After the deal: Newly acquired ESCO targets digital innovation
with new parent company
ESCO Corp.'s $1.3B acquisition by The Weir Group brings together to driving forces in mining equipment
Portland Business Journal
Jul 25, 2018, 5:24pm PDT
After more than a century as a family-owned, privately held enterprise, ESCO Corp. this month began a new chapter as a division of a publicly traded company.
The Weir Group, a Scotland-based maker of equipment for mining and oil-and-gas markets, in April announced it was acquiring ESCO, a maker of ground-engaging mining equipment, in a $1.3 billion deal that closed on July 12.
It was a deal that satisfied the ambitions of two century-old firms: Weir gets a brand that complements its own mining products just as it narrows focus on its core businesses, while ESCO lands a long-coveted source of growth capital.
"We realized there were massive similarities in the businesses from cultural and values perspectives," Weir CEO Jon Stanton said from ESCO's Northwest Portland headquarters last week. "It was a beautiful fit to put two completely adjacent businesses together and it offers a broader footprint for our customers across the mine."
But the deal also brings together two of the biggest names in mining equipment at a critical time. After several years of slowdown, mining companies are in the early stages of what could be a multi-year period of growth in both production and equipment spending, with demand rising for innovations like automation and artificial intelligence tools that can drive efficiency and reduce costs.
Those are areas in which Weir and ESCO had been exploring separately.
"It's a new frontier for both us, but we've both been investing in it for the last few years," said ESCO President Jon Owens. "Now it's a matter of combining that effort and getting more out of that investment collectively."
Inside the deal
ESCO was founded in 1913 by C.F. Swigert to make steel wear parts for the logging, construction and mining industries. Over its 105-year history, it remained proudly family owned and privately held. But as the company emerged as a world leader for ground-engaging mining tools, such as the steel teeth used to grind up rock, its ambitions turned it into a global company. It employs around 2,600 people in 20 countries.
To continue the momentum, it needed a steady source of capital to fund both growth and reinvestment in the business. It filed paperwork to raise $175 million through an initial public offering in 2011, but then mining companies hit the brakes on capital spending.
After two years, ESCO's board scrapped the IPO plan. It still desired that growth capital, but didn't want to pursue it hastily.
"There wasn't any urgency to do something," Owens said."We weren't in a situation where we were under pressure to make a change."
There wasn't any pressure a year ago either, when executives from Weir reached out to gauge ESCO's interest in being acquired. But this deal proved too good to pass up.
The transaction accomplished a set of key objectives for ESCO: It would join a company capable of funding its growth while preserving both the brand and its presence in Portland, home to its corporate offices and 300-plus employees.
Under Weir, ESCO will retain its name as a standalone business unit within Weir's $2.7 billion enterprise, led by Owens. ESCO CEO Cal Collins shifts to a role on Weir's board.
Weir, meanwhile, had been pursuing a new strategy that narrows its focus around its biggest business units. Weir operates three divisions: mining and minerals, oil and gas, and flow control. Under Stanton, who became CEO two years ago, the company decided to pursue a sale of the smallest of those units — flow control — and focus on the latter two.
The ESCO deal will widen its exposure to the broader mining and minerals market, the source of half its revenue, without overlapping with its own products. ESCO makes the tools used by mining companies to dig into the ground, while Weir makes the equipment used to grind, sift and process the mined material once its been extracted.
ESCO's Owens called the deal "the perfect marriage" of two century-old companies.
"It's a strategic combination that's not driven by cost, it's driven by growth," he said. "There's not only an agreement to preserve the ESCO brand in the market, but there's a desire to (grow it.)"
But how much it grows could be determined by how much it succeeds in meeting customer demand for technological innovation.
New data released in April by Grand View Research Inc. projects the mining equipment market to grow 6.5 percent annually to reach $128 billion by 2025. A rise in drilling and exploration is driving the growth, with mining companies increasingly adopting new technologies, particularly automation, to boost returns on existing mining assets.
Laura Skaer, executive director of the American Exploration & Mining Association, a mining industry trade group in Spokane, Wash., said she's already seeing those trends play out among her organization's members.
She recently visited a silver mine in Nevada that was in the process of replacing a grinding circuit on a crusher in an effort to improve efficiency. "We're also seeing companies looking at autonomous mining vehicles to lower labor costs and improve safety, so you're not exposing people to health risks," she said.
"There's more activity," she said. "The drill rigs are running and nobody is sitting idle."
Stanton said that as industrial companies, both Weir and ESCO are "getting our arms around the sort of fourth industrial revolution of artificial intelligence, autonomy, big data and how we bring that into our offering for customers."
It's challenging and expensive, but it's also necessary, particularly when its driven by customer demands. Weir's customers in both mining and oil-and-gas exploration, for example, share a concern over the cost of energy and water availability. Stanton said Weir, then, must explore developing products that address those concerns.
Independently, both companies have employed innovation labs pursuing advancements. ESCO, for example, is in the process of launching technology that will immediately detect when one of its steel parts breaks off an excavator. That avoids having that steel part make its way to a crusher, where it could force a costly shutdown, Owens said.
As they join forces, Stanton sees further opportunities in predictive maintenance of equipment and using data to drive innovation.
"We're bringing two great businesses together and creating a platform," he said. "We're ambitious to grow that platform and be a consolidator of the future. That's part of the logic. Coming together creates the foundation for us to do that."
This article was originally published by the Portland Business Journal on July 25, 2018. View article here.