The British Are Coming

Sept. 1, 1999
It's not quite the Beatles in 1963, but the British rental invasion is making noise. Ashtead Group's Sunbelt Rentals has been expanding its rental market

It's not quite the Beatles in 1963, but the British rental invasion is making noise. Ashtead Group's Sunbelt Rentals has been expanding its rental market throughout the Southeast for several years. HSS continues to grow its rental presence in Florida. And in July, British building materials and equipment rental giant Meyer International paid $98.7 million to enter the U.S. rental picture by purchasing RentX Industries, No. 16 on the RER 100.

Meyer acquired RentX's 72 U.S. outlets because it views the still comparatively fragmented North American market as one of immense opportunity, according to officials at the London-based company. Because it is one of the United Kingdom's largest building material suppliers (378 branches) and a leading tool hire outfit (172 locations), Meyer executives say they can finish what was left undone by RentX's founders.

One of the first companies to begin rolling up equipment rental operations in the United States, Denver-based RentX staked an early claim to the homeowner, light contractor and special event niches. But a failed 1997 IPO attempt led the company into choppy financial waters, and it never regained its momentum.

To find out how Meyer plans to get RentX rolling again, RER recently traveled to London to talk with chief operating officer Lindsay Poston and Malcolm Boyce, managing director of Meyer's Jewson Hire Point operation.

RER: What do you find attractive about the U.S. rental market?

Malcolm Boyce: We view it as one of massive opportunity. We see it as underdeveloped and perhaps 20 years behind the U.K. market. There is no question that the U.K. consumer is more aware of the rental option than consumers in the United States. Over here, it is common knowledge that one can hire equipment.

So it is our view that the rental market in the United States is almost the absolute opposite of the U.K. The U.K. has about 15 to 20 percent equipment ownership versus the United States, which has about 80 percent ownership.

RER: Most consolidators in the United States are focusing on the medium and heavy construction equipment market and the industrial segment. Do you plan to continue RentX's focus on the light end?

Boyce: Yes. RentX currently has 72 outlets in 11 states, and its core customer base is homeowner and small contractors; this is very similar to our outlets in the U.K. In fact, the whole philosophy of RentX is very similar to ours in the United Kingdom. Our purchase of RentX almost seems as if it was a marriage that was destined to happen.

We believe we can take RentX, which we view as a solid platform, and grow the business quickly. We feel we can add to what's there from an equipment standpoint and bring some fresh marketing concepts to the party.

Lindsay Poston: If you were to step back about three years ago and ask us, "How would you do it if you were to start out in the States?" we would have done it in a very similar fashion to how RentX has done it. It appears to us that we could have almost written their business plan for them up to this point - that is how similar what they have been doing in the States is to what we do. I think that is the beauty of this. It is a good match.

RER: RentX had some fairly well-documented liquidity and capital problems, which are big reasons that it was for sale. How do you plan to prevent that from happening again?

Boyce: RentX was gearing up for its initial public offering, and when that plan started to crash, they had to abort at the very last minute. Yet they had committed to the costs of the IPO. The way I understand it, several other IPOs were aborted that week. But that failure upset things greatly and frustrated things there. They had to change management, and they had to change their strategy. But judging by those circumstances, I think the new management carved out a commendable result.

>From our point of view, we had to find a company of some reasonable size and with a pretty good match in culture to ours. Obviously, if you were to buy 70 locations today, you'd try to acquire locations that are closer together geographically. RentX's outlets are somewhat obscure in their geography. There is a lot of space between some of those branches.

We want to optimize distribution and utilization. Part of the challenge with RentX - with branches spread from Virginia to Washington - is to do that with its geography. One of the things we want to do is to fill that space in, provided there are sensible opportunities. Obviously, we want to include states with very high growth and significant infrastructure development and population growth.

RER: Are you concerned about Home Depot's expanding presence in the homeowner/light contractor rental segment?

Boyce: Home Depot is helping to expand the market. At the end of the day, Home Depot is going to be good for all hire centers in the United States.

Poston: The United States is a growing market, and there is growing awareness of the concept. When people really look at what they are paying for, it is the product knowledge we offer. Because of that, we think customers will gravitate to us. We're aware of what Home Depot is doing. In the short term, we think they will enhance the market by growing it.

RER: Do you plan on keeping the RentX name?

Boyce: Absolutely. One of the attractions of this purchase to us is the name and the brand. We feel comfortable with it. The whole package as far as RentX's corporate identity is fine, although we feel it needs greater exposure and development. The brand is underdeveloped. But in the next 100-day period, after we integrate what we've acquired, we are going to focus on business development strategies.

RER: Consolidators have taken a hands-off approach to special event rentals. Why is this?

Boyce: We're excited about the prospects of party rental. Because it is so specialized, it has to be treated separately from tool hire.

RER: How do you plan to implement change within RentX?

Poston: We've found from our U.K. acquisitions that you cannot impose upon the outlets what the customer wants. We've found that if we try to impose a set way of doing things, we lose something. We're kidding ourselves really.

But as far as the back office, support and issues like that, a lot of things that we can do now will give us benefits. However, we do respect the local knowledge of markets and want to combine that with our management expertise.

RER: What is going to be your biggest challenge with RentX?

Boyce: We can't lose the hearts and minds of the management team and the personnel at RentX. In both the U.K. and U.S. markets, this is a people business. We are going to be very, very busy internally, but we can't let that affect our customer service. We need our people focusing on the customer while the integration takes place behind the scenes.

Poston: We need to get the sequence of how we go about doing things right. It would be easy to try to do everything too quickly. It also would be easy to go too slowly. It is all about getting the timing right.

We've done it before [with large acquisitions in the United Kingdom], and we have the confidence to do it again in a different environment. This is a great opportunity.

RER: What do you think the U.S. rental market will look like 10 years out?

Boyce: We think it will look a lot like what we see today in the United Kingdom00, although with remaining differences such as the increasing level of manufacturer involvement in the U.S. industry or the geographic differences. We also don't think the rental concept will achieve the penetration that it has here. There are far more hire companies here per capita versus in the States. We feel there will always be some level of pride of ownership in the United States, but the U.S. hire industry has quite a bit of growth left in it.