Extend platform life advises Appleton
28 February 2008
Access rental companies should extend the life span of machines to maximize the value of their businesses, said Kevin Appleton, chief executive of Lavendon, the world's biggest access–only renter.
Mr Appleton said the best way for rental companies to build the value of their business was to invest in their engineering capabilities and extend machine lives up to 10 to 15 years.
He said the alternative model, of keeping equipment for three to five years and then selling it, was more sensitive to market conditions and relied on good residual values for used equipment.
“Almost every access business that has gone bust has used that [short term] model”, said Mr Appleton, “It is very sensitive to market conditions. The surest way to create long term value is to have a model that extends the life of equipment...and the most important driver [to creating long term shareholder value] is the quality of your engineering team.”
Mr Appleton added that companies should equally resist expanding too quickly. He said that measuring the business in terms of profit was insufficient, and that if companies invested heavily and increased their debts over a short period they risked decreasing the enterprise value of the business.
“Profit and loss performance alone doesn't necessarily improve value. Growing the fleet quickly – unless you have a very good plan – does in the short term reduce the equity value of the business”, he said.
Lavendon has made seven acquisitions in the past 18 months and has looked at many more potential deals in Europe. Mr Appleton said that of the owners who had sold to Lavendon, “the happiest have been those entrepreneurs who have grown very steadily, often over 10 to 15 years.”