The farm equipment manufacturing and distribution industry, like the overall agricultural economy, has been stuck in a cyclical low for the last few years. Business owners that considered selling before the market downturn are now stuck holding on until market conditions improve; or, they are forced to sell based on lower sales and EBITDA (earnings before interest, tax, depreciation and amortization) multiples.
However, like all cyclical industries, the ag industry can’t remain in the tank forever. Given the length and severity of this cycle, farm equipment customers are starting to re-enter the market and are being forced to replace aging and worn-out equipment in order to stay competitive. The best-managed ag equipment businesses have used this downturn to streamline operations, reduce inventory, innovate with new products and rationalize product offerings. Many aging business owners will not let the next cycle pass them by again and will look at trying to sell as the inevitable upturn emerges.
Agricultural Equipment Capital Markets Report
After considerable research, SDR Ventures prepared a baseline report on the condition of the ag equipment capital markets by examining precedent transactions dating back to January 2013. From there, we established a baseline multiple of EBITDA, which we will monitor on a quarterly basis going forward. This information will help potential buyers and sellers of ag equipment businesses assess the trends and overall market conditions.
This data and the full report are available only to Ag Equipment Intelligence subscribers; however, the summary data and trends can be found here on Farm-Equipment.com’s website, as well as in the print magazine.
In summary, since January 1, 2013, average transaction EBITDA multiples of public and private company deals in the ag equipment industry have been 9.8x EBITDA and 1.2x revenue. The median EBITDA multiple was slightly lower at 8.0x EBITDA. The average total enterprise value (EV), which includes debt, was $632.9 million, with an average disclosed revenue of $326.6 million.
Of course, as with most markets, larger transactions attract more competition and higher multiples, so caution needs to be exercised when extrapolating these multiples for smaller, lower-middle market companies.