WASHINGTON (Reuters) – AM General has put itself up for sale and has hired investment bank Macquarie Group Ltd to seek potential bidders in a deal that could value the builder of Humvee military vehicles at more than $2 billion, people familiar with the matter said on Monday.
Potential bidders include competitors in the military ground vehicle market, such as General Dynamics (GD.N), Oshkosh Corp (OSK.N) and BAE Systems PLC (BAES.L) according to two people familiar with the matter. Auto makers like FIAT Chrysler (FCHA.MI) and General Motors Co (GM.N) may also be potential buyers, one of the sources added.
AM General and Macquarie did not immediately return a request for comment. General Dynamics and BAE declined to comment. Representatives for Oshkosh did not immediately respond to a request for comment.
The South Bend, Indiana-based company is currently owned by private equity firms, including MacAndrews & Forbes Inc and The Renco Group Inc.
A possible sale of AM General follows a rash of deals over the past 18 months among defense contractors. But relatively fewer makers of defense equipment have gone on the auction block.
Last year, United Technologies Corp (UTX.N) acquired Rockwell Collins for $30 billion, and in March, TransDigm Group (TDG.N) continued its acquisition spree with a $525 million deal for Extant Components Group.
AM General could fetch about 10 times its annual earnings of $160 million, one of the people said.
The company’s favorable tax treatment because of its current status as an limited liability corporation, would allow a buyer to reduce the company’s taxable earnings for 15 years. That coupled with recent contract awards could push the ultimate value of the company to over $2 billion in a sale.
The sale, should it happen, comes as the U.S. Army is gearing up for a broad effort to modernize its forces, including seeking prototypes of its Next-Generation Combat Vehicle in fiscal year 2022.
Last month, AM General was awarded an Army contract for as many as 2,800 new M997A3 High Mobility Multipurpose Wheeled Vehicle (HMMWV) ambulances. The contract could be worth as much as $800 million if all options were exercised, AM General said at the time.
Last year, the Pentagon awarded AM General a $550 million contract to deliver HMMWVs for use as protected weapons carriers, cargo transporters and ambulances to Afghanistan, Iraq, Ukraine, Jordan, Slovenia, Bahrain, Columbia, Bosnia and Kenya as a part of a larger Foreign Military Sales agreement.
The sale of AM General which designs, engineers and manufactures specialized vehicles for military and commercial customers, offers an opportunity to purchase a prime contractor that delivers a finished product to the Pentagon, and not just an add-on system or service.
Mergers and acquisitions news service Dealreporter published news of the talks last week.