Allison Transmission: Dana Off-Highway Acquisition Brings a Lot of Growth Quickly

Allison Transmission is acquiring most of Dana’s off-highway business for about $2.7 billion in cash, which is about 6.8 times adjusted EBITDA. Allison said the deal should close late in the fourth quarter with funding from new debt and cash on hand. Net leverage will be below 3 times at close with plans to reduce leverage down to under 2 times in the near term, though management gave no specific timing. No revenue synergies were projected, but we see them as possible. Allison on a June 12 call stated that it estimates four years to achieve $120 million of cost synergies across overhead, research, procurement, and operations. We see the deal as transformative but also roughly value neutral, so we are not changing our $99 per share fair value estimate. We will include the deal in our model once it closes.