A Ditch Witch C12 trencher.

Toro Acquires Ditch Witch Parent Company Charles Machine Works

Feb. 15, 2019
The Toro Co. has entered into a definitive agreement to acquire privately held The Charles Machine Works, an Oklahoma corporation that is the parent company of Ditch Witch, for $700 million.

The Toro Co. has entered into a definitive agreement to acquire privately held The Charles Machine Works, an Oklahoma corporation that is the parent company of Ditch Witch, for $700 million. The final acquisition price is subject to certain adjustments set forth in the definitive agreement. CMW is also parent company to several other lead brands in the underground construction market.

The transaction is subject to regulatory approvals and other customary closing conditions and currently anticipated to close before the end of Toro’s fiscal 2019 third quarter, July 31. More detailed information is available in an investor presentation which can be seen at www.thetorocompany.com.

Based in Perry, Okla., CMW designs, manufactures and sells a range of products to cover the full life-cycle of underground pipe and cable, including horizontal directional drills, walk-behind and ride-on trenchers, utility loaders, vacuum excavators, asset locators, pipe rehabilitation solutions and after-market tools. The company, known as “The Underground Authority” for its deep understanding of the structures and systems in those markets and the most important needs of underground construction professionals, generated revenues of approximately $725 million in calendar year 2018.

CMW and the Ditch Witch brand was founded by Ed Malzahn, inventor of the first trencher, in 1949. Malzahn died in 2015 at the age of 94.

“The addition of Charles Machine Works will further strengthen our portfolio of market-leading brands supported by talented employees, a commitment to innovation, a best-in-class dealer network and long-standing customer relationships,” said Richard Olson, Toro chairman and CEO. “As an organization, Charles Machine Works aligns well with and will contribute to our own strategic priorities of profitable growth, operational excellence and empowering people. The company expands our business in a meaningful way in an adjacent category we know well through our own specialty construction business and in a market that is attractive given the potential for growth in addressing both aging infrastructure that is currently in place and new infrastructure that will be needed to support next generation technologies like 5G.

“Culturally, our two organizations are very well aligned, and, in our past experience, that has been essential to the success of a business combination like this. We share similar people values, performance expectations, business models focused on innovation, brand and channel, and strong community ties. With its rich multi-generational family legacy, commitment to its employees and market leadership position, we have respected and admired Charles Machine Works for a long time. We were excited when joining forces became a possibility, and we know that both companies will be stronger together.”

“Our success is the result of years of hard work and an unwavering commitment to developing innovative solutions for customers,” said Rick Johnson, Charles Machine Works CEO. “From developing the world’s first service line trencher in Perry, Oklahoma, to today’s robust Ditch Witch dealer network, our family of companies is well-positioned to join The Toro Co.’s family of brands. We look forward to building upon our founder’s legacy of best-in-class offerings in the expanding underground construction market.”

Toro expects to finance the transaction with a combination of cash on hand and debt, including from additional financing arrangements and borrowings under its existing credit facility. The all-cash purchase price of $700 million represents a multiple of approximately eight times CMW’s 2018 EBITDA, including $30 million of anticipated annual run-rate cost synergies phased in over three years, that Toro intends to achieve through opportunities in purchasing, manufacturing best practices and administrative efficiencies. Toro expects the transaction to be immediately accretive to EPS excluding purchase accounting adjustments and transaction-related expenses.

J.P. Morgan Securities LLC acted as financial advisor to Toro and Fox Rothschild LLP and Latham & Watkins LLP acted as Toro’s legal counsel. Bank of America Merrill Lynch and J.P Morgan Chase Bank N.A. have provided committed debt financing to Toro for the transaction.