RER 100 BACK IN BLACK

Although 2011 was not exactly a boom year, compared to the trough the equipment rental industry had been in for a few years, it certainly felt like one. Increased demand led to significant rental volume increases by many on the RER 100 and the overall increase by the companies ranked 1 through 100 — 17.6 percent — was the highest single-year jump since 2000 and the highest volume total since 2008 posted $13.8 billion.

And how did the top 10 fare? An increase of 18.8 percent, also the largest year-over-year increase since 2000, and the highest total since $8.9 billion in 2008. It may not have been a boom year, but many RER 100 executives were more than happy to take it, and most expect continued improvement in 2012.

Click here to download a pdf of 2011's RER 100.

For many an improvement in profitability was even more important than the rise in volume and wise management through the recession contributed to a more robust balance sheet. Companies responded to the lean years by aging and reducing the size of their fleet, scaling down their operations, improving efficiencies in various areas and the results were clearly felt as business began to improve. They tend to still view the recovery cautiously, knowing that they need to be aggressive to move forward but tempering the aggressiveness with healthy awareness that they may not be completely out of the woods yet.

But it was a year of recovery, and in many cases, expansion, especially by national companies that made strategic acquisitions to gain strength in particular markets or to enhance their access to attractive specialty markets such as oil and gas and other energy markets; trench safety; pump and power; scaffolding; and others.

Needless to say, the year's most singular event was United Rentals' stunning acquisition of RSC Holdings, the industry's largest company buying No. 2. While some in the industry expressed concern industry-leader United would become too large and dominant, the reality is it gives the company a marketshare of a bit more than 10 percent in an industry still very fragmented compared to other industries of its size. (Note that even though RSC Rental was acquired by United Rentals, it is still listed at No. 2 because the companies continued to operate separately until April 30, 2012. Since the RER 100 is a report on 2011 activity, all the revenues earned by United Rentals and RSC Rental in 2011 were earned as separate companies.)

The year 2011 also made apparent some encouraging trends. The size of the rental industry, which had contracted during the recession, is now expanding once again, for several reasons. One is the obvious fact that as the economy recovers and improves, demand for equipment from the rental industry's customers is increasing. But more important is what many call a secular shift, as more customers choose the rental option to satisfy their equipment needs. Some are new to rental, while others are renting a higher percentage of the equipment they require. As more and more companies discover the benefits of rental, the rental industry expands, creating more opportunities not only for mega-companies, but smaller RER 100 companies as well, and for the smaller independents that have always been the heart and soul of the rental industry.

So how long-lasting is this secular shift? It's feasible that some of those newly converted renters are renting more and buying less because they too were ravaged by the recession and simply cannot afford the capital expenditure on equipment. Some that might have access to capital are still uncertain about where the economy is going. While we hear less talk of double-dip recessions and other economic catastrophes as the recovery gains traction, many companies remain cautious. The question, then, is will those renters return to buying equipment when the economy is stronger?

Perhaps some will, but as rental companies improve their efficiencies, and the quality, scope and reliability of their service offerings, more customers will continue to increase the percentage of their equipment needs coming from rental, and more customers will be drawn to the rental concept.

“There is still significant economic uncertainty among our customers and they continue to have a bias towards rentals,” said Bill Gex, president of Anderson Equipment (No. 63).

Another cause for encouragement is the fact that 2011's recovery took place without much help from the rental industry's principal customer segments, commercial and residential construction. Commercial has continued to be soft and residential has been almost non-existent in most regions. If and when these segments recover their strength, the rental industry will have that much more to build on.

In addition to the secular shift, another shift has been towards an emphasis on energy markets — oil and gas exploration, shale gas exploration and extraction, wind farms, pipeline construction, refinery work — now major areas of rental growth. As one owner, who asked not to be quoted, said, “If you are close to energy markets, you're doing great. If not, then it's just a notch or two higher than where we were a couple of years ago.”

Whether it's a couple of notches or double-digit percentages, business is improving for just about everybody. But in any event there are challenges ahead. Long lead times from manufacturers mean it takes time for rental companies to build up their fleets as they want to. And while capital markets are more open than last year, rental companies are also cautious when it comes to expansion given the difficulties of recent years. Larger companies have more capability when it comes to fleet planning and access to capital, but rental companies on all levels of the RER 100 are expanding their fleets to some degree, and most seem to expect double-digit growth in 2012, or at least close to it.

“We believe that the industry will experience significant growth over the next few years as customers see the benefit of using rental equipment,” said Andy Studdert, chairman, president and CEO of NES Rentals (No. 10). “We expect that this growth will lead to more industry M&A activity and increased values of the underlying rental business.”

But while all indications lead us to expect another year of growth in 2012, there are quite a few that will sound a note of caution.

“2012 is still a year of common sense and caution as we are still not out of our industry's recession and rental rates that are too low for consistent profitability,” said Larry Workman, Illini Hi-Reach (No. 93.) “A shortage of equipment (new and used) may occur late in 2012 but that must be looked at for what it is, a welcome and good thing. But is not reason for a false sense of enthusiasm for 2013 as there are too many intangibles ahead of us that are beyond our control.”

Whatever difficulties lie ahead, the reality is the RER 100 rental companies were almost all back in the black in 2011 and the vast majority are facing 2012 and beyond with far more optimism than they'd had in years. And that's reason to celebrate by everyone in the rental industry.