Terex's $2B Power Play: Expands North American Footprint With ESG Deal

Terex Corporation TEX shares are trading higher after the company inked a deal to acquire Environmental Solutions Group (ESG) from Dover Corporation DOV in a $2.0 billion all-cash transaction.

Based in Chattanooga, Tennessee, ESG provides refuse collection vehicles, compactors, and balers, as well as related aftermarket equipment and digital offerings, including onboard vehicle safety systems, route management, predictive maintenance, and customer relationship management software. In 2023, ESG generated approximately $750 million of revenue.

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 EBITDA, including expected run-rate synergies.

With this buyout, Terex expects North American exposure to rise to 65%, expanding its global market opportunity to $40 billion.

Terex plans to establish a new Environmental Solutions segment, combining ESG with its existing Utilities business. As of March-end, the new Environmental Solutions segment would have pro forma LTM revenues of $1.4 billion.

The transaction is expected to close in the second half of 2024, pending regulatory approvals and customary closing conditions.

ESG’s EBITDA margin, including run-rate synergies, is expected to add 130 basis points of margin accretion, resulting in Terex having approximately $1 billion in pro forma EBITDA.

Synergies: Terex anticipates achieving ~$25 million in identified synergies by the end of 2026, primarily through procurement, supply chain efficiencies, and commercial initiatives.

Terex anticipates a 2024 net leverage ratio of 2.2x, below its 2.5x target, and expects it to fall below 2.0x by the end of 2025, with ongoing reduction driven by improved free cash flow.

The deal enhances Terex’s financial profile, delivering revenue growth, free cash flow, EBITDA margin and EPS accretion. The transaction is expected to be double-digit percentage adjusted EPS accretive in 2025, with meaningful growth anticipated thereafter.

Terex President and CEO, Simon Meester said, “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.” 

As of March-end, Terex had liquidity (cash and availability under our revolving line of credit) of $866 million.

Investors can gain exposure to DOV via Vesper US Large Cap Short-Term Reversal Strategy ETF UTRN and First Trust Exchange-Traded Fund First Trust Bloomberg Inflation Sensitive Equity ETF FTIF.

Price Action: TEX shares are up 7.32% at $60.60, and DOV shares declined 0.36% at $183.03 at the last check Monday.

Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

Photo via Shutterstock