Even with the US$700 million sale of GSI to private equity firm it will leave AGCO with a loss of around US$475 million
The tide has quickly turned for farm equipment manufacturers coming off record sales of all their product lines to an eager band of farmers worldwide anxious to be part of the farmgate product growth of the past three years.
Even to the point where some manufacturers were able to increase their retail prices by more than 30%, it still didn’t deter the enthusiasm shown by farmers to place orders and get in before their neighbours to reap the rewards of higher farmgate prices and expanding world retail markets.
Massive take-overs of any exciting-looking new builds followed, from manufacturers running on record income, eyewatering figures for start-ups with nothing but big ideas including electric tractors and even power platforms to replace tractors, were the norm in this purchasing frenzy.
Somewhere along the line, the AGCO takeover of GSI has become part of the retraction that is now taking place within major manufacturers’ ranks to consolidate debt and concentrate on money-making divisions.
And with this AGCO GSI sell-off, many other manufacturers will be hoping their flamboyant purchases through the farm equipment boom will not end up with the same result, incurring a massive loss.
AGCO GSI sale terms
The AGCO Corporation (AGCO) has entered into a definitive agreement to sell the majority of its Grain & Protein business (GSI) to American Industrial Partners (AIP) in an all-cash transaction valued at US$700 million, subject to working capital and other customary closing adjustments.
Included in the sale are five primary Grain & Protein brands – GSI®, Automated Production® (AP), Cumberland®, Cimbria® and Tecno®. The transaction perimeter to be sold excludes AGCO’s Grain & Protein business in China.
Through its own financial valuations and reporting, it is revealed the AGCO sale of the GSI division will incur a loss to the company in the range of US$450 to US$475 million.
The transaction purchase price implies a transaction multiple of approximately 8.3x times based on Grain & Protein’s trailing twelve months adjusted EBITDA as of 31 March 2024.
The transaction is anticipated to close before the end of 2024, subject to regulatory approvals and other customary closing conditions.
AGCO leap into grain storage
The idea of AGCO expanding its operation into manufacturing grain storage and protein production systems through the takeover of GSI Holdings Corp for US$940 million was a bold move in late 2011.
What the GSI deal would give AGCO was a business with annual revenue of over US$700 million and a foothold in every major grain market worldwide through more than 500 independent dealers.
The transaction was finalised before the end of 2011, and AGCO boss at the time Martin Richenhagen had this to say, “With its high-quality products and services, recognised brands and global capabilities, GSI gives us strong positions in the grain storage and protein production segments and is well-positioned to benefit from increases in global grain and food demand.”
GSI’s long and proud history was to continue as part of the AGCO portfolio with the agricultural machinery manufacturer well placed in every aspect of farming, right from sowing the seed to harvesting and storing the crop. On paper, it appeared a perfect match.
When AGCO started to offer the GSI division product line to Australian growers in 2018 it joined forces with Keogh Agricultural Services who was to handle all the construction. See background story here.
AGCO was now in control of one of the world’s biggest post-harvest storage solutions. A big advancement over its competitors in equipment manufacture.
The purchase of GSI was a decisive step forward in providing a comprehensive range of products and services, not only for the grain-growing industry but also to large-scale livestock operations.
Even in early 2024 AGCO was touting its GSI and Cimbria division as the world’s largest manufacturers of steel farm silos and commercial storage grain silos. Offering the most technologically advanced dryers in the industry, complete with our cutting-edge control systems.
In June 2024 the Grain and Protein division financial results were released and confirmed a net sales decrease of 12% to US$501 million when compared to 12 months prior. And substantially lower than the US$700 million annual sales indicated at purchase in 2011.
By 25 July it was announced an agreement was in place to sell the Grain & Protein business, and at the time current AGCO Chairman, President and CEO Eric Hansotia confirmed the Grain and Protein division had historically been a below-average margin business.
AGCO moving forward
AGCO expects to use the net proceeds from the transaction consistent with its stated capital allocation priorities, including debt repayment, disciplined investment in technology and organic growth initiatives and return of capital to shareholders.
Current AGCO Chairman, President and CEO Eric Hansotia who inherited the GSI division when he assumed command on 1 January 2021 had this to say, “The divestiture of Grain and Protein supports AGCO’s strategic transformation, recently accelerated by the PTx Trimble joint venture, finalised in April 2024.
“Divesting this business allows us to streamline and sharpen our focus on AGCO’s portfolio of award-winning agricultural machinery and precision ag technology products, which underpins a long-term focus on high growth, high margin and high free cash flow generating businesses,” Eric Hansotia concluded.
It appears AGCO is expecting to recoup any losses from the GSI sale and move onto even greater rewards through their US2 billion Trimble Ag purchase that gave the company an 85% controlling interest when announced in September 2023 and followed with the deal finalised in April 2024.
See the full background story of the Trimble purchase here.
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