Merger mania

Europe’s rental industry isn’t alone in going through a process of consolidation, but as a sector it certainly must be near the top of the league when it comes to mergers and acquisitions.

In the past five months, there have been dozens of rental deals, varying from massive transactions with global implications - such as Aggreko’s proposed acquisition of GE Energy Rentals and Ashtead Group’s takeover of US renter NationsRent - to tiny ‘infill’ buys, giving a rental company a particular line of equipment or geographical coverage that it didn’t have before.

Does it matter to contractors? Yes, because consolidation means bigger rental players who will be able to offer increasingly broad product lines over increasingly large geographical areas. To put it simply, a mature rental sector will save contractors money.

The business impulses behind the rental deals also vary, from nakedly financial to purely operational (although they share, of course, the ultimate goal of generating a profit). A good example of the former was US-based private equity firm Advent International’s majority buy-out of Spanish rental company Euroloc earlier this year.

The rationale for the acquisition reads like a textbook case of how consolidation is occurring in the less developed, more fragmented rental markets in Europe. Advent says Euroloc is operating in a Spanish rental sector valued at € 2,2 billion and which has grown at an average compound rate of +15% for the past four years. “The sector is expected to continue growing at above-average rates in the near term, driven by increased penetration of equipment rental within the Spanish construction sector. The market is also highly fragmented - with only two sizeable competitors, GAM and Euroloc, and more than 1500 small competitors - making it ripe for consolidation,” said a statement from Advent.

According to Advent the strategy now is to increase Euroloc’s market share and coverage by opening new branches and buying other rental companies. It is competing head-on with GAM, the market leader in Spain that was created through acquisitions, and which is now embarking on an aggressive depot-opening programme (13 new depots in the first nine months of 2006).

Acquisitions are also evident in the market for rental of portable accommodation - a product in high demand from contractors. If GE Modular Space, Portakabin and TDR Capital (owner of Algeco and Elliotthire) are the three big established players in this market, they will be facing increased competition from US companies in the future.

California’s Mobile Storage Group (MSG) entered the UK several years ago, and has yet to move into mainland Europe, but US portable accommodation rental specialist Williams Scotsman International (WSI) has recently acquired a 100% stake in Madrid company Wiron Construcciones Modulares, an accommodation rental and manufacturing company with 13600 mobile offices, 14 branches and 2005 revenues of € 23,7 million.

“We view this as a further step towards expansion into the European marketplace, a longstanding goal of our company”, says Gerry Holthaus, chairman, president and chief executive officer of WSI, “As Spain is one of Europe’s strongest economies, Wiron offers an ideal gateway to extend our business model.”

A spokesperson for WSI said it did not have a schedule for further European expansion; “Our first step is to successfully manage and integrate this acquisition. We also view Wiron as a platform for future opportunities across Europe, when and where appropriate”.

US portable storage rental company Mobile Mini Inc has meanwhile entered the UK and Netherlands rental market through the acquisition of three rental companies from the Royal Wolf Group. The transaction adds two rental depots in the US, six in the UK and one in Rotterdam, the Netherlands: 10000 of the new storage units are based in Europe.

Acquisitions of the fill-in variety are currently popular in the aerial platform sector, with major players Lavendon Group, Loxam and Ramirent all adding aerials to their operations in recent months. The most significant deal by far is Lavendon’s addition of Gardemann Arbeitsbuhnen in Germany. Lavendon already owns a German access operation called Zooom, and the acquisition will boost its market share in Germany from 11% to 18%, adding Gardemann’s 1700 unit fleet to the 2700 machines operated by Zooom.

Kevin Appleton, Lavendon’s chief executive, said the acquisition took place at a time “when activity levels in the German market are improving for the first time since the market downturn.” Gardemann’s managing director, Maarten Mijnlieff, said; “We have believed for some time that the German access market would benefit substantially from consolidation and we’re determined to play a role in that process.”

Elsewhere in Europe, Finnish-based renter Ramirent boosted its aerial platform operations in its domestic market with the acquisition of Lainavaline HS Oy, including its sister companies Lainavaline NKP and VIP-Lift, and Loxam of France acquired Netherlands powered access and scaffolding rental company Spreeuwenberg Hoogwerk Systemen BV for an undisclosed sum. The deal is significant because it gives it a foothold in the highly developed Dutch rental market - Spreeuwenberg had a large fleet of booms, scissors, telehandlers and scaffolding equipment and operated from four branches in the country.

The UK rental market, although very mature, is still seeing a lot of activity as the bigger players look for specialist rental add-ons to their existing operations. Speedy Hire is the most aggressive, having in the past six months made several significant buys, including Scottish power rental company LCH Generators, and more recently the UK businesses of material handling rental specialist Lifting Gear Hire (LGH).

