Grow even as markets decline? Will Leftwich and Michael Bellenger explain.
By Murray Pollok16 February 2009
Even in a recession there are opportunities for rental compoanies to grow, whether through diversification, internationalisation or by using franchising arrangements. Will Leftwich and Michael Bellenger of Will Leftwich Associates outline the opportunities.
EBIT DA, DA, DA,......Doh! Is the rental market recession proof? If we rely on the banks to give us good advice is it good enough? If we trust our accountants have we done enough? Is EBITDA the best measure we have of the health of our business? Some businesses do, of course, rely heavily on these things, but it is the passion and innovation of the entrepreneur in us that drives the rental industry.
In past years some could look forward to another year of robust growth and a chance to relax a little with our loved ones over the ‘quiet' two weeks between Christmas Eve and the first week of January.
Except that this year is different, very different. News of further staff and depot cutbacks in our industry gather pace and we all know of colleagues affected by the swift turnaround in our industry. Some of our industry's most experienced people have seen their knowledge disposed of swiftly in the effort to cut costs that comes with falling revenues.
There is a sense that we have only seen the beginning of such measures and that more can be expected this year. We all understand why it's happening and there is much sympathy for affected companies and colleagues, but is this the burden of the bigger business, the one where true cost is not so easily seen or controlled?
It has often been said about the rental industry that it has recession proof qualities. These economic downturns have visited us too often in the last three decades but defiantly our industry has grown from strength to strength, not only financially but also in vital areas like product innovation, service standards, health and safety, IT, and so on.
Part of the answer lies in the significant consolidation we have seen, particularly over the last 10 years, and the ensuing economies of scale leading the bigger companies to invest heavily in training, health and safety and service to strengthen their corporate reputations and to provide fresh challenges to differentiate themselves from their competitors.
But the independent operators have also benefitted from these higher standards and added their own entrepreneurial strengths - and their adaptability and speed of response - to help develop the market. Many a large operator has been humbled by the tenacity and flexibility of the many independents proudly operating in our industry.
So are things different now? Where are the new opportunities going to come from? Much has been said already about the importance of legislation development, and good practice. There will be opportunities too in the inevitable further consolidation of our industry. But there are some additional openings that both independents and larger operators should consider.
International opportunity has to be seen as an option to find new growth, to provided shareholder value and further improve services to an international customer base. It wasn't so long ago that we all thought that the rental industry in Europe consisted of the UK, France and the Netherlands. This landscape has changed before our eyes and we are accustomed to hearing about the great strides taken by companies such as Ramirent, Boels Verhuur, Loxam, GAM, Aggreko, Cramo, Kiloutou, Venpa, HUNE, Energyst and HSS, for example.
They have grown the hire market exponentially and this benefits us all - this is creating opportunity in these emerging markets hungry for equipment, and not just for construction but for all manner of products and services, following the demand for outsourcing in many countries. The European market alone is estimated to be worth as much as €25 billion.
Trade bodies such as the European Rental Association (ERA) have been borne out of a need to create unitary best standards and facilitate best service and knowledge across the European marketplace. Companies have been expanding as fast as customers and potential customers start to understand the true benefits of rental versus acquisition of equipment. And we all hope that this will self-perpetuate. Of course, many independents have also benefitted from this and we can still see many springing up around us.
This is the opportunity and this is the time to act: diversification into new markets. Why now? Because there are still many gaps available and much untapped demand; some rental companies looking to sell, some shedding property without covenants; and suppliers hungry for orders!
This is clear to see in recession hit established markets and in the emerging markets in Central and Eastern Europe, and we have all seen the incredible developments in the Middle East, particularly Dubai, but also other fast-evolving markets such as Abu Dhabi, Qatar and Saudi Arabia, with strong activity in construction, infrastructure and services. And then there are the developing industrial powerhouses of China and India.
There are risks, of course, in developing in new countries and significant challenges to launching in a new country, but while this was often a significant barrier ten years ago, the development of some of the European operators mentioned earlier has proven that it can be done and successfully too. Indeed some operators, such as GAM, are quite comfortable crossing continents in the pursuit of new opportunities. Indeed it can be a useful way to re-utilise equipment in different markets when they have the same need but different seasonal demand (such as practiced by air conditioning and heating suppliers in northern and southern hemisphere markets) or at different stages of market maturity and saturation.
Of course it is a difficult time for some to find the required capital for international developments, but this need not be a barrier. As knowledge of rental services spreads across international markets so there are numerous new entrants willing to start operations in these emerging markets. Our own consultancy, Will Leftwich Associates (WLA), has been receiving numerous enquiries from entrepreneurs and investors looking to either purchase the skills required to set-up new hire operations in their market, or to form alliances with more mature operators either in the form of joint ventures or through franchise or licence arrangements, such as used by HSS and Italnolo in their international operations. This could be a good diversification opportunity for some of the more established operators.
Secondly there is the opportunity for local development by adapting to the changing market place, particularly in the more mature markets such as the UK. There are a significant number of depots and personnel being released by the larger operators. This helps reduce costs, but it can be difficult to re-motivate the remaining personnel, particularly if economies continue to worsen.
Sometimes the depots released cannot be disposed of easily and the full cost saving cannot be realised. These are times for creativity, for example using franchise arrangements to match the talent pool in the marketplace with surplus-to-requirement depots.
Many very experienced hire personnel who would like to remain in the industry and yet this is unlikely in the near future given the shrinking job-pool. Some are setting up independent operations and others are looking for opportunity. As yet no-one is offering a franchise in the UK. Italnolo has in Italy, while HSS have offered it in countries outside their natural market (UK). This should be a clear opportunity in the UK just as with many other countries.
The are many benefits to companies, but particularly in retaining highly skilled and experienced personnel while tapping into their entrepreneurial drive for personal development and reducing much of the cost associated with employment.
These are some of the new ideas emerging during these turbulent times and no doubt more will emerge as demand dictates. The point is that this industry has always excelled at re-inventing itself during the economic cycles and it is particularly for this reason that we have experienced such strong growth. Recession proof? Well, perhaps. Entrepreneurial? Definitely.
Service and quality will always be key drivers and no more so than during a recession. We must all be prepared to adapt to the changing conditions, and fast.
The authors are Will Leftwich, founder of Will Leftwich Associates (WLA), and Michael Bellenger, an associate consultant with WLA. Mr Leftwich has 27 years experience in the rental industry, consulting on operational management, health and safety and business development in the UK, Europe and the US. Michael Bellenger spent over 16 years in the rental industry, during which time he helped develop HSS' international and franchise strategies. Contact WLA at: Tel: +44 (0)121 242 5196, E-Mail: email@example.com