MONTREAL – Toromont Industries sees the $1.02-billion purchase of rival heavy equipment supplier Hewitt Group as a way to take advantage of government infrastructure spending and a recovery of metal prices.
“The timing, we think, is really exciting for what we see going on in the mining (sector),” Toromont CEO Scott Medhurst said Monday during a conference call to discuss the friendly takeover.
“We see some recovery in there as well, with the governmental focus on infrastructure in central and eastern Canada.”
Following the early-morning announcement, Toromont stock (TSX:TIH) set a new 52-week high of $50.95. At the close of markets, shares gave up some gains but were still up 11.07 per cent at $49.87.
Toronto-based Toromont said the acquisition of the 65-year-old Montreal-area company will add 45 branches and 2,000 employees in Quebec and the Maritimes.
That will bring Toromont’s total number of Caterpillar dealerships to 120, located in Canada’s seven eastern provinces and the northern territory of Nunavut.
Vancouver-based Finning International, which has also been growing through acquisitions, is another major Caterpillar dealer with a focus on Western Canada, South America and the United Kingdom. Finning shares (TSX:FTT) were up five per cent but well below their 52-week high.
Hewitt is also the MaK dealer for Quebec, the Maritimes and the Eastern seaboard of the United States, from Maine to Virginia.
Medhurst said the addition of Hewitt, which has ties to base metals operations in the iron-ore rich Labrador Trough, will complement Toromont’s focus on gold mining.
“Today’s announcement represents our most significant development yet given its size, potential for profit contribution and the opportunity for delivering organic growth in the quarter and years to come,” Medhurst told analysts.
Analyst Yuri Lynk of Canaccord Genuity said in a note to clients that “we believe Toromont has long coveted Hewitt and management has patiently waited for the day it became available.”
Hewitt chief executive Jim Hewitt approached Toromont about a friendly deal after a lengthy review of the private company’s strategic options, said a company spokesman.
Jim Hewitt, who is chairman and CEO of the company, said in statement that the sale of the family business founded by his father makes sense given the trend towards consolidation in the sectors where the company operates.
“The decision to sell the business founded 65 years ago by my father has not been an easy one, but is the outcome of much reflection on the part of my son David and me,” Hewitt said in a statement.
The deal expands Toromont’s presence in Quebec, where its CIMCO refrigeration division has 130 employees. The division serves food distributors, community hockey rinks, curling clubs and the Bell Centre, home of the Montreal Canadiens.
The purchase for $917.7 million cash and the issuance of 2.25 million Toromont shares is expected to close by mid-October.
Note to readers: This story corrects an earlier version that said Hewitt was 52 years old. In fact, it was founded in 1952.