The Platinum Equity-Volvo Rents Acquisition DECODED

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As the second mega-transaction announced within the rental industry in the past 24 months (remember the United-RSC merger in December, 2011?), the announcement of the $1.1B acquisition of Volvo Rents by Platinum Equity came as another huge news bulletin for us all. 

The United-RSC deal combined the No.1 and No. 2 players within the equipment rental arena, and as discussed in our analysis, resulted in changes for the entire industry; including increased industry exposure and new capital, combining the two most aggressive competitors in many markets, and creating expansion/improvement opportunities for many national, regional and local rental companies. So, what does the Volvo-Platinum acquisition mean for the industry and what should we expect in the next few years?

Volvo Rents today

Over the past three years, we saw Volvo Rents experience an accelerated growth strategy, undoubtedly bringing forth numerous internal challenges as the company struggled to find its identity through merging many divergent organizations into one cohesive company. However, Volvo Rents' parent company, the Volvo Group, manages several important and very profitable business segments (including Volvo CE and Volvo Trucks). Inevitably these segments demand large amounts of capital and management and, as simply recognized in a statement made in Bloomberg News by Volvo Group's President and CEO, Olof Persson, "[Volvo Rents] does not have a sufficiently strong connection with the Group's core operation to motivate continued ownership."

Although Volvo Rents may not be the best focus for the Volvo Group; certainly, the organization is a major player in the rental industry (currently listed as No. 7 on the RER 100 based on 2012 rental revenue) and presents a huge potential for future growth, especially with new ownership that can offer the necessary managerial attention and fresh capital to facilitate inevitable expansion.

Platinum Equity makes a lot of sense for Volvo Rents: 

The Platinum Equity website clearly states the firm's practices in seamless transitions, integrations and operational excellence. Combined with Platinum's access to capital and the fact that Volvo Rents will be a priority for Platinum vs. a "stepchild" of a large manufacturing-oriented operation seems like the perfect scenario for Volvo Rents. 

Moreover, this isn't the first play Platinum Equity has made within the rental industry. The private equity firm also owns Maxim Crane Works, LP; and Platinum had a strong interest bringing Ahern Rentals out of bankruptcy under Platinum's control. Platinum Equity has proven itself as a large, sophisticated private equity firm that recognizes and reaffirms the growth and dynamics of the industry that we have all acknowledged: The rental industry is a strong industry, outperforming the overall economy and, combined with rental penetration, growth trends will continue increasing at impressive rates.  (See ARA's announcement after The Rental Show '13.)

Possible Strategy

First and foremost, as with any acquisition and especially one of this size, Platinum will ensure that Volvo Rents' internal house is in order before undertaking an aggressive growth strategy.  Volvo Rents’ sale process has taken much of its upper management's attention in 2013. This allowed some "breathing room" for operational management to integrate operations.  Implementation of Wynne Systems RentalMan software throughout Volvo Rents' locations in 2013 was an important part of that process. Likely, Platinum will bring a new mindset and direction to the operations of Volvo Rents.

Make no mistake about Platinum's appetite for dominance in their investments. We believe that Platinum will not be content to be No. 7 in the rental industry. In 2009, Platinum Equity Principal, Louis Samson declared that, "[Platinum Equity's] ambitions [with Maxim Crane] are to be a consolidator. There is no limit to our appetite." Assuming a similar mindset with Volvo Rents, will Platinum have sights set on the No. 5 or No. 3 slot in the next three to five years? 

Let's analyze that hypothetical proposal by comparing Volvo to the current No. 3 placeholder, Hertz Equipment Rental. As of December 2012, Hertz operated 260 locations and had just over $1.1 billion in rental revenue. Volvo Rents operates from 132 locations and produces about $333M in rental revenue. To make a run at Hertz's No. 3 spot, Volvo would need to nearly quadruple its rental revenues and double its geographic footprint, not an easy task for any operation — big or small. It will be interesting to see if Platinum initiates a methodical growth strategy or sets its sights on another RER top 25 company; the most likely scenario is a little of both.

How will this affect the market?

Clearly, Platinum takes a serious, hard-line approach to growth and profit building with the companies it manages. In order for the private equity group to be successful in expanding Volvo's current operations, the company will need to become more aggressive in Volvo's current markets and also in expanding into new markets. The rental industry's environment can expect change; existing rental houses, national and independent alike, will find a stronger competitor to work against, and in areas that Volvo doesn't currently operate, rental businesses can soon expect a new, well-funded and well-managed competitor. 

On the "good news" side of the ledger, we expect the "new" Volvo Rents to be a fiscally responsible competitor and not one to compete primarily on price, with Platinum fully understanding that lowering rental rates will not increase its bottom line. In essence, we hope to see rates to continue experience the modest gains realized over the past two years. As highlighted in Gary Stansberry's article in the April 2013 RER issue, the industry needs to raise its rates to maximize opportunities presented by the rental penetration phenomenon. We believe the "new" Volvo Rents will compete based on customer service and quality of equipment, which is exactly what the rental industry needs to maintain steady, incremental rental penetration for the foreseeable future. 

The Heat is ON

Overall, we see the acquisition of Volvo Rents by Platinum Equity as a positive step for the rental industry, an affirmation (backed by a large amount of capital) of the positive trends we have seen since 2011. The United-RSC merger brought the industry increased exposure and this second mega-transaction only brightens that spotlight. Moreover, the acquisition and potential growth strategy of a major player presents a need for rental houses to raise the bar by providing exceptional service at justifiably higher prices. Change is here to stay and it's time to assume the industry's destiny of prolonged success. 

(Note: The Stansberry Firm has no connection with Volvo Rents or Platinum Equity and has no "insider" information regarding the future operations of Volvo Rents or the intentions of Platinum Equity.)

Carolyn Stansberry, director of client strategies, was co-author of this post.

Discuss this Blog Entry 2

on Jan 7, 2014

That's a great article, hopefully stronger management and increased utilization will mean increased rates for all. The days of doing something for nothing are hopefully behind us!

on Jun 17, 2014

Volvo is a luxurious car that has all facility in it that can attract a customer towards. Volvo has the facility to be decoded into parts and that can be done easily. The platinum equity of this car is modified one the look is also very unique from others. But the problem you face while maintaining it and for that you can also visit to Volvo repairing center and get your Volvo car repaired properly.
http://www.europeanmotorcars.net/volvo-service/

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Rent Talk is the premier blog of Rental Equipment Register Magazine

Contributors

Michael Roth

Michael Roth has covered the equipment rental industry full time for RER since 1989 and has served as the magazine’s editor in chief since 1994. He has nearly 30 years experience as a...

Gary Stansberry

Gary Stansberry is president of The Stansberry Firm LLC and specializes in business sales, fair market business valuations, operational consulting and positioning businesses to increase their value.
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