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Briggs & Stratton Corporation (BGG) recently announced that it has entered into an agreement to acquire Brazil-based Companhia Caetano Branco for approximately $60 million.

 

Founded in 1936, Branco is one of the leading brands in the light power equipment market in Brazil with a wide range of outdoor power equipment used mainly in light commercial applications. Its products include generators, water pumps, and light construction equipment. Branco generates annual sales to the tune of around $40 million with operating margins of 13% to 17%. 

 

The transaction, pursuant to customary closing conditions, is expected to be completed in the next three to four months. The acquisition will be funded from available cash on hand or Briggs’ existing credit facilities. As of September 30, 2012, Briggs & Stratton had $101.6 million cash in hand on its balance sheet. The company also has $500 million available under its revolving credit facility.

 

The acquisition is in sync with Briggs’ strategy of expanding in the emerging nations with a focus on extending its product portfolio in higher margin categories and to diversify diversifying its geographic footprint. Post acquisition, Briggs will benefit from Branco’s brand strength, strong operational performance, and strong distribution network and customer base in the region. 

 

Brazil is a strategic fit for expansion given its infrastructure requirements and high growth opportunities. Brazil's economy has been steady over the last decade. However, the momentum dipped last year and the government forecasts growth this year at 2.5%. Brazil estimates a spending of $110 billion annually over the next five years to meet its infrastructure needs. 

 

Brazil’s recent $66 billion stimulus package, aimed at reviving the country's ailing road and railway systems and to help bolster the economy, provides significant growth opportunities. Brazil's construction requirements have been on the rise based on the infrastructure needs for hosting the 2014 FIFA World Cup and the 2016 Olympic Games in Rio de Janeiro.

 

Based in Milwaukee, Wisconsin, Briggs & Stratton is the world's largest producer of gasoline engines for outdoor power equipment. Its wholly owned subsidiary, Briggs & Stratton Power Products Group LLC, is North America's number one manufacturer of portable generators and pressure washers, and is a leading designer, manufacturer and marketer of standby generators, along with lawn, garden and turf care products through its popular brands. The company competes with Honda Motor Co., Ltd. (HMC), Kawasaki Heavy Industries, Ltd. (KWHIY) and Deere & Company (DE). Briggs & Stratton currently retains a short-term Zacks #3 Rank (Hold).