425: Terex & REV Group Merge, Terex Exits Aerial Segment

Terex Corporation and REV Group, Inc. announce a definitive agreement to merge in a stock and cash transaction, creating a U.S.-centric specialty equipment manufacturer, while Terex plans to exit its Aerial Segment.

Summary

• Terex Corporation and REV Group, Inc. have entered into a definitive agreement to merge in a stock and cash transaction.
• Terex shareholders will own 58% and REV shareholders 42% of the combined company, with REV shareholders also receiving $425 million in cash consideration.
• The combined company will trade on the New York Stock Exchange under the current Terex stock ticker, TEX, with Simon Meester (Terex CEO) serving as CEO.
• The Board will comprise seven directors from Terex and five from REV, with the merger expected to complete in the first half of 2026.
• At least $75 million in annual synergies are anticipated, with about half expected within the first 12 months post-closing.
• Terex plans to exit its Aerial Segment, evaluating a potential sale or spin-off, to significantly reduce exposure to cyclical end markets.
• The merged company is expected to provide a mid-teens adjusted EBITDA earnings profile in fiscal 2025 on a pro forma basis, near the top end of its specialty equipment peer group.
• The combined company is projected to have $5.8 billion in pro forma revenue, approximately 85% cash conversion, and a strong balance sheet with about 2.5x leverage on a pro forma basis at closing.
• Approximately 85% of the combined revenue will be generated in North America, with nearly 60% tied to essential services like emergency vehicles and waste collection.
• REV Group reported a backlog of approximately $4.5 billion, with $4.2 billion in Specialty Vehicle and $300 million in Recreational Vehicle segments, and a 2to 2.5-year duration for fire trucks and ambulances.

Sentiment

Score: 8

Explanation: The filing presents a highly positive outlook on the merger, emphasizing significant synergies, reduced cyclicality, a strong financial profile, and growth opportunities in resilient markets. Management expresses strong confidence in the value creation for shareholders and the strategic rationale.

Positives

• Creation of a U.S.-centric large-scale specialty equipment manufacturer with iconic leading brands serving highly resilient and growing end markets.
• Opportunity to unlock at least $75 million in annual synergies, contributing to a highly attractive financial profile.
• Expected stronger, more predictable earnings and associated free cash flow with a low capital intensity profile.
• Anticipated mid-teens adjusted EBITDA earnings profile in fiscal 2025 on a pro forma basis, near the top end of the specialty equipment peer group.
• Strong balance sheet and liquidity position with approximately 2.5x leverage on a pro forma basis at closing, with opportunity to delever further upon Aerial business exit.
• Significant reduction in exposure to cyclical end markets by exiting the Aerial Segment.
• Combined company will be U.S.-centric, with approximately 85% of revenue generated in North America and a balanced portfolio.
• Nearly 60% of revenue associated with essential services (emergency vehicles and waste collection), providing economic cycle resiliency.
• Expected accelerated growth in utilities market due to AI, data centers, and U.S. power grid upgrades (8% to 15% CapEx growth per year through 2030).
• Continued growth from infrastructure spending in the United States, Europe, Middle East, and India.
• Leveraging combined operating systems (Terex Operating System and REV system) to drive excellence, operational efficiency, and innovation.
• Potential to extend the 3rd Eye digital platform into fire and ambulance verticals, building on technology developed in refuse, utilities, and concrete businesses.
• The transaction is structured to result in a strong balance sheet and flexible capital structure to enable future organic and inorganic investments.

Risks

• Forward-looking statements are subject to risks that could cause actual results to differ materially from those expressed or implied.
• The occurrence of any event, change, or other circumstance that could give rise to the right of one or both parties to terminate the definitive merger agreement.
• The possibility that the transaction does not close when expected or at all because required regulatory, shareholder, or other approvals and conditions are not received or satisfied on a timely basis.
• The risk that the benefits from the transaction, including synergy realization, may not be fully realized or may take longer to realize than expected due to general economic and market conditions, interest and exchange rates, monetary/trade policy, laws, and competition.
• Any failure to promptly and effectively integrate the businesses of Terex and REV Group.
• The possibility that the transaction may be more expensive to complete than anticipated due to unexpected factors or events.
• Reputational risk and potential adverse reactions of customers, employees, or other business partners resulting from the announcement, pendency, or completion of the transaction.
• Terex's issuance of additional shares of its capital stock in connection with the transaction.
• The risk that Terex's exploration of strategic options to exit its Aerials segment may not be successful or that any transaction entered into is not on favorable terms.
• Diversion of management's attention and time to the transaction and the Aerials segment exit from ongoing business operations and opportunities.
• The outcome of any legal proceedings that may be instituted against REV Group or Terex in connection with the transaction.

