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Caterpillar Has a New Friend in the Auction Business

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Caterpillar enters a strategic alliance with Ritchie Bros.

Ritchie Bros. (RBA) entered into a strategic agreement with Caterpillar (CAT) to become its preferred auctioneer for used Caterpillar equipment. The agreement has a term of five years. It will come into effect after Ritchie Bros. closes the acquisition with IronPlanet. The new agreement also replaces the old agreements that Caterpillar signed with IronPlanet. It’s interesting to note that when Caterpillar invested in Cat Auction Services in 2013, it was meant to challenge the hegemony of Ritchie in the auction business. Ritchie Bros. auctions used equipment for Caterpillar’s peers such as John Deere (DE) and Joy Global (JOY).

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Strategic rationale 

The strategic alliance with Ritchie Bros. will allow Caterpillar dealers to benefit from a sophisticated platform to sell their used equipment. Ritchie Bros. will provide Caterpillar and its dealer’s several value-added services such as proprietary auction platforms and software that facilitate the exchange of information between customers and dealers. Since Ritchie Bros. is the largest industrial (IYJ) auctioneer in the market, a wide customer base might prevent drastic declines in the residual value of Caterpillar’s used equipment. Caterpillar could also use the alliance to drive up the sale of spare parts, warranty insurance, and customer financing which is more profitable than its equipment business.

The strategic alliance will open up Caterpillar’s independent dealers across the world into Ritchie’s network and provide it with a wider base of suppliers that it can use to connect with its wide pool of customers.

Management’s commentary

Ravi Saligram, the CEO of Ritchie Bros., offered the following commentary on the alliance. He said that “Ritchie Bros. is proud to enter into this historic alliance, which will strengthen our relationship with Caterpillar, its dealers and end users, as well as help expand our global reach and footprint.” He also added that “Our marketing capabilities, an unrivaled suite of technology (XLK) and powerful multi-channel transactional platforms will add tremendous value and make us a trusted strategic partner to the Caterpillar family.”

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