59
FINANCEREPORTUNITEDACQUISITION
IRNAPRIL-MAY 2014
Theauthor
JEFF EISENBERG
has spent 18 years in
the equipment and rental industry. He started
and led Genie Financial Services in Europe,
providing finance for large and small rental
companies all over the world. Since 2000
he has held senior positions in a number of
European rental companies, as well as working
with startups and acquisitions. He now provides
consulting services to financial institutions,
equipmentmanufacturers and rental companies.
Contact Tel: +44 7900916933, E-mail:
United said it planned to double the pump rental business by 2018 to aroundUS$400million.
high compared to National Pump’s revenue, it is
an exceptionally cash generative company, which
has been growing more quickly than most of the
industry and indeedmore quickly thanUnited.
Does this mean that all rental companies are
worth 7.8 times EBITDA and not four, five or
six? The answer is that it depends, especially on
the likelihood the acquired company will grow
rapidly and profitably. Unusually high, dependable
growth rates and high cash flow can justify even
exceptionally high company valuations.
IRN
QUALITY.
Many are cheaper -
none are better.
©MartinHahn / Fotolia.com
utilization (80%) and EBITDA (49%) are unusually
high compared to most rental companies, and
indeed to the rest of UnitedRentals’ performance.
Of course, looking at these things from the
outside you can never see the whole picture, but
with some reasonably conservative assumptions,
such as that National Pump –which previously grew
at 50% per year - now only needs to grow at 15%
at the same profitability and investment rate to
continue tobe sustainable, even supporting its high
acquisitionprice.
This is even before you factor in synergies
between National Pump and United. These could
include renting National Pump equipment through
United’s vast depot network and customer base;
using United Rentals’ lower cost of capital; and
savings on costs by merging overlapping depots.
This, plus any efficiencies that National Pumpmight
gain as revenue continues to grow (hopefully faster
than its overheads).
In conclusion, while the headline price is very
Almost 70% of National Pumps' business is with
customers in oil and gas and petrochemical plants.
