A company cannot grow or expand, or even tread water, without capital. In the capital-intensive rental industry, this is particularly true. Now more than ever, capital-and access to it-is a key ingredient in any recipe for survival. And few, if any, companies are better connected to a wide range of capital markets than United Rentals.
Nobody knows this better than its chief financial officer, Michael Nolan, who spends much of his time raising capital and maintaining a strong dialog with Wall Street investors. Nolan is constantly seeking new sources of capital, negotiating bank lines, and working with underwriters to develop equity proceeds.
"We try to maintain a balanced debt-to-equity ratio," Nolan says. "We started with a $55 million credit facility to match the $55 million in equity that we raised. In our IPO, we raised $100 million, so we increased the credit facility another $100 million. Then we raised it another $150 million and we raised about $200 million in equity with our second stock offering. There's always a enjoyable challenge for me to figure out the next source of capital."
Unlike what past generations of rental company controllers faced, there are far more sources of capital to choose from. "It's not like it was 20 years ago when all you had was straight common [stock] and the commercial banks," says chairman and CEO Brad Jacobs. "There's a half-dozen different forms of equity and a half-dozen forms of debt. You can do 'convertibles,' 'toppers,' 'ACES,' 'MIPS' - a lot of different sources of capital. Long-term debt, short-term debt, senior debt, junior debt.
"That's a big competitive advantage a public company has over a private company. If one capital market is not doing well, you have other options. They have a saying on Wall Street, 'You're supposed to feed the ducks when they're quacking.' So you have to find which capital market has an appetite for the financial instrument that you're pursuing."
Although being public is an advantage for United Rentals when it comes to raising capital, it also necessitates focused fiscal responsibility. "We have a report card every quarter," says Nolan. "It's not just what our bottom line or top line was. Are we improving margins? How much capital are we putting into the business? How are we using that capital? We are measuring each of our branch locations monthly. That way we can determine if something is out of whack and can fix it quickly. It's not like you find out about it three or six months later.
A private company can say, 'Let's spend a little more on this, business is good.' If a private company decides it wants to spend something, it's their money. With a public company, some of it is our money, but not all of it. We have a huge fiduciary responsibility to the investment that our shareholders have made in United Rentals."
Jacobs adds that he considers United Rentals' commitment to those shareholders to be long term. "Our business plan is to build an industry leader, a benchmark for other rental companies," he says. "That process will take us a few years, but we're committed to doing that." -MRj>CNEquipme nt News