Analysts Remain Divided Over Trimble's Transporeon Acquisition's Debt, Valuation And Synergies

Raymond James analyst Brian Gesuale downgraded Trimble Inc TRMB from Outperform to Market Perform. The re-rating followed its announced acquisition of Transporeon for €1.88B ($1.97 billion). 

Gesuale found it untimely to consummate a deal, pay full freight and significant premium to peers, and take leverage to a decade high of >3x EBITDA. 

On an EBITDA basis, Trimble expects the company to generate at least 30% margins, leading to an EBITDA multiple of ~30-40x implying over two times premium to Trimble's average multiple over the last 5-years despite a much lower interest rate environment and more certain economic outlook. 

Transporeon is profitable and boasts a more robust EBITDA profile than most software names growing 20-30%. 

The analyst noted that TRMB's current EV/EBITDA multiple of 15.7x is roughly in line with the 10-year average during a time when global macro concerns are accelerating. While improving, the company still carries a healthy exposure to cyclical end markets.

TRMB has a strong track record of acquiring good assets and transitioning them to sustainable organic growth. 

While the analyst believes 25% 2023 growth will be difficult for Transporeon if the macro deteriorates, it is still an excellent company. 

Furthermore, the analyst liked the continued bias towards software and ARR highlighted by Transporeon's 90% recurring and subscription revenue mix, 110% retention rate, and very low churn. The margin profile is also vital.

TRMB's net debt/EBITDA ratio has ranged from 0.6x to 2.5x over the last decade, with the peak aligning with its e-Builder and Viewpoint acquisitions, which proved to be valuable contributions to the broader portfolio and improved mix. 

Additionally, TRMB was able to successfully de-lever over subsequent periods with leverage tracking closer to 1.0x over the last couple of years.

Piper Sandler analyst Clarke Jeffries had a Neutral rating with a $65 price target.

With estimated revenues of €190 million in 2023, growing 25% y/y, and adjusted EBITDA margins of 30%, Transporeon will be immediately accretive to revenue growth and operating margins. The acquisition will help become non-GAAP EPS neutral by 2024. 

Just as Viewpoint was a principal jumping-off point for the development of Trimble Construction One, the analyst saw Transporeon as a €1.88 billion infusion to accelerate TRMB's Transportation Cloud ambitions.

As a building block for Cloud expansion in the transportation segment, Transporeon will aid in growing TRMB's European & carrier footprint, resulting in an additional $5 billion of estimated market opportunity.

Post-close, Trimble will reduce leverage by limiting additional acquisitions and suspending buybacks.

Price Action: TRMB shares traded lower by 6.50% at $54.96 on the last check Tuesday.