October 9, 2011 - At the recent Europlatform conference in Maastricht a question was asked about the likelihood of US based rental companies arriving in Europe as predicted by Dan Kaplan at the first APEX conference, when he said: “US Consolidators would cut through Europe like a hot knife through butter”.
The answer from the panel 15 years after the prediction was originally made was a categorical No! although it was suggested that there may well be a number of ‘friendly alliances' between large US and European rental companies in the years ahead.
In the late 1990’s United Rentals and several other large companies ‘rolled up’ the fragmented US equipment rental market buying up small to medium sized local or regional players on a weekly basis. The process provided a nice pay-out for a larger number of rental entrepreneurs and for a time it looked as though the market was set to be dominated by a few large companies.
However there is no magic in this world and the massive debt load that these consolidators built up came back to haunt them in the years after 2001, with defaults and chapter 11 bankruptcies often the only solution. The granddaddy of them all United, survived, but arguably only due to some fancy accounting practices that bought it time during a critical period – a trick which cost a great deal in terms of fines and even a jail sentence or two.
Consolidation is nothing new and many will recall previous efforts to ‘roll up’ the UK crane rental industry by BET as well as the US rental industry, along with UK based Vibroplant. Both ended up withdrawing with BET being broke up while Vibroplant changed into a more organic lower leveraged UK business.
These things tend to go in cycles which we also see with manufacturing toop, There are more car producers today than ever inspite of numerous consolidations. A company starts buying up its competitors – runs into difficulty due to a fall in performance or a lack of anticipated ‘synergy and cost savings’ and the business either starts to break up or stagnates as smaller companies catch up with it through solid organic growth.
It can be argued that a well-run, well financed local or regional company can always outperform a large conglomerate. Contrary to perception smaller companies can buy equipment and services every bit as cheaply – often more so – than large players and all without the need for purchasing managers and departments. They also know their local market inside out, are usually more passionate and can adapt to changing circumstances faster.
Of course not all local companies are well run or well-funded and this can be where a quality national player with consistent service levels can score. They also benefit from being able to offer national agreements for large contractors looking to reduce the number of suppliers and sharpen up the procurement of equipment.
Michael Kneeland of United expressed this eloquently at the 2009 IPAF Summit in Ireland- stating that companies like his “were best to focus on the part of the market where they brought significant advantages and could excel, and worry less about trying to be all things to all people and trying to win every bit of small local business which is often best served by a good local”
The problem with large companies is trying to keep the entrepreneurial spirit alive on a local depot basis -with strong sales personalities, without sacrificing the consistency that is a key sales feature of large companies. We go to McDonald, Starbucks and Holiday Inns etc. because we know what we are getting and when we do not feel like experimenting. You simply don’t want every outlet to be different when you just want a quick bite of a clean bed in a strange place and you are in a hurry.
In markets such as the USA, France, the Nordic countries and the UK it could be argued that the consolidation process has already reached its point of balance. This is a indeterminate point where ‘consolidators’, through acquisitions gain a disproportionate share of the market and new entrants – often the same people that had previously sold out to consolidators – start springing up in competition and the cycle starts all over again.
Another speaker at Europlatform confirmed this for the USA saying “Consolidation is done now in the USA” – although he did go on to suggest that Europe was probably now ripe for it. We have certainly seen plenty of it already in the UK with Ainscough and Lavendon, in France with Loxam and the Nordic and eastern European regions through Cramo and Rami Rent. Will we though see a new flush of consolidation in the next few years?
This is a tough one to answer and depends on too many variables such as the availability of credit and the management skills of small to medium rental companies.
My view is that we will not see a new significant wave of consolidation. The market is more likely to see more steady organic growth among the better managed companies of all sizes, while the poorly managed ones fail. But at the end it is anyone’s guess, we will come back to this subject on a regular basis and chart the progress one way or another.
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