Deere plans to acquire German road construction company Wirtgen Group for $4.88 billion in order to expand its road construction operations and reduce its dependence on farm equipment. Wirtgen’s products span the entire road construction sector including milling, processing, mixing, paving, compaction and rehabilitation.
Deere, most famous for its John Deere tractors, is heavily reliant on the agriculture industry, but low crop prices has meant farmers have less to spend on equipment, which has led to a downturn in sales over the past three years. Deere’s agriculture business accounted for 70% while construction and forestry business only accounted for about 20% .
According to analysts, “The acquisition will help Deere diversify its business which has been heavily reliant on agriculture while improving the distribution of its North American centric construction business.”
By acquiring Wirtgen, Deere will gain access to the construction equipment market which unlike the farm equipment industry, is forecasted to grow in 2017 and “tends to be less cyclical.” Deere will also be able to leverage Wirtgen’s existing brands to expand operations in Europe.
When faced with declining future demand, acquisition is one way to enter or expand in a growing market to boost sales. While Deere is not exiting the farm equipment business, the company is bolstering its construction equipment business so it can continue to thriving despite the downturn in crop prices. If you are struggling to grow in a shrinking market where future demand for your products or services are limited, consider using acquisition to gain access to a robust market with a rapid growth trajectory.