Reshaped

AMECO may well have a fascinating history – it celebrates its 60th birthday this year – but the US-based rental company is interesting now because of how it has grown, and the rate of that growth.

A subsidiary of the massive Fluor Corp, AMECO has traditionally operated in support of its parent company, providing equipment and fleet maintenance services on its big projects worldwide.

According to AMECO president, Gary Bernardez, the last five years has seen an enormous switch in AMECO's business, from an 80% reliance on Fluor-related work to less than 20% now. Over the same period, there has been an equivalent shift away from US activities, with 80% of its workload now undertaken outside the US, compared to 20% at the start of the decade.

“When we reshaped the company, we decided to look at Fluor as a strategic global account with focus on growing our business outside of our traditional Fluor customers”, says Mr Bernardez, speaking to IRN from AMECO's headquarters in Greenville, South Carolina.

That reshaping meant more than just looking for work outside Fluor; it also meant focusing on three geographic regions – North America, Latin America and Africa/Middle East. In the past, the company had tended to venture anywhere there was work, but the tighter focus on key areas has been a definite strategy.

“We do still work in Asia Pacific on a project specific basis, but we retreated from that market in 2001/02. We can get growth out of the three regions we are in at the moment”, says Mr Bernardez, “We want to service a region well – not be too thin on the ground. Right now, opportunities outside of the three current regions will have to be project specific.”

He says restructuring the business into three regions also “improved our focus on regional customers and markets and strengthened our global management teams.”

It's a strategy that has paid off, with a dramatic increase in revenues, equivalent to a compound annual growth rate of almost 60% since 2004. The company is projecting revenues of around US$520 million this year.

The generally buoyant market has played a big part in that, of course. All three of its operating regions “have good rental dynamics. That has been a big advantage”, says Mr Bernardez.

“We're not seeing any signs of a downturn”, he continues, “Energy, oil and gas, industrial plants – over the last one-and-a-half years all of that has been very strong. We see power, especially in the States, really starting to grow rapidly. Infrastructure is still very, very strong around the world. We see a good couple of years there in the regions where we operate.”

Service mix

However, the key to the success has been the expansion of the business model outside of its captive' Fluor market. That model is a mix of three different service types: site services, fleet outsourcing and equipment distribution.

Rental remains the main proportion of its activities “close to 70% of revenues“ and it is the site services division that comes closest to the standard rental model, with AMECO providing equipment and services mainly to the construction sector on a project basis.

“It's our fastest growing sector, and in all three regions”, says Mr Bernardez, who has spent 16 years at AMECO and has been president since 2001, “We're in the middle of a very strong capital cycle.”

“Our strategy is to surround the customer with an inside-the-gate' service strategy. For example, in the US and Canada, in addition to our traditional equipment and tool offering, we are an exclusive supplier of blast resistant structures. We are making that part of our standard package. Also, we are working with TDS, a technical diagnostic company, supplying diagnostic equipment for industrial plant turnarounds. We have not done that historically.”

Fleet outsourcing is a more strategic service, taking over a customer's fleet – either buying it and operating it at a single large facility, maintaining it for a customer, or managing and maintaining the fleet. The vast majority of customers for this service are large industrial sites such as chemical or oil and gas plants.

Mr Bernardez says AMECO is currently evaluating the “value proposition≵ of this service, but it clearly occupies a major place in the company's strategy. “In the longer term, – we'd like this segment to grow the fastest of all three sectors”, he says.

One opportunity here is to promote this service to engineering contractors, not just industrial sites. “The challenge with contactors is their willingness to hand over the keys of their machines. Industrial owners are much more receptive to outsourcing fleet services. We find that contractors start to discuss outsourcing when a downturn starts. They might have a different view at the back end of the business cycle.”

The demand for equipment from contractors and industrial users has also seen growth in AMECO's distribution business, which is strong in Latin America and in particular Mexico, where the company has a large presence. Mr Bernardez says this have been a good market, but is likely to “moderate” in the future.

AMECO and Fluor share a long joint history – it became part of the group in 1997 when Fluor bought AMECO's then owner, Daniel Corp – but the growth of AMECO, and its increasing reliance on external customers, does beg the question – will Fluor remain the best owner for AMECO?It's a question that Mr Bernardez is used to answering. “We have helped Fluor win significant projects through fleet supply and logistics”, he says, “There's an ongoing debate about how critical we can be in helping win work – it gets bantered around. Ultimately, it depends on the Fluor strategic direction. For now, they have allowed us to significantly grow the business.

“And that growth looks like it will continue. Mr Bernardez thinks $1 billion in sales is achievable within three or four years. “Depending on how we finance our growth, then I think we can get there. We have a structure and leadership team in place to grow the business to $1 billion. I think we can get there through our existing growth strategy.

“And that strategy boils down to promoting the outsourcing of equipment: it's a strategy that every rental company in the globe is employing, but perhaps without quite the same impact.