Analyst: Consolidation likely in machinery sector

Other companies that could become acquirers include Paccar Inc., Parker-Hannifin Corp. and Illinois Tool Works Inc., JPMorgan analyst Ann Duignan wrote in an investor note.

The process of consolidation "is likely at some point after the current liquidity crisis eases and could start with small cap companies that are not well diversified and/or have stretched balance sheets," she wrote.

The machinery companies "are at least $5 billion in market cap and have some ability to take on additional debt, in our view, given a reasonable net debt to total capital ratio," ratio of earnings-before-interest-and-tax to interest, or both.

Duignan wrote that "some interesting potential matches" include Caterpillar and Joy Global Inc., which makes heavy equipment for mining; Caterpillar and farm-equipment maker AGCO Corp.; Deere and construction-equipment builder Terex Corp.; Deere and irrigation-system maker Lindsay Corp.; Paccar or Caterpillar and specialty vehicle maker Oshkosh Corp.

Other possible combinations include Illinois Tool Works and construction-equipment maker Manitowoc; Illinois Tool Works and welding-products maker Lincoln Electric Holdings Inc., and Parker-Hannifin and industrial-products maker Crane Co.

Oshkosh "could be a potential target given its high net debt to capital ration of 64 percent," Duignan wrote. Truck maker Navistar International Corp. could also be a target, though "it's not clear that there is a strategic buyer that would be willing to take on its combined on/off-balance sheet obligations in this environment," she wrote.