Editor’s Comment: United Rentals buys RSC

19 December 2011

You should never be surprised by acquisitions in the rental industry. That is true in particular of United Rentals, since it owes its status as the world's biggest rental company to the more than 250 acquisitions it has made in the last 14 years.

Even so, its $4.2 billion deal to buy its chief US rival RSC Equipment Rental - announced last Friday - has the capacity to shock by virtue of its scale. Combining the two will create a US$3.9 billion business, which is more than three times the size of its biggest competitors, Sunbelt Rentals and Hertz Equipment Rental Co.

The new United will have a market share of around 13 to 14% and a branch network (before consolidation) of as many as 1000 in the US and Canada. That share is likely to be larger still with major customers and national accounts business. The total combined value of its fleet is US$7 billion (at original cost).

The market share alone will be a powerful driver for the business, particularly among North America's major rental customers. As one European rental company CEO remarked to IRN following the announcement, "With that kind of market share customers can't say, ‘We won't do business with that player.'"

The scale of the business will be frightening to its competitors and dizzying to equipment suppliers, not least in the aerial platform market where the two companies will have a combined fleet of around 73000 units, which will represent a significant proportion of the total US access rental fleet.

However, while it is the biggest ever merger in the equipment rental sector, it actually isn't that surprising.

Consolidation has been taking place for the past 15 years and only halted when the financial crisis began. The current economic situation may be far from perfect, but both United and RSC have restructured over the past three years and are now posting much more positive results. The fact that United is willing to take on a project of this scale shows that a there has been a return to a more normalised market situation.

For United's CEO, Michael Kneeland, "the timing is right", with the restructurings complete, market recovery forecast for the coming five years, and a strategic shift towards rental already taking place.

But the main reason it's not surprising is that the two companies represent a good fit. For years, United has been making small acquisitions in the ‘industrial' sector and explicitly targeting a greater share of the industrials rental market.

Before the RSC deal industrial rentals represented around 16% of its business, and it had targeted an increase to 30%. Now, with RSC, 60% of whose business was in the industrial sector, its industrial/non-construction exposure will be 35.2% of the total, exceeding its own target.

RSC's industrial bias also means that there is less of an overlap in the depot networks than might be expected. United has 529 locations and RSC 450, but in its conference call for analysts United estimated that just 5-10% of depots - between 50 and 100 - will be closed as a result of the deal.

Going forward, it will be interesting to see the reaction from United's competitors, companies like Hertz and Sunbelt, as well as the bigger independents like Ahern Rentals. For how long can they grant United such clear leadership in the North American rental sector?

So, after years of relative inactivity in mergers and acquisitions the North American rental sector has ended 2011 with a bang. For some in the industry, it must have sounded like a starting gun.

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