Oshkosh To Acquire AeroTech for Approximately $800 Million; We Increase Our Fair Value 9% to $99

On May 30, Oshkosh OSK announced its acquisition of AeroTech from John Bean Technologies for approximately $800 million. Management expects to close the deal in third-quarter 2023. Overall, we think the deal will be accretive to Oshkosh’s earnings, leading us to increase our fair value estimate to $99 from $91. In our view, Oshkosh paid a fair price for a business well positioned to benefit from growing air passenger traffic and U.S. infrastructure spending focused on airport revitalization. The deal multiple came out to 7.2 times EV/forward EBITDA, including run-rate synergies and expected tax benefits.

On the M&A call, management highlighted that it expects both replacement and new demand to drive future sales growth (mid- to high-single digit). Fleet ages skew higher for AeroTech’s aviation products (jetway bridges, cargo loaders, deicers, tractor and tug equipment). We weren’t surprised by the deal, given Oshkosh’s intention to enter adjacent markets. The company manufactures aircraft rescue and firefighting vehicles, and with the AeroTech deal, Oshkosh increases its exposure to a growing aviation end market. The pandemic had a significant impact on market growth, but Oshkosh is expecting growth in passenger volumes to drive solid sales growth for AeroTech over the next five years.

While the joint-light-tactical-vehicle contract loss was a tough development for Oshkosh earlier this year, we still think the company has some bright spots. We’ve highlighted before the potential of the U.S. Postal Service contract to refresh mail trucks. Oshkosh plans to electrify a good portion of these vehicles. We think the company can do the same with AeroTech’s products. There is ample opportunity to electrify airport vehicles.

On valuation, we now think Oshkosh’s shares are approximately 24% undervalued. With this deal, we think a margin of safety is starting to form for long-term investors, even after taking into account the JLTV loss, which our cash flow model already does.