The Toro Company announced it will acquire Charles Machine Works, the parent company of Ditch Witch and other leading brands in the underground construction equipment market, in a $700 million cash transaction. The deal is expected to close by the end of October, pending regulatory approvals and other customary closing conditions, Toro said.
Headquartered in Perry, Oklahoma, Charles Machine Works designs, manufactures and sells a range of products to cover the full life-cycle of underground pipe and cable, including horizontal directional drills, walk and ride trenchers, utility loaders, vacuum excavators, asset locators, pipe rehabilitation solutions and after-market tools. The company, known as “The Underground Authority” for their deep understanding of the structures and systems in those markets, and the most important needs of underground construction professionals, had revenues of approximately $725 million last year. Toro earned $271.9 million on record revenues of $2.6 billion in its 2018 fiscal year, which ended on Oct. 31.
“The addition of Charles Machine Works will further strengthen our portfolio of market-leading brands supported by talented employees, a commitment to innovation, a best-in-class dealer network and long-standing customer relationships,” said Richard M. Olson, Toro’s chairman and chief executive officer. “As an organization, Charles Machine Works aligns well with and will contribute to our own strategic priorities of profitable growth, operational excellence and empowering people. The company expands our business in a meaningful way in an adjacent category we know well through our own specialty construction business and in a market that is attractive given the potential for growth in addressing both aging infrastructure that is currently in place and new infrastructure that will be needed to support next generation technologies like 5G.”
“Culturally, our two organizations are very well aligned and, in our past experience, that has been essential to the success of a business combination like this. We share similar people values, performance expectations, business models focused on innovation, brand and channel, and strong community ties. With its rich multigenerational family legacy, commitment to its employees and market leadership position, we have respected and admired Charles Machine Works for a long time. We were excited when joining forces became a possibility, and we know that both companies will be stronger together.”
“Our success is the result of years of hard work and an unwavering commitment to developing innovative solutions for customers,” said Rick Johnson, Charles Machine Works chief executive officer. “From developing the world’s first service line trencher in Perry, Oklahoma, to today’s robust Ditch Witch dealer network, our family of companies is well-positioned to join The Toro Company’s family of brands. We look forward to building upon our founder’s legacy of best-in-class offerings in the expanding underground construction market.”
Charles Machine Works includes Ditch Witch ®, Subsite ® Electronics, DW/TXS ®, HammerHead ®, Radius ® HDD, American Augers ®, Trencor ® and MTI ® Equipment.
Toro expects to finance the transaction with a combination of cash on hand and debt, including from additional financing arrangements and borrowings under its existing credit facility. The all-cash purchase price of $700 million represents a multiple of approximately eight times Charles Machine Works’ calendar year 2018 EBITDA (earnings before interest, taxes, depreciation and amortization), including $30 million of anticipated annual run-rate cost synergies phased in over three years, that Toro intends to achieve through opportunities in purchasing, manufacturing best practices and administrative efficiencies. Toro expects the transaction to be immediately accretive to EPS excluding purchase accounting adjustments and transaction related expenses.
The Toro Company announced a conference call and webcast to discuss the transaction at 10:00 a.m. CST on Feb. 15, 2019. The webcast will be available at www.streetevents.com or at www.thetorocompany.com/invest.
UC Staff Report
Comments