Pick a rental market, any rental market. You'll find a mechanic, a driver, a dealmaker, a leader. They function as a cellular-linked unit, improvise as a routine. They understand people who make their living in trenches and on rooftops. They get up early, get dirty and get flak. And if they've stuck around through consolidation, it's safe to assume they're getting it done.
The rental business has always been something of a skirmish, fought locally, day in and day out. It never looked all that pretty, but the profits could look pretty good.
Has it changed? Yes and no.
Yes, if you're gazing at the imposing top of this year's RER 100 - where the industry's first billion-dollar company resides. For the first time since the mid-1980s, the industry leader is not Hertz Equipment Rental Corp. HERC acquired 11 companies and added 73 locations last year, but that impressive growth only kept it from slipping even further than No. 2.
That's because United Rentals got last year's No. 2, U.S. Rentals, to shake hands on a seismic merger that created a single company larger than the combined RER Top 10 companies of four years ago.
United, HERC, Rental Service Corp. (3), National Equipment Services (7), NationsRent (8) and, to a lesser extent, Prime Equipment (4) and Neff Rental (6) have raised the stakes, or at least expectations, in a 50-year-old industry that attracted little outside notice until 1996. These consolidators gobbled up more than 220 companies, 860 locations and $2.6 billion in revenue last year alone as they fed on capital markets to feed strikingly similar growth-by-acquisition appetites.
But if you're peering across the great divide to the rest of the RER 100 - in effect, the rest of the industry - you find a seemingly inexhaustible, interchangeable collection of local operations still pocketing four of every five rental dollars.
The consolidation story continues, but it's a multifaceted story that rental reality, like a precocious kid, keeps interrupting with tough questions that begin with "but" and beg creative answers.
For instance, when you buy a company 3,000 miles away from headquarters, what do you do when its most talented people don't buy into you?
"Consolidation has been the best thing that has ever happened," says Tom Coble, president of Coble Equipment & Rentals (76). "There are fewer competitors from a numbers standpoint, and there are more employees out there for us to hire. The biggest benefit, though, is gaining customers, because there is a lot of confusion on the side of the bigger players as far as serving the customer."
Consolidators are not the only ones struggling to retain veteran rental employees, steal them from competitors or train new ones. Dozens of dealers have created separate rental divisions in an already tight labor market. Now, they're finding that rental-specific experience is a precious commodity.
"The growth has been unbelievable," says Dwayne Botnick, manager of the rental services division at Foley Inc. (53). "The problem we have, with the shortage of good people [to hire], is controlling the growth. The last thing we want to do is grow too fast and not be able to follow through with the level of service we need to provide."
Even if you keep your customers and your people, how can you turn a profit, no matter what your economies of scale, if basic business principles are thrown out the window? For example, there's the company that keeps low-bidding its competition only to have to re-rent from the same competition, at their higher rates, to fulfill contracts.
In fact, several independents say some of their best customers, based on volume, are the larger rental companies.
"We're at a point in the industry where there is some irrational behavior," says Gerry Plescia, president of HERC. "When things settle down, which I expect to happen in 1999, companies will have to better manage their assets. The demand-vs.-value equation will start being managed better. And that will begin stabilizing in 1999. Rationality will take over again."
But if so-called rational rates return, promoting continued growth, how do you get acquired branches with time-tested - and often opposing - approaches to work together in markets where they have long beaten up each other?
"The consolidators still have a big challenge to pool together so many corporate cultures," says Steve Hankla, CEO of Arayco Inc. (38). "It's not like consolidating grocery stores - you put cans of green beans on the shelf and a guy comes in and buys two or three cans of green beans. In this business, a company develops a personality and personal service. There's a level of trust that must be established with the customer, and if you don't follow through, you lose that customer. The consolidators can do it, but it may take a while. It will be a chore."
More than one company that ran on the consolidation trail now believes the secret to realizing the benefits of growth by acquisition is to finally stop acquiring.
"We slowed down our acquisition mode for a while to integrate the companies into our culture and systems," says Tom Bennett, CEO of Prime Equipment - which is one of a handful of companies in the Top 10 with a track record longer than three years.
"We've been around for years and we were feeling the pressure, so I can only imagine that the consolidators that have been around a few years are feeling it," Bennett says. "You have to have people with systems. You have to be sensitive to the needs of your people."
"We have improved operations and profitability by cutting down on the distractions of acquisitions and the problems associated with bringing on multiple locations," says Skip Evans, president and CEO of RentX Industries (16).
Consolidation packs a powerful punch, to be sure, but the bruises, it appears, are being distributed quite democratically.
True, in most markets, the biggest are only getting bigger, swiping projects with larger, newer fleets that rent for less because they cost less. Along the way, however, the well-armed nationals are discovering they still have to win the local skirmish tomorrow, and the next day.
The middle ground - the regional operations that brought in $25 million to $50 million a year - may have all but disappeared into the 10Ks of consolidators, but the battleground remains the same.
More than 60 RER 100 companies have been acquired in the past two years, but at least that many new competitors - led by Caterpillar and Komatsu dealers - have jumped into the rental waters with serious long-term programs. And for every $20 million rental company that has sold out, seven or eight $3 million rental centers have dug in.
The RER 50? The RER 5? Not likely.
Not when longtime distributors and smaller rental companies, with a not-in-my-backyard spunk, say they're up to the challenge. In fact, a number of independents insist they are doing much better now that their toughest competition - other independents - has joined national networks.
"Our business is better than ever, and we thank all the consolidators for that," says Larry Pedersen, president, A Tool Shed (76). "Our competitors have lost their entrepreneurial spirit and now those locations are managed by guys just drawing a paycheck who don't really care. Consolidation is the best thing that happened to the industry."
Maybe so. Whether it's best for consolidators, independents or something in the middle remains to be seen. The answer will come soon enough for some, perhaps too late for others.
At the top of this year's RER 100, United Rentals and Hertz Equipment Rental Corp. both achieved something no other company in the history of the industry has: more than $500 million in annual rental revenue. United is well on its way to $1 billion in rental receipts alone in 1999; HERC should at least approach the billion-dollar level in gross total revenue this year.
While a record 12 RER 100 companies cleared the $100 million mark, that can't overshadow the ever-widening divide between top and bottom. Just one company reported rental revenue of more than $50 million and less than $100 million. On last year's list, there were five. Meanwhile, the number of companies with $40 million or more, $20 million or more and $10 million or more in rental revenue all were down from the previous year - providing more evidence of the great rental divide.
