According to the Wall Street Journal, the move is designed to give the American-based manufacturer more exposure to the Chinese mining sector.
ERA Mining Machinery primarily manufactures hydraulic roof supports for underground mines. The acquisition will complement Caterpillar?s recent purchase of Bucyrus International, which also manufactures roof supports, but has found difficulty breaking into the Chinese market.
“You have to be a local player,” Lawrence De Maria, an analyst for brokerage firm William Blair & Co told the WSJ. “It makes sense for Caterpillar to do.”
The growth in China?s earth moving equipment market has been fuelled by explosive demand for energy, much of which is powered by coal. The move comes as the Chinese Government encourages smaller operators to consolidate and modernise with new mechanical plant and equipment.
According to Australian Mining, China represents about half the entire world?s demand for construction equipment. Last year Caterpillar had about seven per cent of that market, while competitors Komatsu and Sany had 15 and nine per cent respectively.
The acquisition, however, isn?t exactly a common occurrence, with Chinese authorities typically uneasy about foreign investment. However, in this case, it appears Caterpillar is confident the Chinese Government will approve the sale.
Sources: The Wall Street Journal, Australian Mining