Agco: We Think Teaming Up With Trimble Moves the Precision Agriculture Story Forward

On Sept. 28, Agco AGCO announced it was entering into a joint venture with Trimble. Agco is paying $2 billion via a combination of cash on hand, free cash flow, and new financing (secured an additional $2 billion) for 85% interest in the joint venture. The purchase price for Trimble’s ag business comes out to an enterprise value of $2.35 billion, meaning the transaction multiple is 13.8 times. The multiple doesn’t seem too expensive to us when we compare it to the 37 times CNH paid to acquire Raven in mid-2021. The transaction multiple is also below Trimble’s consolidated average multiple of 16.5 times over the past seven years.

We like the move from a strategic standpoint, which led us to increase our fair value estimate to $156 from $151 previously. Both companies have been diligently developing hardware and software for each phase of the farming process. However, it’s important to note there’s not that much overlap in products. Therefore, we think there’s an attractive opportunity to cross-sell products across both companies’ distribution channels. From a precision ag standpoint, both companies are focused on driving adoption through the aftermarket channel, which we think may be an easier sell to farmers than buying a new, more expensive machine equipped with precision ag features.

Let’s now look at the numbers. Agco now projects precision ag sales to reach over $2 billion by 2028, thanks to Trimble. Based on our estimates, the joint venture adds $600 million-$800 million more in annual sales than Agco could have achieved on its own in precision ag. We’re a bit more cautious on the profitability outlook though, this early in the joint venture. Agco expects to double EBITDA by year 5, however, we’re expecting a roughly 50% increase. The joint venture may need additional investments to expand precision ag capabilities.

For additional insight on the precision ag opportunity, please see our report, “Ag OEMs Accelerate Precision Ag Portfolios With Recent Moves.”