(Reuters) - Farm equipment maker Agco Corp (AGCO.N) has struck a deal to buy GSI Holdings Corp for $940 million, moving into the grain storage and livestock industries.
Agco Chief Executive Martin Richenhagen said in an interview the deal, announced Monday, is part of a “new vision” to expand the breadth of products his company offers to farmers around the world.
The marriage of Agco -- the world’s third-largest maker of agricultural equipment -- and GSI is expected to expand Agco’s presence in North America and give it a baseline for future growth beyond its core farm equipment business. GSI is among the world leaders in grain storage and protein production.
GSI has been owned by Centerbridge Partners, a private equity firm based in New York, since 2007.
“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,” Richenhagen told Reuters.
Duluth, Georgia-based Agco, with sales of nearly $7 billion in 2011, ranks behind Deere & Co (DE.N) and CNH Global CNH.N in the global agricultural equipment business.
“Grain storage is arguably one of the most interesting segments in agriculture right now,” JPMorgan equities analyst Ann Duignan said in a note to investors.
The U.S. agricultural economy in several markets is the healthiest it has been in years as rising farm incomes allow farmers to pay off debt and buy land and machinery to meet booming demand for crops and livestock. Global growth is expected to continue as developing economies expand.
In order to grow, Agco is eyeing new markets and new products. The company was created in the early 1990s through a spree of acquisitions. After a relatively quiet period in recent years, it is looking to buy additional growth.
Half of Agco’s business is from Europe, Africa and the Middle East, compared to 22 percent in North America. Nearly all of its revenue comes from sales of tractors, heavy vehicle equipment needed for farming, and parts.
GSI’s profile is much different, as 71 percent of revenue comes from North America and relies on the grain and protein markets.
Richenhagen said Agco’s strength in markets like Brazil and Russia will allow an “organic” expansion of GSI’s business in ways GSI could not do alone.
“While the acquisition appears to make good financial sense, the strategic synergies will take time to assess,” Jeffries & Co equity analyst Stephen Volkmann wrote in a note to investors. “While providing little overlap in distribution or suppliers, this acquisition does increase Agco’s touches with professional farmers.”
GSI revenue for 2011 is estimated at $700 million, with 15 percent operating margin, according to Agco.
“They are very profitable, that’s what we liked,” Richenhagen said in the interview. He said GSI sales are expected to increase to more than $1 billion by 2015, with much of the growth coming in emerging markets.
Richenhagen said there are other industries important to farmers where acquisitions are worth considering -- such as irrigation -- but added, “We have nothing in mind right now.”
Shares of Agco were down 3.2 percent to $33.48 in midday trade on the New York Stock Exchange.
Agco said it has received committed bank financing from Rabobank, one of the biggest U.S. farm lenders, to finance the acquisition and refinance existing credit lines.
Centerbridge was represented by Simpson Thacher in the deal.
Reporting by John D. Stoll in Detroit; additional reporting by Fareha Khan and Megha Mandavia in Bangalore; Editing by Don Sebastian and John Wallace