Raven Stock Soars 50% on CNH Buyout

Raven Industries (NASDAQ: RAVN) kicked off the new week by announcing that it is being acquired by CNH Industrial NV (NYSE: CNHI) in a $2.1 billion deal. The news sent Raven shares up by a whopping 50% compared to Friday’s closing price. The deal will help CNH, a leading manufacturer of agricultural equipment, expand its business in several ways.

Here’s what agriculture investors need to know.

Creating an agricultural powerhouse

CNH has agreed to scoop up Raven for $58 per share, representing a 34% premium to the 4-week volume-weighted average price. The move comes as CNH is preparing to divest its Iveco vehicle business, which is less profitable compared to other agricultural equipment. 

“Precision agriculture and autonomy are critical components of our strategy to help our agricultural customers reach the next level of productivity and to unlock the true potential of their operations,” CNH CEO Scott Wine said in a statement. “Raven has been a pioneer in precision agriculture for decades, and their deep product experience, customer driven software expertise and engineering acumen offer a significant boost to our capabilities.”

CNH expects the transaction to generate $400 million in run-rate revenue synergies by 2025, translating into an incremental $150 million in EBITDA. There are two types of synergies: cost synergies and revenue synergies. Cost synergies represent operating savings from a merger, while revenue synergies are upselling opportunities when a company acquires a highly complementary business. CNH did not provide any estimated cost synergies. 

Raven had approximately $348.4 million in trailing-12-month (TTM) revenue last fiscal year, which closed at the end of January. The company’s agricultural technology is seen as having transformative potential for CNH, although buying Raven will be CNH’s largest acquisition to date. The purchase price is nearly 10% of CNH’s current market cap.

The acquisition is not expected to impact CNH’s outlook for 2021 and CNH will fund the transaction with existing cash on hand without needing to take on additional debt. CNH finished the first quarter with over $7 billion in cash on its balance sheet. 

In May, CNH raised its full-year outlook. The company now expects revenue to grow 14% to 18% this year, up from its prior guidance of 8% to 12% growth. Free cash flow is forecast in the range of $600 million to $1 billion, compared to the previous expectation of $400 million to $800 million.

Looking ahead

The transaction is expected to close in the fourth quarter and still needs to be approved by Raven shareholders. Additionally, Wine did not rule out the possibility of future acquisitions, saying that CNH would “absolutely” consider other deals if the company needs to grow faster or boost margins further.

The planned divestiture of Iveco, which was first announced in 2019 but faced delays due to the COVID-19 pandemic, is expected to be completed in early 2022.

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