The surprise move by Linamar Corp. (TSX:LNR) to acquire MacDon and its group of companies reinforces a strategy established toward the end of 2016, which was to build the Linamar Agriculture business unit into a global manufacturer of specialized farm equipment.
Until now, the Guelph, Ont.-based diverse engineering group has had a relatively low key presence supplying Harvestec-branded corn headers, combine header trailers and related equipment built in the group’s Hungarian factory. But the MacDon acquisition, expected to be completed in the first quarter of 2018, will certainly raise the group’s profile in the agriculture sector.
“We believe the long term growth fundamentals for the agriculture industry are very strong given the growing and developing global population, noting the market is in the early stages of cyclical recovery,” says Linamar CEO Linda Hasenfratz. “MacDon is a strong, well managed company and an innovative market leader in both customer penetration and technology evolution; it will be the centerpiece of our agriculture business.”
Linamar is no newcomer to farming. During the 1980s, it acquired control of White Farm Machinery as a supplier to the then financially distressed company. In the 1990s it created Western Combine Co. and had a supply relationship with AGCO.
Oros, the Hungarian manufacturer of corn and sunflower combine headers, was acquired in the same period. Its products continue to be sold in Europe and in North America, when Linamar acquired the company distributing Oros equipment in 2014. According to Linamar, MacDon will be combined with the company’s existing agriculture harvesting business in Hungary to position both businesses for significant growth.
Adding MacDon to the portfolio makes sense in that the product lines are complementary and there is potential to exploit the two distribution networks for sales growth. MacDon recently set up a European office to build its presence there (see Ag Equipment Intelligence, November 2017).
With annual revenues of typically C$550-C$650 million (and a healthy 20-25% EBITDA margin), MacDon will lift Linamar Agriculture’s contribution from just 1% to 9% of group revenues, which in 2016 increased 20% to C$6 billion.
Linamar is paying around C$1.2 billion (about U.S.$940 million) for MacDon, which Hasenfratz believes is a fair sum. “This is a truly once-in-a-lifetime opportunity to move our agriculture business into a market leading position while providing meaningful diversification to the end markets we serve,” she says.
MacDon Succession Plan
In a letter to dealers, the MacDon family says, “This agreement is the result of long and careful consideration regarding what is best for the future success of the company. Many alternatives were considered as we discussed who would be the best choice to ensure that MacDon’s unique culture and strengths are not only maintained, but continue to thrive.
“Through this transaction, it is important that MacDon employees understand that this is the outcome the MacDonald family feels is best for our employees, dealers and other business partners.”
Apparently, the MacDonald family has been looking for a suitable buyer for at least a few years. According to a report re-published by Farm Equipment in April 2013, MacDon was working with the Goldman Sachs Group to find a buyer.
A Dealer’s View
A Case IH dealer who Ag Equipment Intelligence spoke with, and who requested not to be identified, said when Case IH stopped marketing MacDon draper heads a few years ago, many of the dealers signed up directly with MacDon.
“They [MacDon] held a meeting for us at Kansas City and one of the MacDon brothers got up and had a very nice casual conversation with the group. A Case IH dealer in the audience asked him if Case IH tried to buy the company? He told us that they (MacDon) talked to Case IH, and the offer from Case IH was very low.
“Case IH in the meantime developed their own draper and has had very low success in marketing in the soybean market,” said the dealer. “MacDon is perceived as a premium product, but Case IH wasn’t willing to pay for it. Looks like someone else did see the value.”
He said that branding is the only concern he has with the new company moving forward. “If they are smart, they will continue to brand them MacDon and build on the success that they have already achieved.”
More on Linamar
MacDon’s soon-to-be new owner, Linamar Corp., is a multi-faceted company serving diverse markets. It describes itself as a “global manufacturing company of highly engineered products powering vehicles, motion, work and lives.” The company is made up of 2 operating segments — the Powertrain/Driveline segment and the Industrial segment, which are further divided into 4 operating groups — Machining & Assembly, Light Metal Casting, Forging and Skyjack, all world leaders in the design, development and production of highly engineered products.
The company’s Machining and Assembly, Casting and Forging operating groups focus on precision metallic components, modules and systems for engine, transmission, driveline and body systems designed for global vehicle and industrial markets. The company’s Skyjack operating group is noted for its innovative, high quality mobile industrial equipment, notably its class-leading aerial work platforms and telehandlers. With more than 24,500 employees in 59 manufacturing locations, 6 R&D centers and 21 sales offices in 17 countries in North and South America, Europe and Asia, Linamar generated sales of $6 billion in 2016.
For the first 9 months, through Sept. 30, 2017, Linamar posted sales of C$4.97 billion, up nearly 7.5%. Net earnings for the same period were C$414.3 million, or up 2% vs. the first 3 quarters of 2016.
The company was founded by Frank Hasenfratz in 1966. He remains as chairman of the board of Linamar. His daughter, Linda Hasenfratz, serves as the company’s CEO.