News of Lovat’s acquisition in early April, by giant US-based corporation Caterpillar, certainly caught industry-wide attention. It was a clear vote of confidence in the health of the tunneling business and confirmed that demand for tunneling equipment into the future will require expansive procurement and manufacturing capabilities.
“I’m over the moon!” is how Rick Lovat described the acquisition, announced April 2, 2008. “This secures our future without compromising our legacy. As President of the company, I could see that within five years we need to be twice as big, if not bigger, to keep pace with demand in terms of capacity, resources and staff. This was going to be difficult from our footprint here in Toronto, and would have required substantial capital. With Caterpillar we gain these resources while retaining our identity. We remain as we are – our identity is unchanged; we stay operating out of Toronto; we remain in charge of our own strategy; we retain all our own people; there is no change of our management – all these were agreed in negotiations. The difference is that, going forward, instead of an amorphous venture capitalist or bank, interested primarily in asset stripping or maximizing profit without investment, we have a like-minded partner. One that has the same global interest; is in the heavy civil construction industry; has like-minded goals; and understands the nature of the business. What is there not to like about this deal?”
Lovat Senior, founder of the family business in 1972, said: “I could see things coming for the market, for the company, and realized change was needed, and to be selected by the industry leader as their tunneling partner is the highest recognition of our efforts. They are not going to compromise their reputation and neither are we. They wanted the best and we have joined with the best.”
It was from humble beginnings after emigrating as a mechanical engineer from Italy to Canada that Richard, and his son Rick, built the company to a world-recognized name with a reputation for sticking with the toughest of projects to a successful end.
As a private company, Lovat doesn’t publish annual accounts, but with more than 250 TBMs delivered globally and support companies in Europe and China, Lovat today employs more than 450 and “our order books through 2008 reflect the demanding state of the business,” said the President.
The match-up really is a pairing with the mighty. Publicly-traded Caterpillar is one of the world’s leading construction, earth-moving and mining equipment manufacturers, with reported revenues of $45 billion in 2007, and expectations of a 5-10% increase on this in 2008.
Together with its renowned yellow-branded workhorses, the 80-year-old CAT corporation also manufactures diesel and natural gas engines and industrial gas turbines. It also runs its own financial, remanufacturing and logistics divisions and a railway maintenance business.
CAT’s 2007 accounts didn’t make mention of potential acquisition, but Chairman and President Jim Owens said in his statement: “We expect the world’s robust investment in infrastructure to continue into the next decade, and we’ll need more capacity to serve our customers.” In a statement, Mining and Underground Products Vice President Chris Curfman said; “we intend to leverage our global business with continued investment in the Lovat product line”.
Market share data is closely guarded by the major players, but by rough estimates the global TBM supply business, with all the necessary support equipment, must be over $US1 billion per year at present and some say closer to $2 billion. With no slow down in sight, this could double over the next five years and remain elevated thereafter.
The amount of underground infrastructure to be built in developing countries, and the rehabilitation, replacement and expansion needed in developed countries, is in the multi-billions to trillions. The majority of this is needed in cities and through soft or mixed ground – the market sector in which Lovat is centered.
Getting a slice of this action prompted Caterpillar to begin investigations on how to enter the market and become an all-round supplier to the expansive international customer base.
According to Lovat, Caterpillar initiated negotiations. “They approached us saying that, of the investigations they had made, it was us they wanted to partner with.”
And there is much to credit the union. The two companies are North American based and therefore operate under the same basic ethos and business management model; they operate under similar legal systems; they speak the same language; and evidently share a common goal.
“As with others in the market, we needed money and resources to be able to meet rapidly growing demand and we get this in the best possible way with Caterpillar,” said President Lovat. “We get to partner with one of the biggest construction equipment manufacturers with facilities around the world. We can draw on the company’s dynamic R&D department; on its purchasing power; and on its international servicing network.”
Other manufacturers have made alliances with banks and financial backers, have set up joint venture manufacturing in other countries, and have found partners among industry leaders. But where other high profile takeovers and partnerships have failed, the CAT-Lovat combination has more going for it for the benefit of the market.
Supply of components in this market for example, has become a critical pinch point for delivery of TBMs. Bearings in particular are on long lead times amid increased competition from the military and wind farm industries. With Caterpillar, Lovat aligns itself with one of the largest buyers of industrial bearings and the pricing and delivery guarantees that brings. On the international stage, while Caterpillar has a broad global reach, Lovat has a long and stronger presence in several countries, including Russia, and can facilitate introductions for CAT.
The 100% acquisition of Lovat by CAT is a boulder into the pond, and is likely to significantly change the future dynamics of the TBM supply business.
Richard and Rick have built Lovat into a world-renowned company Richard and Rick
