Terex announced it has signed a definitive agreement to acquire Environmental Solutions Group (ESG) from Dover Corporation in a $2 billion all-cash transaction.
When adjusted for the present value of expected tax benefits of about $275 million, the purchase price is $1.725 billion. This represents approximately 8.4x 2024E earnings EBITDA including expected run-rate synergies. And ESG is a leader in the design and manufacturing of refuse collection vehicles, waste compaction equipment, and associated parts and digital solutions.
ESG features several industry-leading product brands — Heil, Marathon, Curotto-Can, and Bayne Thinline, and digital solutions offerings 3rd Eye and Soft-Pak — that are respected throughout the solid waste industry for their quality, durability, reliability, unmatched service, and leading customer return on investment. And ESG’s broad array of turnkey products and services across equipment, digital, and aftermarket offerings are complementary to Terex’s businesses and will enable Terex to expand its customer base, provide customers with a broader suite of environmental equipment solutions, and realize economies of scale. ESG has demonstrated a track record of consistent, resilient growth, delivering a 7%+ long-term organic revenue CAGR over the last ten years.
This acquisition significantly strengthens Terex’s portfolio and creates a path for accelerated sustainable growth. Terex believes this deal creates significant shareholder value:
1.) Adds meaningful scale and significantly reduces cyclicality – ESG demonstrated a sustained track record of resilient and high-single digit organic growth through the cycle.
2.) Financially accretive – ESG’s EBITDA margin including run rate synergies is expected to add 130 basis points of margin accretion. And Terex will have approximately $1 billion in pro forma EBITDA.
3.) Tangible cost and revenue synergies – Terex expects about $25 million of identified synergies to be achieved by the end of 2026, largely driven by procurement, supply chain efficiencies and commercial initiatives.
4.) Market leader in waste and recycling – ESG holds the #1 position in refuse collection vehicles and waste compaction equipment in North America, enabling Terex to create three market-leading business segments and to serve as a leader in the fast-growing waste and recycling end-market.
5.) Adds attractive addressable market in North America – Terex’s North American exposure will increase to 65%, expanding its global market opportunity to $40 billion.
6.) Reduces capital intensity – ESG’s efficient operating model with low net working capital will drive a meaningful improvement in free cash flow accretion.
The deal is expected to close in the second half of 2024, subject to the receipt of required regulatory approvals and customary closing conditions.
And the deal enhances Terex’s financial profile, delivering revenue growth, free cash flow, EBITDA margin and EPS accretion. The deal is expected to be double-digit percentage adjusted EPS accretive in 2025, with meaningful growth anticipated thereafter.
Terex obtained fully committed debt financing from UBS Investment Bank and expects to fund the transaction with a combination of cash on hand and debt financing. Terex expects a 2024 net leverage ratio of 2.2 times, below its stated target of 2.5 times through the cycle. The company also expects net leverage below 2.0x by the end of 2025, with consistent deleveraging thereafter from an enhanced free cash flow profile.
Terex will create the new Environmental Solutions segment that includes ESG and Terex’s existing Utilities business. And the segment combines Terex’s leading market positions in utility equipment with ESG’s portfolio of industry-renowned product brands. The segment will service the growing waste, recycling, and utility end markets that are expected to benefit from growth themes including electrification, circularity and energy transition. And as of March 31, 2024, the new Environmental Solutions segment would have generated pro forma LTM revenues of $1.4 billion.
UBS Investment Bank is serving as exclusive financial advisor and Fried Frank and Pryor Cashman are serving as legal advisors to Terex.
KEY QUOTE:
“This acquisition announcement of ESG marks an incredibly exciting milestone in our multi-year transformation and aligns with our goal of strengthening our portfolio and leveraging our operating system to drive sustainable, accelerated long-term growth. ESG will add a non-cyclical, financially accretive, and market-leading business to Terex’s portfolio with tangible synergies in the fast-growing waste and recycling end market. In addition, ESG is led by a world-class management team and has a strong track record of operational excellence. We look forward to welcoming the ESG team to Terex and driving long-term, sustainable value for all our stakeholders.”
– Terex President and CEO, Simon Meester
