Re-entry To Rental

Feb. 1, 2004
The rental industry is beginning a reawakening as its entrepreneurs are coming back, their non-compete agreements finally reaching completion. They have

The rental industry is beginning a reawakening as its entrepreneurs are coming back, their non-compete agreements finally reaching completion. They have the capital, the desire, and the rental acumen to begin again. This time around this unique group has the industry knowledge and practical business working knowledge to start new companies and be profitable almost from day one.

Many of these former rental owner/operators have the ability and opportunity to rehire former staff, return to their former facilities and recapture their key customers. Most will specialize in specific rental industry segments, such as aerial, shoring/trench safety, compaction, homeowner and other niches. Many still have the rights to their original company's name because the consolidators that acquired them didn't feel the need to purchase those identities, nor for that matter, feel they would be of any future use.

Can these new companies compete? Unquestionably! Most of the returnees to date had owned and operated very successful and profitable companies. They know the mistakes they made in the past and won't make them again. They have developed workable and realistic business plans with controlled growth. These groups have been through the difficult, often cantankerous negotiations with the banks and finance companies and have the experience to navigate effectively. Most have guarded their windfalls from their original buyouts and are far stronger financially than ever before. They have business maturity, industry knowledge and financial savvy.

In the past, the rental industry was a bit different as it consumed essentially everything the manufactures could produce. Sure there was some used equipment available, but not the quality or quantity currently on the market. The consolidators, in efforts to maintain profitability, attempted to constantly upgrade their rental fleet, but did not have the ability to consistently maintain older units cost effectively. They persuaded manufacturers to create trade-in packages with extended warranties in an attempt to reduce operating costs. With a declining, essentially recessionary, oversupply of products, there were few markets available for this equipment.

This will be a significant key as this “second generation” of returning former owners re-enter the rental industry. They will have the ability to provide a blended rental fleet; some new along with a high percentage of good quality, reasonably priced, nearly-new used units. Several major aerial suppliers are providing rebuild and refurbishing opportunities coupled with warranties. As the availability of good quality products decline, this business segment will grow significantly.

As this new generation begins operations, my contention is that it has a tremendous ability to compete with major rental companies. Many will grow businesses larger than their original companies!

Consider what they can provide:

  • The ability to effectively price according to market and competition [blended purchase costs];
  • A focus on specific product, market segments;
  • Minimal if any corporate red tape, quick responses to the customer;
  • Top notch service capabilities, no hassles, seasoned technical support;
  • Knowledgeable sales/support staff;
  • Responsiveness to customer needs and sensitivity to other special requirements.

Recently, a field sales manager related a story that lends credence to this article. A second-generation start-up owner was pulling a trailer with a unit. As he pulled up to a traffic light, a man in the pickup behind him honked and requested he pull over. The man, a contractor and former customer, saw the pickup with the unit, recognized the company name and asked the owner if he was back in business. Business cards were exchanged and by the time the day was over, the contractor had ordered two units for delivery the following day and has continually rented units from that chance meeting. Price was not discussed, nor has it been on other rentals going forward!

Another general rental re-start-up entrepreneur in eastern Kansas told me his reasons for returning:

  • The consolidator moved out of his building;
  • The location has been a rental yard for more than 25 years;
  • He was too young to retire;
  • A person can only go fishing or play so much golf;
  • His people were available as was his customer base;
  • He missed the hard work, long hours and intense pace of the rental business.

This gentleman provides a solid financial understanding, rental business understanding, reputation for honesty and integrity with customers and vendors, along with the desire to succeed for the second time. In my opinion, he will do more than succeed, by providing his employees the future possibility of purchasing the company utilizing an ESOP. A true legacy created.

Will the re-entry of these former owners affect the consolidators? Will they continue on with the same business model, or focus on the new start-ups and attempt to block their entry into the rental segment? Interestingly, the start-up owners I've discussed this with are generally unconcerned. This group will have a very short product focus; aerials and reach fork trucks, general rental with homeowner, aerial only, dirt/compaction, alternative power, and other niches. They know how to purchase used equipment, repair that equipment to maximize their rental incomes and not continually be forced into purchasing new equipment. The start-ups will have the ability to provide a blended rental rate and compete at the lowest rental rates if they are required to. Plus many of the remaining manufacturers to the rental segment have reached the level where they are seeking any possible margin improvement, without having their businesses stifled by what they consider to be the heavy-handed purchasing tactics of the consolidators.

With the current business upswing, the enthusiasm of rental industry manufacturers, the continued heavy debt loads of the consolidators — limiting new equipment purchase and expansion plans — timing could not be better. This new, experienced group of entrepreneurs, sometimes assisted by their business-trained children, will be the new rental generation.

Frank Scarborough is executive vice president and chief operating officer for Snorkel, St. Joseph, Mo.