Textron’s specialty vehicles business a logical divest candidate, sources say

21 August 2020

Textron’s Specialized Vehicles (TSV) business would be a logical asset for the company to carve out, said four sector advisors and a source familiar with the company.

Textron’s [NYSE:TXT] Specialized Vehicles (TSV) business would be a logical asset for the company to carve out, said four sector advisors and a source familiar with the company.


On 31 July, the Providence, Rhode Island-based industrial conglomerate reported in its 2Q20 earnings statement that TSV generated USD 566m for the six months ending 4 July, down 23% from the same period a year prior. The company stated that the sales decrease was primarily due to reduced demand and temporary manufacturing facility closures during the COVID-19 pandemic.


The source familiar elaborated that the ground support equipment portion of TSV – which provides vehicles such as baggage loaders and de-icers, primarily to airports – was down significantly this year due to the dormant commercial airline industry. Its snow vehicle segment saw a slowdown as well because of its sales model, in which orders are placed ahead of vehicle manufacturing, this source added. The segment was able to sell its existing inventory but did not build new vehicles during the pandemic, the source explained.


Elsewhere, however, the segment showed strength, as vehicles such as golf carts and ATVs can safely be used during the quarantine, since they allow for proper social distancing, the source noted.


TSV is part of Textron’s Industrials unit. Its other segments are Textron AviationBellTextron Systems and Finance.


The source acknowledged that defense is Textron’s core competency, hence it could consider selling off TSV or one of the unit’s product lines if a suitor approached the company.


Two of the sector advisors agreed that it would make sense for Textron to focus more on its defense business through potential acquisitions, as the Bell and Textron Systems segments each continued to show growth in revenue year-over-year.


According to all of the advisors, TSV, with its focus on recreational vehicles and turf care equipment, does not fit well with the rest of Textron. The business could make sense for a buyer that already has a presence in the recreational market, they said.


Two of the advisors added that specialty vehicle maker REV Group [NYSE:REVG], as well as private equity firms, would be logical bidders for the unit. Automobile design company The Shyft Group [NASDAQ:SHYF], formerly known as Spartan Motors, is another potential acquirer, one of the advisors said.


Textron’s Industrials division also comprises Kautex, a Germany-based automotive fuel systems business. In August 2019, Textron announced it was reviewing strategic alternatives for Kautex, with Goldman Sachs advising.


However, on the company’s 4Q19 earnings call in January, CEO Scott Donnelly said that, after considering a “range of options” for Kautex, Textron felt it best to retain the business. In response to an analyst’s question on the call, Donnelly said that “the pricing in terms of what anyone would be willing to pay for that business right now would have created a level of dilution” for shareholders.

Kautex is not likely to come back on the market for at least a year given the downtrodden state of the auto market, the source said.


Textron has a USD 8.57bn market capitalization.


The company declined to comment on potential future M&A.