AGCO is placed in a commanding position in agricultural technologies through a joint venture at the forefront of next-generation Precision Ag development
With worldwide sales at record levels for agricultural machinery and with technology set to place buyers onto another purchasing path if they want to stay up to date, the take-over and amalgamation deals show no end in sight.
AGCO has set its future in stone by acquiring an 85% interest in Trimble’s portfolio of Ag assets and technologies for cash consideration of US$2.0 billion and the contribution of AGCO’s JCA Technologies division into the mix.
AGCO is now expected to keep up with the autonomous farm machinery craze with the benefit of the full Trimble Ag resources and JCA Technologies that was acquired by AGCO in May 2022. Based in Winnipeg Manitoba Canada, JCA is now set to become a leading developer of autonomous agricultural systems.
AGCO Corporation is already established as one of the big four worldwide manufacturers and distributors of agricultural machinery and Precision Ag technology and will now extend their technology revenue source alone by an estimated US$2 billion by 2028 as result of this deal.
Described at this stage as a joint venture between AGCO and Trimble Ag it softens the blow and gives some consideration to the multiple OEM’s that happen to be opposition manufacturers to AGCO, that Trimble Ag supplies. Who are aware with an 85% stake it will be AGCO calling the shots moving forward.
The joint venture will be the exclusive provider of Trimble Ag’s technology. Trimble Ag represents about 20% of Trimble’s overall technology business.
This deal will allow AGCO to fulfill its technology strategy by building systems into its farm equipment range at factory level with the aim to also control ongoing retrofitting into its machines.
AGCO is expected to continue the strategy Trimble has employed across multiple brands of farm equipment and machines, and now with the final say on who can have access to this market leading technology.
While still in this joint venture mode, it is expected the Trimble brand and the Trimble retail channels will continue be active. But longer term the switch to developing more precision technology into all farm equipment will see more original equipment manufacturers (OEM) bring more dominant AGCO joint venture technologies to market.
And while Trimble’s ag systems have been fitted to over 10,000 farm equipment and machinery models that will pale into insignificant when farm fleet solutions for tractors, harvesters and planting implements are fully developed.
AGCO has already touched on this farm fleet approach through its JCA Technologies division with the developed of their Precision Planting business that will now be accelerated with the Trimble Ag purchase.
Cautionary clause added
As to any adverse reactions that might develop from the industry following the AGCO announcements there is a live cautionary statement attached to the purchase.
We quote, “difficulties in integrating the Trimble Ag businesses in a manner that produces the expected financial results, reactions by customers and competitors to the transaction, including the rate at which Trimble Ag’s largest OEM customer reduces purchases of Trimble Ag equipment and the rate of replacement by the Joint Venture of those sales,” end quote.
So, the biggest deal to date for the purchase of Ag Technology still has a considerable hurdle to jump, the loss of business from AGCO opposition brands. But that prospect, if it did eventuate, may be a small consideration for taking over and developing an Ag Tech leader to its full potential.
Company statements
Eric Hansotia, AGCO’s Chairman, President and Chief Executive Officer had this to say, “This landmark transaction creates a JV that becomes the premier mixed-fleet Precision Ag business in the world and accelerates AGCO’s strategic transformation.
“This deal significantly enhances AGCO’s technology stack with disruptive technologies that cover every aspect of the crop cycle, which ultimately helps us better serve farmers no matter what brand they use.”
“The JV will complement and enhance AGCO’s existing Precision Ag portfolio to deliver even more industry leading solutions across the crop cycle while supporting over 10,000 equipment models.
“By combining these two Precision Ag portfolios and leveraging multi-channel access across Trimble Ag, AGCO OEM & Aftermarket, other OEMs, and Precision Planting dealers, the JV will be positioned to drive outsized growth and better provide next-generation technologies to even more farmers around the world.
“The exclusive access to Trimble Ag products, combined with AGCO’s existing Precision Ag offerings also accelerates AGCO’s growth ambitions around autonomy, precision spraying, connected farming, data management and sustainability. All these touchpoints will result in us being even more farmer focused,” Eric Hansotia concluded
Commercial synergies resulting from direct access to AGCO’s global OEM, aftermarket, other OEM, and retrofit channels, in addition to modest run-rate cost synergies are expected to approximately double the JV’s EBITDA by year 5 (2028) post-closing.
Rob Painter, CEO of Trimble adds, “Farmers today are looking for mixed fleet solutions across their tractors and the implements that they use to most efficiently and sustainably feed the world.
“We believe a joint venture with AGCO, complemented by the successful mixed fleet approach that they have developed with their Precision Planting business model, can help us better serve farmers and OEMs together.”
Show me the money
The US$2.0 billion purchase price for AGCO’s 85% ownership in the Trimble Ag business represents an implied enterprise value of approximately US$2.35 billion and implies a transaction multiple of approximately 13.8x based on 2023E EBITDA of approximately US$170 million.
Inclusive of estimated revenue and run-rate cost synergies of US$100 million by year 3 and the net present value of tax attributes in excess of US$50 million, the synergiSed multiple is approximately 8.5x on a 2023E basis.
The transaction is not subject to a financing condition. AGCO has secured US$2.0 billion in fully committed bridge financing from Morgan Stanley Senior Funding, Inc. The purchase price of US$2.0 billion is expected to be funded by a combination of existing liquidity, free cash flow generation and new debt. AGCO remains committed to maintaining its solid investment grade credit rating.
Closing of the deal is expected in the first half of 2024, subject to the satisfaction of regulatory approval and customary closing conditions.
And a further interesting situation has emerged with AGCO’s Grain & Protein business to be placed under strategic review as a result of this fully pledged leap into redefining Ag Technology.
