Terex Corporation TEX has completed the previously announced acquisition of Dover Corpration’s DOV Environmental Solutions Group (“ESG”). This adds a market leader in waste and recycling to its portfolio. It will also enhance its financial profile, including revenues, free cash flow, EBITDA margin and earnings per share.
Background of the Terex-Dover Deal
On July 22, 2024, TEX and Dover announced that they had inked a deal per which Terex would acquire the latter’s ESG Group in a $2 billion all-cash transaction. Adjusted for the present value of expected tax benefits of approximately $275 million, the purchase price stood at $1.725 billion.
ESG has several well-known product brands, including Heil, Marathon, Curotto-Can and Bayne Thinline. It has digital solutions offerings such as 3rd Eye and Soft-Pak.
ESG has a solid track record of consistent growth and witnessed more than 7% organic revenue CAGR over the last ten years.
Strategic Advantages of the Deal to Terex
Expansion in Waste and Recycling: The addition of ESG will strengthen Terex's portfolio and cater to the growing waste, recycling and utility end markets that are expected to benefit from electrification, circularity and energy transition trends. The company will form a new Environmental Solutions segment that includes ESG and its existing Utilities business.
With ESG’s contribution, Terex will derive 67% of its total revenues from North America.
Boosting Product Portfolio & Market Share: ESG's turnkey products and services across equipment, digital and aftermarket offerings are complementary to Terex's product portfolio. Following the acquisition, the company’sglobal marketopportunity will expand to $40 billion.
Solid Financial Benefits: ESG's EBITDA margin, including run-rate synergies, is expected to boost Terex’s margins by 130 basis points. It will have approximately $1 billion in pro forma EBITDA.
The deal is expected to boost Terex’s earnings by a double-digit percentage in 2025, with further gains expected thereafter.
Around $25 million of identified synergies are expected by the end of 2026. This will stem from procurement, supply -chain efficiencies and commercial initiatives.
Also, ESG's efficient operating model combined with low net working capital will improve Terex’s free cash flows.
Industry-Specific Challenges Faced by TEX & Peers
Terex, which belongs to the Zacks Manufacturing - Construction and Mining industry, has been grappling with weak demand. The company recently lowered its 2024 guidance for sales and earnings per share and cited lower sales volumes in both segments as the primary reason for the downgrade. It will continue lowering its cost structure and adjusting production to the weak demand.
Terex expects sales to range between $4.85 billion and $5.05 billion in 2024, lower than the earlier stated range of $5.1-$5.3 billion. The midpoint of the revised guidance implies a year-over-year decline of 3.9%.
Terex also lowered adjusted earnings per share expectations to the band of $5.80-$6.20 compared with the previous range of $7.15-$7.45. The guidance indicates a 15% decline from adjusted earnings of $7.06 per share in 2023.
The guided ranges, however, do not include the benefits of the ESG acquisition.
Caterpillar CAT, a significant player in the industry, also stated that it anticipated its 2024 revenues to be slightly lower than its record 2023 revenues of $67 billion. The company had earlier expected 2024 revenues would be “broadly similar” to 2023 levels.
Caterpillar has been witnessing a decline in overall volumes in the past three consecutive quarters. This reflected muted consumer spending in the current inflationary scenario.
Manitowoc MTW has been facing lower order levels due to weak consumer spending, which is likely to continue. It expects revenues to be in the range of $2.175-$2.225 billion for 2024, down from the previously stated $2.275-$2.375 billion. The ongoing weakness in the European tower crane market also remains a headwind for Manitowoc.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
