RERMAG

Finding the Logical Buyer

FocalPoint Partners and its managing Dan director Conway began looking at the equipment rental industry in late 2005 and has since participated in some significant merger-and-acquisition deals such as the sale of Independent Aerial Equipment to RSC; the sale of Pacific High Reach to Sunbelt Rentals; the sale of All Reach Equipment to Hertz Equipment Rental; serving as financial advisor to Max Equipment Rental as it successfully confirmed a plan of reorganization; and helping Schwab Sales obtain a revolving credit facility and equity investment. Its most recent deal was serving as exclusive financial advisor to Midwest Aerials & Equipment and facilitating its sale to Volvo Rents. RER had a chance to sit down with Conway this week near his Los Angeles office.

RER: Your company recently concluded a series of successful deals in the equipment rental market. What are your plans going forward?

Conway: We’re interested in representing business owners that are interested in selling. What we do is we put together a very sophisticated offering memorandum that talks about the company and the management team, the fleet mix, the customer base and financial performance, projections, a growth strategy. Then what we do is we take that and talk to the universe of potential buyers out there. We try to find our clients not only the highest best price but the right partner for them as well.

What we’ve learned over time is that there are different logical buyers for different companies out there. So our goal ultimately is to match them up. So we were able to do that with Midwest Aerials, getting them not only a fair price but the right kind of partner for those guys. And I think we were able to do the same thing for Independent Aerial. RSC was the right partner for Independent Aerial. So we’re on the hunt, we want to develop relationships with business owners that are interested in that kind of process.

What kind of M&A environment do you expect to see in the foreseeable future in equipment rental?

I think where I see further M&A activity next year and the years after will be some activity in the general rental space and aerial specialists and that sort of thing, but I think you’ll see more activity with specialized rental companies like pump and power, air compressors, rigging and hoist companies, that sort of thing, or rental companies that are serving very high growth regional areas, like the Bakken oil fields for example or the Marcellus shale gas regions, those high-growth areas will be very attractive as acquisition targets.

Some might not want to sell if they feel like they’re sitting on a gold mine.

Well, that’s right. But if they don’t have the capital to expand and they can get a good fair price, it might make sense. So it always depends. We’re trying to help owners do what they want to do. We don’t try to convince anybody to sell that’s not ready to sell. Owners should have a good reason to sell and go about it in a serious way and a professional way. What we’ve been able to do is get deals done for our clients and get them done with the right partners; I think that’s what I’m most proud of. I think consolidation will continue, I think it’s going to change a little bit. I think more specialized companies, more of a regional focus as opposed to consolidation for the sake of consolidation.

But the opportunities are there and I think for good companies who have worked hard through the years and have good customer relationships and have a good mix of equipment and the right assets, there are rock-solid exit opportunities now.

When you first got into this you described your specialty as sort of mid-market companies?

I think that’s where we can add the most value. We worked with companies that had as little as one location to as many as four. Max had some, Midwest had four, Independent Aerial had three, All Reach had one. The common theme there is they are all really good companies, good reputations with their customers, good people there. If a company has good customers, good people, we can sell it and get a good price for it, find the right partner for it.

Obviously a seller wants a good price but many in the rental industry are also concerned about the future of their employees.

I think that’s generally true, not always true. I think for the equipment rental industry, it’s a people-oriented business. To most rental business owners, their people and their customers are very important to them. It’s a very relationship-based business. The owner of course wants to find the highest price but they want to find the right partner for their company and their people. We can be a part of vetting that process.

Do you expect consolidation activity to increase in the next couple of years?

It certainly will increase compared to two years ago when there was basically none. I don’t think the pace will greatly increase. I think there will be a change a little bit towards the specialty rental companies, pump and power, rigging and hoisting, air compressors, I think we’ll see activity in certain geographic regions as I mentioned, and the energy markets.

Companies such as Volvo expanding because they see a great opportunity; there are a lot of dynamics at play, but I do think we’ll see an increase in activity. Buyers now are much more sophisticated about what they’re buying. They are much smarter about it, they are buying things that really make sense for them, that are accretive to their earnings. They are not buying for the sake of buying; they are not consolidating for the sake of consolidation. They are buying for really good reasons. I think it’s important as we work with our companies to position them in a way that’s going to make sense for the right type of buyer.

You seem very positive about the future of the rental industry.

I think the industry will grow for several reasons. The general economic recovery as it broadens will help the industry. I think the fluctuations in the debt capital markets will also help accelerate the industry’s growth because the contractor that previously would have just bought a backhoe now may not be able to finance that or is loathe to finance it because the risk that they now understand is inherent in doing that. Also the cost of maintaining and storing that equipment and everything else, all of a sudden the rental dynamic looks a lot more attractive to those guys. For those reasons, I think the industry will do very well.

Security of supply and performance is important too. Years ago the customer wouldn’t know what kind of performance he would get from a rental company. Now he’s more secure that the rental company will do the job right and the machine will be in good shape.

I think that’s true. All the majors have gotten much more sophisticated about how they run their businesses in general. Advances in software and technology have certainly helped that. They are able to dial down to a piece by piece level with advanced metrics. The industry is getting more sophisticated. Hopefully that’s going to help everybody. I think you’ll see more rate discipline as well.

It’s a wonderful industry with great people.
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