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Caterpillar buys 3i's engine maker MWM for $810 million

LONDON (Reuters) - Caterpillar Inc CAT.N agreed to buy MWM Holding GmbH, the German maker of gas and diesel engines, from British private equity firm 3i Group Plc III.L for about 580 million euros ($810 million) in cash.

Caterpillar’s rich offer pre-empted a formal auction that was likely to have attracted a string of big strategic buyers, two people familiar with the matter said.

The agreement hands Caterpillar, the world’s largest maker of earth-moving equipment but also a big maker of reciprocating diesel engines, gas turbines and electric generator sets, a company it has long coveted, having been outbid by 3i three years ago, one of the people added.

MWM makes gas and diesel powered generator sets -- big, box-like machines that use internal combustion engines to generate electricity.

A number of companies, including Caterpillar and Cummins Inc CMI.N, make the devices -- often referred to as "gen sets" -- for customers who use them in remote areas not served by a grid or for standby, emergency or peak power at facilities that need more electricity, or more reliable electricity, than the grid can provide.

MWM is especially well known for its waste-to-energy gen set systems, which run on potential pollutants rather than diesel or natural gas, turning landfill gas, coal seam methane, and other waste into power.

Companies like Caterpillar and Cummins make gen sets that run on alternative fuels, too, but MWM “was very strong in the alternative gas space,” said Caterpillar spokesman Jim Dugan. “It’s a very, very good fit for us.”

The deal comes a day after Caterpillar's Chief Financial Officer Ed Rapp told Reuters the company was prepared to use part of its $2.3 billion cash pile to strike more deals, after agreeing an $820 million acquisition in August. And it follows General Electric Co's GE.N $3 billion purchase earlier this month of Dresser Inc, a maker of gas engines used in oil production and mining.

MWM, or Motoren-Werke Mannheim, will become part of the Peoria, Illinois-based company’s Electric Power division.

MORE 3I SALES AHEAD

The sale gives 3i a return of 2.2 times its initial equity investment just three years after it bought MWM, then known as Deutz Power Systems.

One of the people said MWM had trailing earnings before interest, tax, depreciation and amortization (EBITDA) of about 40 million euros -- meaning the deal was struck at a rich enterprise value to historic EBITDA ratio of about 14.5 times. Generac Holdings Inc GNRC.N, the listed U.S. generator maker, trades at 10.2 times historic EBITDA, Starmine data show.

The British buyout firm is gearing up to realize returns from a string of industrial companies.

The Financial Times says it is preparing to sell Dutch pump-maker Hyva. It also aims to float German joining products firm Norma Group and is considering options for GES, the Spanish builder of wind farms.

Credit Suisse advised 3i.

($1=.7186 euros)

Reporting by Quentin Webb in London and Sakthi Prasad in Bangalore; additional reporting by Philipp Halstrick in Frankfurt and James B. Kelleher in Chicago; Editing by Greg Mahlich, Mike Nesbit, Dave Zimmerman

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