Access renters face challenge to attract capital says Appleton
By Murray Pollok14 September 2011
The access rental industry faces a challenge to attract capital in the coming years with rates of return needing to improve if the industry is to compete in the global capital markets, said former Lavendon CEO Kevin Appleton at the Europlatform conference.
Mr Appleton said the environment for attracting growth capital had changed completely as a result of the crisis; "We are in a world where we are competing for capital globally. My main thesis is that we need to recognise that - if we haven't always - and recognise that companies that will attract capital will be those that can generate a superior return than just putting the money in a bank."
Using Return on Capital Employed (ROCE) as a measure, he said that banks were looking for ROCE levels of between 3 and 7%, while private equity finance was targeting between 10 and 25%. "If that's what people are looking to get from money then the challenge for us is to perform ahead of these levels."
He predicted that companies that can't reach acceptable rates of return will be "squeezed out" of the industry, and said it was likely that there would be acquisition opportunities of distressed companies over the next three to four years.
Mr Appleton said the search for higher returns would mean that fleets would continue to be aged; "You don't get a penny more for a new machine than a well maintained old machine. Demand [for new machines] will be driven by replacement, not by massive growth."
He also said that going forward, rental companies would be likely to respond to changes in demand not by buying new equipment; "Flexibility now is about how much you dispose of rather than how much you buy...to do that does require a change of model, and you can only do that if the equipment at the end of its life doesn't owe you any money."
Europlatform was held in Maastricht on 13 September, the day before the APEX exhibition, and was jointly organised by IPAF and Access International.