The interesting thing about diversification is that it can be both a game-changer and a gamble. And like consolidation, it can be an industry's response to either good times or bad. When diversification is widely adopted by an industry in other markets, but not in the United States, you have to wonder whether the wind will blow this way.

In construction industries outside of North America, particularly the civil engineering sector, it is common for large players to integrate equipment rental operations into a group structure. For these companies, the specific advantages of adding rental may outweigh any arguments against diversification.

Several studies in the United Kingdom have suggested that construction firms perform better if they are focused, rather than broadly diversified. When diversification stays close to home, however, there appears to be a value in integrating closely aligned businesses such as aggregates, window fabrication and equipment rental (called plant hire in the U.K.). A construction company with its own rental fleet can control the availability, quality and cost of its equipment, while generating external revenue.

In general, large overseas contractors and civil engineering firms have taken one of three approaches to fleet: rely on equipment rental suppliers for most equipment needs; purchase a range of fleet that is utilized internally by its divisions as well as externally (to varying degrees) by customers; or adopt a market-facing model that offers rental as an extension of its expertise. The two latter strategies make a company more vulnerable to a downturn, but potentially more competitive in an upturn.

A 10-year trend toward outsourcing in the U.K. has moderately tempered the number of construction and engineering firms that offer rental. However, plenty of prominent examples remain, including Balfour Beatty, Laing O'Rourke, Kier Group, Walters Group and The Mabey Group of Companies.

The investments are not incidental: Select Plant, the equipment rental arm of £4.1 billion (about U.S. $6.1 billion) private contractor Laing O'Rourke, claims the U.K,'s only contractor-owned fleet of rubber-tired mobile cranes for hire. And the Mabey Group is looking to increase its rental coverage through acquisitions and cold starts, as evidenced by the recent opening of a new rental depot in Scotland.

Kier Group plc is an example of a multi-national building and civil engineering group that views diversification as a competitive advantage. The company promotes its “rare offering of in-house capability, coupled with our strategic alliance business units” to its markets in the U.K., the Middle East, the Caribbean and Eastern Europe.

Kier Plant, the six-depot rental business of Kier Group, is a staple of the company's British business interests. About 50 percent of Kier Plant's rentals come from within the group, with the balance being generated externally. Kier Plant managing director Ian Gordon has publicly affirmed the parent company's commitment to equipment rental.

In 2009, Kier Plant accounted for about £27 million (U.S. $40.2 million) of the group's £2.1 billion (U.S. $3.1 billion) revenues, but its profit contribution historically has been more significant than its top-line percentage. For its six-month interim results for the period ended Dec. 31, Kier reported a 4.4-percent operating margin for its Support Services business, of which rental is one of four non-construction units. By contrast, Kier's construction business margin was 2.5 percent.

Kier's incoming chief executive, Paul Sheffield, reinforced the attractiveness of rental in a recent interview with RER, saying, “It's a higher margin business than construction and it's an area for growth, as there will be more pressure put on local authorities to reduce their budgets. One of the ways to do that is to outsource. We believe that there will be more contracts coming out to allow us to expand that side of the business.”

By contrast, the Mabey Group of Companies uses equipment rental as a pure-play diversification strategy. British-based Mabey Group is a global engineering group with roots in construction manufacture, specializing in bridging, steel fabrication and construction products. Its U.K. rental business, which operates as Mabey Hire Services, differs from some models in that the fleet is deployed solely on the open market. Performance is measured separately from the rest of the Group, with metrics focusing on individual product categories and end markets.