June 02, 2017

Heavy Equipment - Comments on John Deere's Wirtgen Purchase

6301 JP, DE, KMTUY
By Jarrett Harris

The acquisition of Wirtgen Group not only provides a new line of business for Deere, it may put pressure on Komatsu as a North American distributor of the German road construction equipment maker.

OTR Global spoke with two equipment remarketing executives following the announcement that Deere & Co. plans to acquire Wirtgen Group. Both regard the move as a significant positive for Deere. “Wirtgen products are top of the line -- they're great. The integration will be interesting for sure, as those things are always challenging. But [Deere’s purchase] is a stroke of genius,” one source said. The other source said the positive implications for Deere are mirrored by negative implications for Komatsu Ltd. (6301 JP). “There's been speculation about an acquisition for a while, but the expectation was Komatsu would buy them. In North America alone, there are more than 20 Komatsu dealerships who distribute Wirtgen products,” the source said. “Komatsu has got to be crying over this.”

Prior to the announcement, Wirtgen had been mentioned by a number of sources during the course of interviews during 2017 to date. Here is a summary of those comments.

Hamm -- one of the brands under the Wirtgen umbrella -- has increased penetration in the U.S. market significantly during the past few years.

  • Sources interviewed for the Feb. 17 note on Florida auctions pointed out the large volume of Wirtgen’s Hamm compactors and rollers at the Ritchie Bros. Auctioneers Inc. event. The auction featured 30-plus Hamm-branded machines, a significant uptick from prior years. Sources cited this as evidence of Hamm’s increased market penetration over the past few years.

A number of Komatsu dealers in the North American market distribute Wirtgen and related brands, and several have indicated the rate of growth in sales of those machines has outpaced the rate of growth for other brands/categories.

  • A leading Komatsu dealer interviewed for the March 13 note on CONEXPO said while both Komatsu and Hamm sales were trending higher during 1Q17 yy, the growth rate in Hamm products far exceeded that of the Komatsu products. Another source from the same dealership interviewed for the May 23 snapshot on tire and filter demand offered similar commentary. “Komatsu is big, but Wirtgen drives a lot of our business.”

The product line Deere stands to acquire in this deal is an interesting niche with relatively limited overlap with other major OEMs.

  • A longtime OTR source with experience buying/selling a wide variety of equipment brands interviewed after the announcement said, “The Hamm line will compete against some [Caterpillar Inc.] products. There are other guys that make some of the smaller pavers -- like LeeBoy -- but not as many that make the larger products.”

It’s worth noting that most source comments on Wirtgen Group and related brands have surfaced without prompting. It’s a company and set of product lines several sources have found exciting enough to mention unsolicited.

Contributors: John Fischer and Denise Jordan

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OTR Snapshots are direct feeds from our editors expressing their views on key issues and events in their industries, within and beyond our core coverage. Snapshots feature industry insights, source commentary, and general observations.