It was rather matter of fact, a press release in my e-mail inbox announcing the biggest transaction in equipment rental industry history, the industry's largest player United Rentals acquiring the second largest, RSC Holdings. My reaction was similarly matter-of-fact, ok, let's get to work and get this news out and think about it later.
In my chair, I hear about acquisition rumors quite often and I learned long ago to take rumors with a healthy grain of salt. This company is buying that one, it's a done deal I hear, and later it turns out it was little more than a conversation somebody overheard in a bar, multiplied by “did you hear?” a dozen times. Sometimes rumors spread because talks are really going on, sometimes exploratory, sometimes serious high-level discussions. Often where there is smoke, there really is fire; sometimes it's little more than “bar” conversation.
This one was kept remarkably quiet. I asked quite a few highly placed people in the industry after the fact if they'd heard about it and nobody had.
So it was a big surprise and then again, not surprising at all, because consolidation among major players is a sign of an industry growing into maturity, and high-level consolidation in the rental industry was not unexpected. It happens in all industries. Certainly has happened in the airline industry hasn't it? What about the car rental industry? In response to one person who e-mailed me concerned about United Rentals becoming too big and dominating the industry, I point out the comments made by industry analyst Dan Kaplan that United's market share is about 7 percent, and RSC's is about 4 percent. In contrast, Hertz's car rental division has about a 28-percent market share. So the rental industry has lots of room left for the independent, and you might now have one less competitor to deal with.
The United/RSC merger, assuming it is finalized as planned in the second quarter, might open up some interesting opportunities for smaller regional and independent rental companies. One of the by-products of this consolidation will be that inevitably some branches will be closed to eliminate redundancy in some markets. So if in a particular city there were two United Rentals and two RSC branches, perhaps those four will be reduced to two. That might open some doors for other rental companies. That will undoubtedly put some pretty good people out of work. Some good experienced branch managers, counter people, sales reps, mechanics, even some managerial talent might be looking for jobs in the coming months. So if your rental company needs some talent to grow your operations, there might be some good people available.
Another surprising transaction was the acquisition of Midwest Aerials & Equipment, an aerial specialist, by Volvo Rents, which has been on quite an acquisition spree. Volvo Rents' locations tend to feature a wide variety of rental equipment, not just Volvo earthmoving machines, but this was the first time Volvo Rents acquired an aerial specialist, with a huge fleet of scissors, booms and telehandlers. Volvo Rents obviously saw a good opportunity — Midwest is run by some of the most energetic and hard-working people in the business, and its large facilities should have plenty of room for earthmoving equipment. I'll be eager to watch and see how this one evolves.
Overall there is a far more optimistic air in the rental industry these days. Check out our cover story this month and see what rental people are expecting in 2012. They aren't expecting boom times, nor are they blind to some of the economic potholes that could be lying in recovery's road. A lot of rental companies are buying and replacing equipment in anticipation of better times ahead, yet they haven't forgotten the hard-earned lessons of buying too much and becoming over-leveraged.
I spoke with a few dozen rental people for that story and one of the primary senses I got from people was, whatever the obstacle, we're not going to let it stop us. Yes, it's an election year and that sometimes creates nervousness and caution. Yes the European debt crisis could get worse. Equipment prices are rising faster than rental rates and lead times are long as manufacturers produce to order for a variety of reasons — supply chain issues, reluctance to be stuck with too much unsold equipment, Tier 4 changes.
But none of these issues will stop the industry going forward, especially as rental penetration and customer preference for the rental option seems to be growing. So we won't let the problems stop us. And as new customers are trying the rental option, rental companies must be up to perform and not let new customers down.