In a similar vein, A-Plant acquired temporary traffic light rental company Lux Traffic Controls Ltd for € 23,1 million. Lux rents from 44 locations throughout England, Scotland and Wales and will be merged with A-Plant’s own traffic business - operating from 12 locations - to create A-Plant Lux.

If acquisitions and mergers are an important part of the process of creating a mature rental market, new business start-ups and the rental activities of major manufacturers are also still playing an important role. Caterpillar, through its dealers, and Liebherr - directly and through dealers - are among the two most aggressive in developing rental, but they are being joined by others.

Volvo, for example, found it difficult initially to persuade its dealers to sign up to its Volvo Rents franchise operation. But it is now having more success with a more flexible approach, particularly in Germany where several of its dealers have begun to adopt the Volvo Rents banner.

Ralf Engler, managing director of Bischoff GmbH, the Frankfurt-based company that represents Volvo in central Germany, says it has been renting from its dealer outlets for over 10 years but that in the past two years has started to adopt the Volvo Rents banner for these operations.

Although still renting mainly from its eight dealer locations, Mr Engler says the link with Volvo Rents has focused new attention on the rental side of the business and is also leading the company to add new rental-only depots. The first was opened last year and he says there is scope for a further three or four rental-dedicated locations in its territory over the coming years.

In addition to these locations Bischoff also has agreements with 10 rental partners in its territory - these are small sub-dealers who are buying Volvo equipment from Bischoff and then renting it out. The rental fleet covers more than just compact equipment, with excavators up to 27 tonnes included (rented without operators).

For Ulrich Meyer, Volvo’s vice president for rental in Europe, agreements like the Bischoff one are having an impact on the manufacturer’s rental sales in the country. Two years ago a quarter of Volvo’s sales in Germany were to rental companies and that figure has risen to 32%.

New Rental Operations

Meanwhile, Case and New Holland, the two distinct construction equipment businesses created last year by CNH, are to establish dealer rental operations in Europe to complement direct sales to rental companies.

Kevan Dowse, marketing director for Case in Europe, Africa, the Middle East and CIS, said; “We recognise [rental] as an opportunity and we are looking for solutions with CNH Capital, our finance arm, to finance dealer rental operations. The discussions are in their infancy, but we are at the moment putting together a package on that”.

Case is not well established in the European rental market, and for that reason the company does not rule out dealer rental operations even in mature rental markets like the UK. “No market is excluded”, said Mr Dowse.

New Holland will be more cautious about promoting dealer rental businesses in developed markets like France and the UK, but is clear about its strategy. Hans-Joachim Erdmann, New Holland’s global manager for rental, major accounts and re-marketing, said; “One [sales] channel is certainly to increase the participation of our dealers in rental, at least where the rental business is not [already highly developed] like in the UK or France”.

New Holland also has longer term ambitions for the dealer rental operations; “In the long run we strongly recommend [that these operations be run from separate buildings and staff]. We are considering a New Holland rental franchise concept, but not for this year or next year”.

Having developed from the discontinued ‘legacy’ brands Kobelco, Fiat-Hitachi/Fiat-Kobelco and O&K, New Holland comes from a different starting point to Case. It has a sales history with Europe’s rental companies through these brands, although that represents just 7% of its sales.

Komatsu, meanwhile, has backtracked from dealer involvement in rental in Europe - as previously reported in CE - and prefers to see itself as purely a supplier to the rental sector. JCB upholds its famous policy of non-direct engagement in rental, focusing on selling equipment to rental companies.

New rental start-ups also regularly come along, particularly in eastern and southern Europe. In Italy, for example - where rental is reported to be growing at almost 20% a year - 2006 has seen several specialist construction-related rental companies created.

One of these, Dalcom, is a two year old company located near Treviso renting concrete pumps and mixers. Managing director Walter Comiotto, says Dalcom started life as a concrete contractor, but rental of mixers and mobile pumps - including a 42 m Putzmeister model and a 52 m Cifa - now account for 80% of its sales. He said rental revenues will double this year and increase by a forecast +35% in 2007. The company has just added four trailer mounted Mecbo concrete pumps to its fleet.

Also founded earlier this year is GeC Noleggia, a Vincenza-based rental division of the Gelai e Castegnaro group, which is a Cat service partner and owner of a road building equipment manufacturer. GeC Noleggia rents milling equipment, pavers and rollers, with or without operators, and has 35 machines in its fleet. A spokesman for the company said; “the business is growing; it has been better than we expected.” Watch out, a private equity buyer will be waiting in the wings.       ce