Why do so many Forager investments end in takeovers?

If you’ve followed the Forager Australian Shares Fund for a while, you might have noticed a theme: a surprising number of our investments end up acquired by another company. From small technology firms to niche industrials, our portfolio has been a fertile hunting ground for private equity firms and larger companies looking for attractive acquisitions on the ASX.

The prevalence of takeovers in the portfolio is not by design - at least, not entirely. And they haven’t all been great investments. On more than a few occasions - Bigtincan and Whispir come to mind - an eventual takeover was simply relieving us of our misery. Even for the losers, strategic appeal can provide important downside protection.

In June we wrote about five Australian small cap takeover candidates to complement the three portfolio investments already under takeover at the time. Mining technology business RPMGlobal (ASX: RUL) has been the first of these to receive a formal bid. At the time we wrote:

“The potential for a takeover at a healthy premium is a nice kicker when the fundamentals are strong, the valuation is attractive, and the assets have strategic value. With our focus on the unloved and underappreciated, we think we hold a few of those. Let’s see if would-be acquirers agree.”

In the case of RPMGlobal, global mining equipment behemoth Caterpillar Inc (NYSE:CAT) very much agreed. Caterpillar has bid $5.00 per share in a deal which values RPMGlobal at over $1.1bn, or nearly 15 times recurring software revenue. The Forager Australian Shares Fund first bought shares at $0.77 six years ago.

Today’s piece is about how to find the next RPMGlobal.

Buying it cheap

The first ingredient of a highly successful takeover candidate is to buy it cheap to start with. When Forager first invested in 2019, RPMGlobal was an underappreciated business with world-class mining software, recurring revenue from a growing global client base and a management team intent on reshaping the company.

A transition from multi-year software licences to annual recurring software subscriptions was a handbrake to revenue growth and profitability. The value in the company was hidden. Once the subscription transition was complete, revenue growth and free cashflow would be plain to see.

Buy a business you want to own anyway

In the last three years subscription software revenue more than doubled. Very few clients turned the software off. And existing clients were spending more on their software every year. 

While we waited, RPMGlobal grew, generated cashflow and bought back its own shares. The longer it took, the more we stood to make when a takeover finally arrived.

If you are happy owning the business anyway, you are far more likely to end up with an outstanding result on takeover.

The right management team

RPMGlobal’s management executed superbly during our period of ownership. All with one eye on an eventual sale, they simplified the business, sold non-core divisions, and invested heavily in software development. The transition to a subscription-based model built predictable, high-margin revenue streams and demonstrated the scalability of the product suite.

By the time Caterpillar came knocking, RPMGlobal had become a global leader in mine scheduling, mining equipment management and mine financial software. This is exactly the kind of asset a company like Caterpillar could integrate into its digital ecosystem. Not many CEOs want to work themselves out of a job, but Richard Mathews had prior form and enough shares to make the hard work worthwhile.

Strategic value

The final and most important ingredient is for the business to be worth more to someone else than it will ever be worth on the stockmarket. For Caterpillar, the acquisition strengthens its position in mining technology and provides access to RPMGlobal’s best-in-class software and deep customer relationships across the mining industry.

And for RPMGlobal shareholders, being listed is expensive. The board, listing costs and corporate overheads chewed up roughly two thirds of RPM’s operating profits in the 2025 financial year. Not only does Caterpillar get a strategic asset, it won’t incur many of those costs, making the acquisition price a lot more palatable.

For shareholders, the $5.00 per share offer represents a significant premium and an excellent crystallisation of value. For Caterpillar, it makes sense too. The best deals often do.

A Case Study in Patience and Process

The RPMGlobal journey exemplifies what we aim to do at Forager: identify underappreciated businesses, back capable management, and have the patience to let value emerge. 

If you’re interested in finding out what businesses we are currently discovering at Forager, subscribe to our monthly and quarterly reports to find out more.

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Forager Australian Shares Fund

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