Future Outlook

The combined company is expected to deliver stronger, more predictable earnings and free cash flow with a low capital intensity profile. It anticipates mid-teens adjusted EBITDA margins by fiscal 2025 on a pro forma basis, driven by at least $75 million in annual synergies and reduced cyclicality from the Aerial Segment exit. Growth is expected from urban expansion, population growth, electrical grid upgrades, infrastructure investments, and digital platform extensions, positioning the company for sustained growth for years to come.

Management Comments

• Simon Meester: "Today, we are announcing the merger of two great companies to create a U.S.-centric large-scale specialty equipment manufacturer with iconic leading brands serving highly resilient and growing end markets."
• Simon Meester: "We believe the financial profile, growth potential and leverage is highly attractive and will deliver significant value to Terex and REV Group shareholders."
• Simon Meester: "Our teams have developed a detailed plan to deliver at least $75 million in annual synergies contributing to the highly attractive financial profile of the new company."
• Simon Meester: "This exit [of Aerial Segment] will significantly reduce our exposure to cyclical end markets."
• Mark Skonieczny: "Combining with Terex is a unique opportunity that we believe will create meaningful value for our shareholders."
• Simon Meester: "We are merging two strong companies to produce a combination that will clearly be created in the sum of the parts."
• Simon Meester: "We believe that equity markets value resilience, predictable earnings and reward growth, the transformational actions we announced today hit both nodes."
• Simon Meester: "We purposely structured the transaction to result in a strong balance sheet and flexible capital structure to enable future organic and inorganic investments."

Industry Context

The merger creates a less cyclical, U.S.-centric specialty equipment manufacturer focused on resilient end markets like emergency services, waste collection, utilities, and infrastructure. This strategic shift aligns with broader industry trends favoring stable, essential services and reducing exposure to highly cyclical construction markets. The combined entity aims to leverage secular tailwinds such as population growth, increased infrastructure spending, and digital transformation in its core markets.

Comparison to Industry Standards

• The merged company is expected to provide a mid-teens adjusted EBITDA earnings profile in fiscal 2025 on a pro forma basis, positioning it near the top end of the specialty equipment peer group.
• The Heil brand is regarded as a technology leader in refuse collection vehicles, offering a full range of automated side loaders, front loaders, and digital products.
• Powerscreen and Finlay brands are global leaders in mobile crushing and screening within the broad aggregate industry.
• eOne, Spartan, AAV, and Wheeled Coach brands are recognized as market leaders in quality and reliability by the first responder community for fire trucks and ambulances.

Management Changes

Corporate Governance

Legal Proceedings

• The outcome of any legal proceedings that may be instituted against REV Group or Terex in connection with the Transaction.

Stakeholder Impact

• **Shareholders:** Opportunity to participate in the potential upside of the combined company, benefit from synergy realization, and the value unlock associated with the Aerial segment exit. REV shareholders also receive a cash consideration.
• **Customers:** Expected benefits from enhanced product innovation, greater operational efficiency, improved life cycle support, and the potential extension of digital solutions like the 3rd Eye platform.
• **Employees:** The combined team is expected to be energized and fully capable of capitalizing on new opportunities, with a focus on continuous improvement and employee development through aligned operating systems.
• **Suppliers:** The sourcing team will fortify the supply chain through multi-sourcing initiatives, aiming for lower costs and more dependable material flow, potentially impacting supplier relationships and volumes.
• **Creditors:** The combined company is expected to have a strong balance sheet and liquidity position with approximately 2.5x leverage, providing a solid foundation for future financial stability.

Next Steps

• Complete the merger in the first half of 2026, subject to customary closing conditions.
• Execute a detailed plan to deliver at least $75 million in annual synergies, with about half expected within the first 12 months post-closing.
• Formally commence the process to exit the Aerial Segment, evaluating a potential sale or spin-off.
• File a Registration Statement on Form S-4 with the SEC, which will include a joint proxy statement/prospectus for shareholders of both companies.
• Continue to assess the effectiveness of the portfolio, including the RV business, to make optimal decisions for shareholders.

Key Dates

Recommendation

The merger of Terex and REV Group, coupled with Terex's strategic exit from its cyclical Aerial segment, creates a significantly de-risked, U.S.-centric specialty equipment manufacturer with a highly attractive financial profile. The projected $75 million in annual synergies, mid-teens adjusted EBITDA margins (near the top of its peer group), and strong balance sheet indicate substantial value creation potential. The focus on resilient end markets like emergency services, waste collection, utilities, and infrastructure provides predictable earnings and long-term growth drivers, making this a compelling investment opportunity for seasoned investors.

Keywords

Merger, Acquisition, Specialty Equipment, Terex, REV Group, Aerial Segment, Divestiture, Synergies, Financial Performance, TEX, Environmental Solutions, Materials Processing, Utilities, Emergency Vehicles, Waste Collection, Infrastructure, Digital Platform, 3rd Eye