On 1 June 2021, Caterpillar, a US-based leader in manufacturing of construction and mining equipment, announced the acquisition of Minetec, an established provider of technology solutions for the mining industry, for a price of $14 million.
Founded in 2000 in Perth (Australia), Minetec claims to be only company in the world today supplying the enabling tracking and data communications network and purpose-built set of software applications addressing both productivity and safety in the underground mining space. The company’s solution is underpinned by its proprietary technology, TRAX, which combines real-time data communications and high-precision tracking. Minetec’s clients include Rio Tinto, BHP Billiton, Newcrest Mining, Barrick Gold and Newmont Mining. The company also engages with industry leading mining contractors such as RUC Cementation and PYBAR.
Founded in 1925 in Peoria, IL (United States), Caterpillar is the world’s leading manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines and diesel-electric locomotives. The company operates across every continent, primarily through three segments – Construction Industries, Resource Industries, and Energy & Transportation. Caterpillar also provides financing and related services through their Financial Products segment. As of December 2020, the company reported revenue of $41.8bn and EBITDA of $7.4bn.
Caterpillar’s techquisition of Minetec is the result of a three-year journey that started with a strategic partnership to provide best-in-class site solutions for mining customers through Caterpillar’s Cat MineStar system.
Since 2018, the two companies have worked under a collaborative agreement to develop and deliver technological solutions to tackle the unique challenges faced in underground hard rock mining operations.
As a result, Caterpillar has been able to expand the capabilities of its MineStar offering through the use of improved high precision tracking and wireless communications, task management technology and proximity detection.
“The acquisition will further drive integration of Minetec’s world-class underground products and capabilities, such as task management, high-precision tracking, wireless communications and proximity detection into MineStar. As miners move to automate underground mines, this will further enhance MineStar’s ability to provide the equivalent of GPS underground and improve safety and productivity.”
- Jim Hawkins, General Manager of Cat MineStar solutions
Marc Cameron, Vice President of Caterpillar Resource Industries, highlights the acquisition as yet another example of the company’s continued investment in automation services and an opportunity to leverage connected equipment that can turn experience and data into useful insights for customers.
The transaction is likely to further reinforce Caterpillar’s ongoing commitment and focus on developing and providing technological solutions that enhance safety and improve productivity in underground mining operations.
As such, and as with many of the techquisitions we have previously profiled, it becomes evident that this is not a rushed acquisition to try to pre-empt competition, or an attempt to integrate a technological solution without a specific plan, but rather a well-considered acquisition by Caterpillar that is the result of extensive due diligence achieved through a prior operational partnership.
This sentiment is echoed by Codan, Minetec’s previous owner. The company cites Caterpillar’s market leading position in the mining industry and extensive distribution network as the main factors that make Caterpillar the company best suited to own Minetec. Following the acquisition, Codan will provide manufacturing services to Caterpillar for up to five years to ensure a successful transition and continuous supply to customers.
“As we evaluated our strategic options, we concluded that the best outcome for Minetec to achieve its potential was to discuss the transfer of the business to Caterpillar, this being seen as a logical progression following the partnership agreement put in place in 2018. We believe that Caterpillar is the more appropriate owner, as they continue to be the market leading supplier to the mining industry, with an extensive global dealer network covering 172 dealers across 190 countries.”
- Donald McGurk, Managing Director of Codan
A successful integration of Minetec could help Caterpillar strengthen its underground hard rock mining operations, increase productivity and safety, and enhance its product offering by providing its customers with actionable data insights. Minetec, in turn, could benefit from being able to fully leverage Caterpillar’s ecosystem, capabilities and distribution network to expand its reach and further develop its technology.
Caterpillar’s techquisition of Minetec is expected to offer the industry’s most complete integrated solution for underground hard rock mines. By acquiring Minetec, Caterpillar will have full access to Minetec’s proprietary tracking and visualisation technology – the system combines wireless data communications and high precision tracking to provide sub-meter location information to any underground environment.
In 2018, Randy Schoepke, Caterpillar Commercial Manager for Underground Technology, listed the three main pillars the company could expect to benefit from through the strategic partnership with Minetec, which become even more relevant following the acquisition:
1. Safety: Expansion of the underground safety products currently offered as part of MineStar to enable zone-based tracking of all personnel and machines, as well as localised awareness per machine to prevent interactions. Offerings include proximity awareness, personnel detection and collision avoidance.
2. Productivity: The acquisition is expected to significantly expand MineStar’s technology offerings and further optimise productivity in mining operations. Through real-time visualisation of operations, mine management will have access to data that allows them to make in-cycle modifications and eliminate bottlenecks that impact production results
3. Maintenance: The deal is likely to provide Caterpillar with increased access to information relevant for maintenance operations, helping mines transition from reactionary to predictive equipment maintenance. Solutions include machine health, analytics, remote condition monitoring, maintenance scheduling and real-time events recording. The data will also be accessible through reporting tools and customised to meet individual site needs
Given the above, it becomes more clear why Caterpillar decided to acquire Minetec rather than continue the strategic partnership. This techquisition aligns with the company’s commitment to automation and digital development and will contribute to consolidate its market leading position.
The market reacted favourably to the announcement, given the positive outlook associated with the transaction and Caterpillar’s ongoing efforts to automate its operations.
By the end of the week following the announcement, Caterpillar’s share price had increased by approximately 1.2% compared to an increase of approximately 0.6% in the S&P 500, implying an addition of a net $800 million to Caterpillar’s market capitalisation (implying the deal effectively paid for itself by >50x).
Although relatively small in terms of transaction value, Caterpillar’s techquisition of Minetec produced an immediate impact on the company’s share price, in what is perhaps a sign that the market is starting to understand the potentially transformative value of techquisitions, irrespective of transaction size.
The essence of this value creation as a result of the investment in or acquisition of technology companies, particularly in the industrial sector, is becoming increasingly noticeable. Indeed, preliminary research by Aquaa Partners indicates that industrial equipment companies that executed at least one “techquisition” have performed better in terms of share price returns over every time period reviewed (from 1 month to 5 years), and 4x better over three years, than those companies that have not taken any action regarding a techquisition.
In fact, this impact is even more noticeable if we only consider small and medium-sized companies in the same segment – those that executed at least one techquisition performed even better over the same time periods and 6.4x better over three years than companies that have not undertaken any investments or acquisitions of technology companies.
“We’re continually investing in new ways to leverage connectivity, to make our customers more successful. It’s a never-ending journey, and we’ll continue as technology advances to find new ways to make our customers more successful. It is a key part of what we’re doing”
- Jim Umpleby, Chairman & CEO of Caterpillar
Caterpillar’s acquisition of Minetec is an example of how a non-tech traditional incumbent is actively engaging in the journey of transforming itself to deliver greater value to its shareholders and customers by properly positioning itself for the future.
The essence of such a transformation unfolding is embedded in a strategy execution methodology we have trademarked and call Techquisition, which my firm, Aquaa Partners, has designed and delivers to its clients every day as an experienced and trusted partner.
Source(s): Aquaa Partners, company websites, Pitchbook, Canadian Mining Journal, International Mining, Capital IQ, LinkedIn