09 June 2017

Deere to purchase Wirtgen Group

Deere is carrying out a EUR 4,600 million deal to acquire Wirtgen Group Holding as it seeks to expand into the road construction sector and grow its footprint overseas. The transaction, which is expected to close next year, will be funded by cash and new debt facilities.

The news gave Wirtgen’s equity a slight boost, causing it to close at USD 124.70 on 1st June 2017, up by almost 2 per cent from USD 122.46 on the previous trading day. According to Zephyr, the M&A database published by Bureau van Dijk, this is Deere’s biggest deal to date and is the largest takeover of a construction machinery manufacturer worldwide on record.

Listed on the New York Stock Exchange (NYSE), Deere is a provider of agricultural and forestry machinery including tractors, air compressors and bunker rakes. The company’s business, however, has been in decline in recent years. It posted revenue of USD 26,644 million in the 12 months ended 31st October 2016, down 26 per cent on the USD 36,066 million recorded during the same timeframe in 2014. Net income followed the same pattern as it totalled USD 1,521 million during the period, down 52 per cent from USD 3,163 million two years ago.  

With a presence in over 100 countries, Wirtgen has a vast business network that will conveniently allow the US-focused Deere to expand outside its home country. The buyer also sees the Germany-headquartered company’s road construction products, such as equipment used for spanning milling, processing, mixing, paving, compaction and rehabilitation works, as complementary to its business.

Commenting on the transaction, President of Deere’s Worldwide Construction and Forestry Division Max Guinn said: “This transaction enhances our global distribution options in construction equipment and enhances our capabilities in emerging markets.” He added: “Spending on road construction and transportation projects has grown at a faster rate than the overall construction industry and tends to be less cyclical.”

Last year, Deere, alongside private equity firm Clayton Dubilier & Rice offloaded 48 per cent of SiteOne Landscape Supply via a listing on the NYSE and subsequently a secondary offer worth a combined USD 507 million. Both shareholders are also in the process of selling a further 25.3 per cent stake in the irrigation equipment supplier to the public in a deal worth USD 475 million. Apart from the disposals, Deere successfully purchased agricultural equipment maker Hagie Manufacturing in March 2016.

As shown by Zephyr, there have been 19 other announced or completed deals targeting construction machinery manufacturers worldwide in 2017 to date, with the largest being China Railway Hi-tech’s CNY 2,941 million (USD 432.55 million) acquisition of China Railway Engineering Equipment.

© Zephyr