Auto-parts maker Linamar Corp. says it will acquire an agricultural equipment maker for $1.2-billion, a deal that means a major expansion for its existing agricultural business.
Linamar will buy the MacDon group of companies, a Winnipeg-based manufacturer of specialized harvesting equipment that was founded in 1949 and generated revenue of about $600-million in the past 12 months.
The deal will diversify Linamar's revenue base beyond auto parts and industrial equipment.
"The acquisition of MacDon provides a truly once-in-a-lifetime opportunity to move our agriculture business into a market-leading position while providing meaningful diversification to the end markets we serve," Linamar chief executive officer Linda Hasenfratz said in a news release.
"We believe the long-term growth fundamentals for the agriculture industry are very strong given the growing and developing global population, noting the market is in the early stages of cyclical recovery."
Auto parts contributed $5.139-billion of Linamar's 2016 sales, while sales on the industrial side were $866-million.
The MacDon operations will be combined with Linamar's agricultural manufacturing operations in Hungary, where company founder Frank Hasenfratz was born. He founded Linamar in Guelph, Ont., in 1966.
"The agriculture and food market is a key long-term growth market," Ms. Hasenfratz said on a conference call on Thursday. "We like the idea of having diverse markets."
Linamar will finance the purchase with a new $1.2-billion term loan facility.
The deal increases Linamar's ratio of net debt to earnings before interest taxes deprecation and amortization to 1.7, but the company's cash flow means the ratio will be reduced to less than 1 over the next year to 18 months, she said.