How Deere’s Acquisition of Wirtgen Group Will Help Double Its Construction Equipment Revenues in The Next Three Years?
Deere’s (NYSE: DE) acquisition of the Wirtgen Group, a Germany-based global road construction equipment manufacturer, is a strategic step directed at strengthening Deere’s construction business. The group has its production footprint in Germany, China, India, and Brazil, giving it exposure to some fast-growing emerging economies. This deal will add a complementary product line to Deere’s construction and forestry business, and is also expected to save around $100 million in synergies in the next 5 years, which is in line with Deere’s ongoing cost-cutting strategy. We expect that, through this acquisition, Deere’s construction equipment revenues can double in the next 3 years.
The Wirtgen deal provides Deere with an opportunity to expand its construction portfolio, and leverage Wirtgen Group’s sector expertise, brand, and exposure to fast-growing markets. It will also provide Deere greater exposure to a growing, less cyclical, road construction business with relatively higher margins than the traditional construction equipment business.
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The acquisition is a complementary fit with Deere’s construction and forestry segment, and enables Deere to serve the entire road construction process. Additionally, Wirtgen Group’s presence in emerging economies can be used to leverage Deere’s construction expansion in those areas. Deere will leverage its combined direct and indirect material spends to optimize costs and expand its financial products portfolio through the use of captive financing. Deere expects to save nearly $100 million in synergies in the next 5 years through this transaction. Given the complementary fit and international exposure, Deere’s Construction revenues are likely to nearly double in the next 3 years.
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