Deere’s Acquisition Story: The Latest Chapter
There is often a ramp-up in consolidation during tough times in an industry. While we haven’t seen such moves in the agriculture (DBA) equipment space so far, it has been a different story for players in the seeds and pesticides market.
With Monsanto (MON) reviewing Bayer AG’s unsolicited proposal for acquisition and the $130 billion mega-merger of Dow Chemicals (DOW) and Dupont (DD), the seeds and pesticides (MOO) space is seeing a lot of consolidation already.
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Deere’s capacity for acquisitions
According to analyst estimates, Deere & Company’s (DE) free cash flows in fiscal 2016 are expected to reach ~$1.3 billion. The company’s cash and cash equivalents were impressive at $4.6 billion. Add free cash flows to its cash holdings, and the company has enough leeway (of ~$5.9 billion) to make acquisitions without taking on additional debt.
This was also indicated in the earnings call in which Deere’s Chief Financial Officer, Rajesh Kalathur, stated, “You’ve also seen us announce some inorganic acquisitions. And you’ve seen us talk about Precision Planting, Monosem, and more recently Hagie Manufacturing. So in this type of an industry environment where we have a very strong financial position, some of these inorganic options become more actionable for us. And if they are in the long-term interest of our shareholders for profitable growth in the long-term, we will act on some of those.”
Deere acquires Hagie Manufacturing
On March 29, 2016, Deere announced that it had picked up a majority stake in Hagie Manufacturing, the US market leader in high clearance sprayers. While equipment will still carry the Hagie brand, sales, and services of Hagie’s equipment will be integrated with Deere’s distribution channel over 15 months from the announcement of the joint venture.
The acquisition will enable Deere to venture into a new market and match up its product portfolio with other players such CNH Industrial which had acquired the Wisconsin-based sprayer manufacturer, Miller-St. Nazianz. Hagie is likely to benefit from Deere’s far-reaching distribution channel, which is inaccessible for small players with $100 million in sales.