Sunbelt Parent to Acquire Initial's 3 U.S. Companies

May 1, 2000
LONDON - Ashtead Group Plc, the United Kingdom-based parent of Sunbelt Rentals, has agreed to acquire InitialPlant Services from Rentokil for $506 million

LONDON - Ashtead Group Plc, the United Kingdom-based parent of Sunbelt Rentals, has agreed to acquire InitialPlant Services from Rentokil for $506 million on a debt-free basis. The deal, if approved by Ashtead shareholders, would create the fifth-largest rental company in the United States, with combined 1999 revenues of $546 million, about $435 million in rentals.

London-based Rentokil has shopped its U.S. equipment rental division - composed of Aggregate Equipment, Ivy Hi-Lift and BPS Equipment and also known as BET USA - for some time in order to concentrate on core businesses in the United Kingdom. Ashtead chairman Peter Lewis said he has discussed the long-rumored acquisition with Rentokil officials since August and had the acquisition in mind in February when he said he would not sell the company's rental division. That announcement sent Ashtead shares crashing more than 30 percent Feb. 3.

The deal was met with mixed reaction in the U.S. rental industry. Some industry executives said Ashtead overpaid for the company, an opinion apparently shared by some Ashtead shareholders as shares fell about 8 percent in London after the deal was announced, while Rentokil stock rose about 10 percent initially. However, the multiple, which equals about five times EBITDA, was comparable to most platform acquisitions that have sold for about five to six times trailing EBITDA.

"There's somewhat of a divergence of opinion on the condition of [Initial's] fleet, so concerns about the multiple are based on that," analyst Blair Brumley of Credit Suisse First Boston told RER. "But this acquisition is good for the rental industry. It solidifies and reaffirms the valuation situation. This sale shows confidence in the rental industry by both buyer and seller because of the convertible portion of the purchase. For Ashtead to give up about 22 percent of its business to Rentokil shows it thinks this business is interesting enough."

The acquisition consists of $294 million in cash and $212 million in loan notes, convertible into new ordinary shares in Ashtead, which would represent about 21.7 percent of the share capital of Ashtead at the date of acquisition.

The merging of Initial, No. 6 on the RER 100 with 60 branches, and Sunbelt, No. 10 with 86 locations, would transform the combined companies into a formidable national rental player with branches in 26 states. Sunbelt's branches are concentrated in 10 Eastern Seaboard states. Initial's branches are spread out nationally, with Ivy strong in the West, especially the Northwest, where it is based; Aggregate, the largest of Initial's three units, concentrated in the Midwest; and BPS in the South. The combined firms would rival No. 4 NationsRent in size.

Lewis said the acquisition of Initial culminates an 18-month search for a U.S. platform. Ashtead management said it is optimistic that the U.S. rental market has far greater growth opportunities than the more mature British hire market.

Ashtead officials also said they expect the Initial companies to perform better than they have in recent years. Industry observers have long believed that uncertainty about the company's future has contributed to lower-than-expected returns.

In addition to shareholder approval, the acquisition is subject to customary regulatory approvals. Ashtead executives hope to finalize the deal by the end of May.

SALINAS, Calif.- A Tool Shed, based in the San Jose, Calif., suburb of Campbell, opened here last month, owner Larry Pedersen told RER. It is the eighth location for northern California's largest family-owned rental firm.

The branch is located in a former Volkswagen dealership in an area that will soon be home to several other rental centers. With the construction of a new automobile mall near Interstate 101, a number of older car dealership sites became available. "Hertz will be opening right across the street from us in a former Chrysler dealership, and NationsRent took the Mitsubishi dealership," Pedersen said.

Steve Sneddon, who was assistant manager at another A Tool Shed branch, is managing the new location.A Tool Shed is No. xx on the RER 100.