition an attractive deal in terms of both strategic fit and purchase price and added that Wirtgen adds a premium road construction equipment portfolio with solid margins ~16% EBITDA margin to Deere’s C&F business at an attractive price. 9.5x EV/EBITDA.

Dobre added that Wirtgen is a well-regarded brand, and that Deere should be able to expand Wirtgen’s US reach while likely benefiting from Wirtgen’s non-US footprint.

Other details from Baird’s analysis include:

* Sales by geography: Europe 43%; AMEA 32%; Americas 25%. Sales by product category: Road Technology 84%; Mineral Technology 16%.

* Retail network consists of 150 authorized dealers with 70% of sales through company owned retail.