Rocky Mountain Dealerships Inc., Canada’s largest agriculture equipment dealer, has announced that it has entered into a definitive agreement to acquire the shares comprising John Bob Farm Equipment. All financial figures are expressed in Canadian dollars.
John Bob is a Saskatchewan-based dealer of New Holland agriculture equipment (a brand of CNH Industrial) with locations in Outlook and Tisdale. A number of complimentary short line agriculture equipment brands including MacDon and Bourgault are also sold through John Bob’s locations. For the most recent fiscal year ending November 30, 2017, John Bob’s consolidated top-line revenue was approximately $38 million.
“At our investor event on May 30, 2018, we told investors that we would invest where we believed the best returns for our shareholders would be, and that we believed the best opportunities for Canadian growth would be in Saskatchewan,” said Garrett Ganden, President & Chief Executive Officer of RME. “John Bob’s two New Holland dealerships in the agricultural heartland of Saskatchewan are a perfect fit with our growth plan. Both branches, located in great agricultural communities with long-standing support for New Holland products, can take full advantage of our integration framework and capital to expand sales and profitability. We look forward to working with and growing the New Holland portion of our agriculture business and see tremendous opportunity for RME as we work to further grow our dealer network in this very important market.”
Subject to the satisfaction of closing conditions and closing adjustments, the shares and real estate comprising John Bob will be purchased as follows:
- Real estate valued at $5.4 million in cash;
- The John Bob business for $7.5 million in cash; and
- An earn out in effect from July 1, 2018 to June 30, 2020 to a maximum of $0.5 million, based on 50% of annual EBITDA that exceeds $1.5 million after corporate overhead is charged back to the two branches.
The multiple paid for John Bob is effectively five times EBITDA, which is consistent with the multiple range discussed during the analyst day on May 30th, and consistent with an entry into a new market under a new brand with a strong management team. Investors are reminded that valuation metrics are based on the business and not the real estate as most dealerships operate under leases.
RME remains poised for further growth with a strong balance sheet and will use its existing cash and credit facilities to fund the Acquisition.
“By joining Rocky Mountain, our branches will be able to give our customers faster access to more agriculture equipment products and services while providing customers with the great care they have come to expect from our people,” said John McShannock, founder of John Bob. “I have no doubt that, as Rocky Mountain grows, so too will the opportunities for our employees and the surrounding communities.”