Caterpillar is buying mining equipment giant Bucyrus International and keeping that brand name.
While unknown and even strange-sounding to the average person, Bucyrus is a storied brand name in the heavy equipment industry. In my post of a few weeks ago, I discussed the naming options companies have in mergers and acquisitions. Though Caterpillar is a better-known name, instead of killing the Bucyrus brand, Caterpillar is demoting it and letting it live on as a product line brand.
Naming decisions in mergers and acquisitions involve a number of factors:
1) The politics of the deal
What happens to brand names is often part of the negotiations in merger and acquisition deals. It is possible Bucyrus would have been less willing to sell out to Caterpillar if their brand name would be killed in the deal. Sometimes it is an ego thing—to give the appearance of a “merger of equals” to an acquisition, the acquired brand is kept and the acquiring brand is retired.
2) Brand equity
What is the value of the brand in the marketplace? How long has the brand existed? What role does it play in driving preference and earning a price premium? The value of the brand being acquired is an important consideration. Bucyrus is an entrenched legend in the mining community, with a legacy stretching back 130 years. Bucyrus equipment dug the Panama Canal. Bucyrus made the world’s biggest machine Big Muskie, which was as wide as an eight-lane highway and had a scoop as big as a twelve car garage. While Caterpillar is strong in mining, it doesn’t have the singular mining focus as Bucyrus.
3) The cost and effort to change
For some companies, a new name is as simple as buying new stationery and changing out the logo on the Web site. For Bucyrus, changing brands would be a massive undertaking with equally massive costs. Bucyrus equipment is far from disposable and is used for upwards of thirty years. Changing out brands on the physical products would take decades. Furthermore, mining is highly regulated. A simple name change would require redoing hundreds of thousands of documents from operator licenses, to OSHA forms, maintenance manuals and much, much more.
4) Brand overlap
Demoting an acquired company brand to a product line brand works best when there is little overlap in product portfolio. While Caterpillar makes mining machines, it does not make the massive specialized equipment like super-sized draglines and highwall miners that Bucyrus is known for. Both brands can exist side-by-side without much overlap.
Given these strategic considerations, Caterpillar made a sound decision when it announced in its acquisition press release that it will not bury the Bucyrus brand, but will maintain it “for the principal Bucyrus legacy products.”