Shares of recreation vehicles maker Winnebago Industries (WGO) are surging this afternoon after announcing it will be acquiring Grand Design Recreational Vehicle Company and providing preliminary fourth quarter results. Following the report, research firm Baird upgraded Winnebago to Outperform from Neutral.

WHAT'S NEW: This morning before the market open, Winnebago announced that it had entered into a pact to acquire Grand Design Recreational Vehicle Company, a manufacturer of towable recreation vehicles, or RVs, for approximately $500M in cash and newly issued Winnebago shares. The RV maker added in its statement that the acquisition is expected to be accretive to its growth profile, profit margins and earnings per share. The transaction is expected to close by the end of Winnebago's first fiscal quarter of 2017. Michael Happe, Winnebago's President and CEO, commented, "The addition of Grand Design will accelerate our expansion in the towable business, creating a broader and more balanced portfolio well-positioned to capitalize on the opportunities across the RV market and to drive improved profitability and long-term value for stakeholders." According to Winnebago, the combined company will have approximately $1.4B in pro forma revenue along with a broader and more balanced portfolio well-positioned to deliver growth, improved profitability, and value. Annual run-rate cost synergies are anticipated to be $7M, phased in over three years, to be achieved through identified opportunities in purchasing and the elimination of redundant processes with additional upside potential from sharing of manufacturing best practices. Winnebago expects to fund the transaction through a combination of $395M in cash and $105M in newly issued Winnebago shares. J.P. Morgan has agreed to provide committed financing for the transaction. Upon closing, Winnebago expects to have a debt to EBITDA ratio of approximately 2.5x, inclusive of anticipated annual run rate synergies. The combined company is expected to generate significant cash flow that will facilitate rapid debt reduction. Winnebago expects to reduce its debt to EBITDA ratio to below 1.5x by the end of fiscal 2018.

PRELIMINARY QUARTERLY RESULTS: Separately, this morning Winnebago provided preliminary Q4 results. The company is anticipating Q4 EPS of 49c on revenue of $263.3M. Analysts were expecting Q4 EPS of 45c on revenue of $249.16M. The preliminary view includes 1c of transaction-related expenses.

ANALYST REACTION: Following Winnebago's news, Baird upgraded the stock to Outperform from Neutral.

PRICE ACTION: Shares of Winnebago are up almost 27% in afternoon trading to $29.90.

OTHERS TO WATCH: Other companies in the RV space are also up this afternoon, including Thor Industries (THO) and Drew Industries (DW).