Not all things John Deere are green and yellow and run in farm fields. Deere's construction equipment, for instance, is yellow and black --everything from articulated dump trucks and excavators to motor graders and wheel loaders. To add to its construction portfolio, Deere recently agreed to buy the Wirtgen Group, a privately held German company that is described as the world's leader in road building equipment. Reported sales price: $5.2 billion.
Why the big investment in a non-ag company? Lots of theories are swirling about that question. The simplest answer might be diversification.
In 2016, Deere's sales in its Ag and Turf division were $18.5 billion. The Construction and Forestry division sales rang it at a comfortable $4.9 billion. Wirtgen Group sales in 2016 were an estimated $2.9 billion. Although it's not this simple, adding Wirtgen's sales to Deere's sales would produce almost $8 billion in total construction and forestry sales, making that division's receipts a considerably larger portion of Deere's total receipts.
Deere has long balanced the cyclical nature of the ag industry with other enterprises. The combination provides the company some enviable stability. Adding the Wirtgen Group will add to that stability.
A second reason for the acquisition has to do with product types. Deere's catalogue of construction equipment and Wirtgen's are complementary with little cross over. Wirtgen, for instance, is a global leader in cold milling machines, those behemoths you encounter at detours around highway repaving sites. They chew up old asphalt and shoot it into dump trucks so paving machines can lay down the new stuff.
Third, Deere's ag sales are global, but its construction sales are focused on North America. Wirtgen has a strong North American branch. But it has a bigger footprint in Europe. The acquisition will widen Deere's marketplace considerably. "The acquisition of the Wirtgen Group aligns with our long-term strategy to expand in both of John Deere's global growth businesses of agriculture and construction,'" said Samuel R. Allen, Deere & Company chairman and chief executive officer in a press release.
Finally, the Trump factor might play into this deal. President Donald Trump campaigned on the promise of a trillion-dollar infrastructure plan. While we haven't seen the plan yet, and Congress hasn't yet said it will try to find the money for such a plan, the idea could mean new roadway construction sites across the country. If that happens, Deere will have positioned itself to make some sizable sales in road building and other types of construction equipment.
In additional, it seems John Deere is in a European buying mood. It announced this week that it has bought Mazzotti, a privately held sprayer manufacturer based in Ravenna, Italy. "Mazzotti is known for its innovation as well as its unique knowledge, designs, and expertise in the sprayer industry," said John May, president and chief information officer of Deere's Agricultural Solutions. "The acquisition of Mazzotti provides John Deere an opportunity to serve more customers in European markets." Mazzotti will maintain its name, trademark and commercial agreements.
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