Agco Tractors Roar Down The Fast Track

At first glance, AGCO Corp. doesn't look like a hot growth company. It's not into biotech or software. Mostly, it sells tractors. Still, AGCO, based in Norcross, Ga., isn't being treated like a hayseed on Wall Street. Over the past year, its stock has climbed 220%, to around 39. And analysts expect more gains in the coming year.

So how does AGCO manage to reap that kind of reward? Acquisitions. Since 1991, CEO Robert J. Ratliff has snapped up four competitors at a cost of $186 million. He closed his latest deal in December, with the acquisition of White-New Idea Farm Equipment, a division of Allied Products Corp. "We're not creating new business, we're taking it away from our competitors," says Ratliff, 62.

HUGE NETWORK. The buying binge has allowed Ratliff to offer a broad product line, from tractors to harvesters, at varied prices. For example, AGCO's tractors range from a no-frills $16,000 Massey Ferguson to a top-of-the-line White model that lists for $99,000. Even better, each acquisition has brought along its own dealerships, enabling Ratliff to build the biggest network of independent farm-equipment dealers in the nation. AGCO boasts 3,300 dealers, compared with 1,500 at industry leader Deere & Co. Largely because of that extensive distribution, analyst Andrew J. Silver of Dillon, Read & Co. says that AGCO's 1994 profits could grow 39% above last year's expected earnings, to $39.5 million, as its revenues climb 21%, to $700 million.

AGCO wasn't always such a barn-burner. Formerly named Deutz-Allis Corp., it was owned by Kloeckner-Humbolt-Deuzt, a German machinery manufacturer. But Deutz-Allis, which had purchased the farm-equipment unit of Allis-Chalmers Corp. in 1985, was losing money, largely because of steep costs and poor marketing. In 1988, the company recruited Ratliff, a former executive at International Harvester Co. Gradually, he helped to turn things around. Still, after German unification, the parent wanted to sell its U.S. business to explore opportunities in eastern Germany.

So in June, 1990, Ratliff and his management team bought Deutz-Allis through an $89.4 million leveraged buyout. Instead of borrowing the money, they raised $100 million by selling to Whirlpool Financial Corp. receivables owed by the company's dealers. "We started out with no debt," boasts Ratliff, who owns 3% of Agco.

With new customers scarce, Ratliff, who renamed the company AGCO, began scouting out acquisitions. In 1991, AGCO bought Fiat's Hesston Corp. and Allied Products' White Tractor Div. for $36.1 million--again financed by selling receivables. Then, tapping a $275 million line of credit with ITT Commercial Finance Corp., AGCO last year purchased White-New Idea and North American distribution rights for Massey Ferguson's farm equipment. And the shopping spree isn't over. Though small tractor companies are now scarce in the U.S., Ratliff is eyeing makers of other farm implements, as well as small manufacturers in Europe.

Despite recent successes, the company faces some stiff challenges. To reap more benefits from his dealer network, Ratliff has to persuade dealerships to sell a wider selection of AGCO brands. But it's a tricky process. He has to make sure that his dealerships don't start competing with one another. "If there was a White dealer and a Massey dealer [in the same location], only one of them could have Hesston," he says.

A HARSH CLIMATE. Then there are the steep costs that are associated with any acquisition strategy. Ratliff used $62 million that was raised through an initial public offering in April, 1992, to pay down debt. But with the purchase of White-New Idea, AGCO's debt-to-capital ratio jumped to 70% from 40%. Ratliff says that he may have to draw on earnings in 1994 to get it back to a more comfortable 50%.

On top of that, the farm-equipment business isn't too inviting these days for small fry. It's dominated by Deere and J.I. Case. And it's notoriously cyclical. That's why Ratliff has avoided buying too many fixed assets. AGCO owns only two plants and has a joint venture with Case in another facility. About 75% of AGCO's equipment is made under contract by Italian manufacturer SLH and other suppliers.

Ratliff reckons his acquisition approach will keep his company making plenty of hay. If so, AGCO might enjoy the distinction of being a hot growth company for a little while longer.

      Company/Date purchased       Price     Products
      HESSTON March, 1991        $26.0     Hay tools, forage equipment
      WHITE TRACTOR May, 1991     10.1     Tractors
      MASSEY FERGUSON*            94.8     Tractors, self-propelled combines,
      January, 1993                        hay tools
      WHITE-NEW IDEA FARM         54.8     Planters, hay tools, tillage
      EQUIPMENT December, 1993             equipment
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