Major Rental Industry Merger
Stansberry: What the United Rentals - RSC merger means for the rental industry
Editor's note: The following is from Gary Stansberry’s blog. Stansberry owns and operates The Stansberry Firm, a consultancy to businesses in the rental industry.
The announcement of the nearly $1.9 billion merger between United Rentals and RSC came as surprising news to us all, spreading like wildfire among industry participants. Many within the industry are left wondering what it actually means for the rental industry, especially for independent rental store owners, as well as their customers and employees. In this interview, rental industry consultant Gary Stansberry of The Stansberry Firm, shares his initial thoughts on what can be expected and the likely positive evolution about to hit the rental industry environment.
What is your overall impression of the United-RSC merger?
First off, I’d like to say that I have a lot of respect for both United Rentals and RSC; both companies have been innovators within the industry, especially in their approach to defining, analyzing and managing key metrics of the business. In addition to development of sophisticated systems, their overall approach to running their businesses, including customer service and the image they portray, have raised the bar for the entire industry.
What does this transaction mean for the rental industry?
For one, the United-RSC merger means the rental industry will probably attract more capital. A high profile merger such as this will draw attention from capital markets and financial sources such as private equity companies looking to invest and lenders looking to lend. Furthermore, the merger in essence combines the two largest competitors within the rental industry; this will likely result in a stabilization of and hopefully an upward trend in rental rates as the biggest competitors in most markets will be working together as one.
How will the merger affect the independent rental company?
I think this is great news for the independent. Obviously, there will be one less competitor in most markets. In addition, both United and RSC have some good employees and many may be looking for new opportunities, whether by choice or due to consolidation. There could be some good talent available in the local markets including management, sales and counter personnel, drivers and mechanics. For independents looking to expand, we will likely see the availability of strategically located, “rental-ready” facilities as the combined United-RSC entity consolidates overlapping locations in local markets. Independent rental companies should take advantage of these experienced professionals and ready-to-operate locations for their own expansion or improvement opportunities.
What’s more to consider is the possibility that some RSC customers may not like doing business with United and may prefer to look to a local independent rental company for their rental needs instead of moving over to United. This would certainly open doors to local companies to expand their customer base. And again, let’s consider the probable stabilization or rise in rental rates within many markets, which would definitely help the independent company improve utilization rates and overall revenue.
What should RSC and United Rental customers and employees expect?
In the press release of the announcement, there was mention of $200 million in cost-saving synergies in the combined entities, an indication there will be significant changes within the new company. Employees within the industrial division at RSC likely don’t have much to worry about as United will need their expertise and customer base. Employees at United or RSC locations that focus on contractor/construction rentals may have a few restless nights ahead, especially at locations with potential overlap. Consolidation is inevitable as United will focus on cost savings, which likely means the elimination or consolidation of jobs and facilities in certain regions. Expect United to hang on to the best employees and facilities with the most favorable lease terms.
With that said, both United and RSC employees should remain confident in the United organization; United Rentals is very sophisticated and will without a doubt, have an efficient, coherent plan to maintain key employees and customers.
United and RSC customers will not see too much of a change in dealings with the company unless you are a customer who does not prefer to do business with United. If that is the case, you may be forced to look for a local independent. If you are happy United customer, the future looks bright as access to more equipment and more locations throughout the US and Canada will only increase. Some customers can expect to deal with different personnel as United begins its consolidation in key areas. However in most cases, both United and RSC customers will likely see very little change in day-to-day business dealings.
Again, in regards to pricing and future rental rates, customers should expect and prepare for an upward change. Remember the merger of the two largest competitors in the industry will evolve the competitive rental environment as we know it today. Even before the merger, there has been upward pressure on rental rates as demand increases from improved market conditions as well as the fact that new and used equipment pricing has been sharply increasing.
Do you see any further or upcoming mega-mergers such as the United Rentals-RSC transaction within the industry?
It should be very interesting to see how the bigger players within the rental industry react to this transaction. I think we were all taken by surprise by this exciting news and we could possibly see a reaction from some key players. I have no specific knowledge of any future transactions, but maybe a hypothetical Hertz –Sunbelt transaction would make sense; Hertz is stronger in industrial and national accounts while Sunbelt is strongest in contractor and construction rentals. What reaction, if any, will the No. 3 through No. 10 companies have? I could see the logic in some regional companies combining into a larger entity. The United Rentals-RSC merger will definitely have some repercussions, and I remain very positive in the upcoming opportunities at hand for rental professionals.