During the last decade, North American farm equipment dealerships have been consolidating at a rapid rate. Cervus Equipment Corp. of Calgary, Alberta, has done its part in the consolidation movement and become one of John Deere's largest dealership networks in Western Canada in the process. They've also become publicly traded under the symbol CVL (TSX-V).

 But how much consolidation is left in the ag equipment business for groups like Cervus Equipment? And how big is 'too big' when it comes to farm equipment dealer groups?

Graham Drake, CEO of Cervus, says, "There is some consolidation yet to do, but in partnership with Deere, that's why we're in Australia and New Zealand."

He adds that OEMs have expressed some concern about the size of any dealer group in any geographic region. On the other hand, no one's quite sure how big is too big.

Currently, Cervus operates 15 John Deere dealerships in British Columbia, Alberta, Saskatchewan and Manitoba, and five construction equipment dealerships in Alberta that sell Bobcat, JCB and JLG equipment. It has 10 locations that sell and service material handling equipment, all of which are in Western Canada. It also owns five John Deere locations in New Zealand. Earlier this year, it acquired five Peterbilt truck locations in Saskatoon. This acquisition is scheduled to close during the first quarter of 2012.

The Overseas Move

According to Drake, Deere approached Cervus and asked, "Are you interested in looking at other areas of the world?"

Drake says, "In fact, we had been looking at New Zealand because it occurred to us that this was another way we could grow and also help Deere with dealer consolidation. Both New Zealand and Australia are far behind when it comes to dealer consolidation, and the multi-store efficiencies and synergies that are evolving in North America aren't there yet. Deere liked what we do here, and asked us to apply our system over there."

He says the company is learning what it takes to succeed in another country and have moved two key managers to the New Zealand stores to work with them and begin implementing the Cervus culture.

Why New Zealand?

Peter Lacey, Cervus' first CEO and now executive chairman, says acquiring the New Zealand operations represented a fairly small risk and is giving the company experience with Deere internationally.

"With these six stores, we can rebuild the organization from the ground up. It also allowed us to expand without creating any tension about whether Cervus was getting 'too big.' They speak the same language as us, so we felt it would be a good testing ground for us. Australia and New Zealand do make a lot of sense for us as Canadians," Lacey says.

He adds that it's also a big challenge because the region has a history of a lot of inline competition and those dealerships were the perfect example of single stores not wanting to change.

Deere had been putting a lot of pressure on several dealers to consolidate, Lacey explains, and there had been several false starts in that direction. "But they had never been able to put down their swords and come to an agreement.

"We were in the fortunate position of being able to say we've already consolidated dealerships, and we know how to operate multiple-stores. So we were a neutral catalyst," says Lacey. "Everybody knew it had to happen, but they didn't quite know how to make it work."

Deere's Goal: Doubling Revenue

Last year, John Deere made it very clear that its intention is to double its 2011 revenues by 2018. Most industry observers agree that with an already dominant market share of the ag machinery market in North America, to reach its target, most of that revenue growth would need to come from overseas markets.

"We saw this as a natural opportunity to tag along with Deere on the growth objectives," says Lacey. "They're going to need strong dealers to do that.

About the logistics of working in New Zealand, Lacey adds, "Because of its culture, language and time difference, it's really not too bad working over there. From the Pacific Coast, there's only a three-hour difference. It's tomorrow there, but only three hours earlier, so the thing is you can still have phone conversations during the day vs. the Ukraine or Russia where there can be a 10- or 12-hour difference.

"It's a way to explore markets outside of North America while still playing it safe from a cultural standpoint, rule of law and things like that," says Lacey.

"Let's put it this way. Acquiring the New Zealand dealerships was a way for us to explore overseas markets without betting the farm because there will be lots of global opportunities and this was a way to demonstrate to Deere that we can be of added value to them."

He adds that Cervus' overseas move hasn't been without its challenges. "One of the things we've learned is we need to have more influence on the process, and that's why we have one of our key managers living there," Lacey says. "We can't just be an investor saying, 'Here's some money. You guys go and make it work.' We needed to be more involved in the process."