IRN JANUARY 2014
40
RENTAL MANAGEMENT PRIVATE EQUITY
Another private equity fund
director based in central
Europe, anonymously, said
his fund had just made its
first investment in the rental
sector. Part of the sector’s
appeal in central Europe is
low penetration of rental,
which points towards
room for future growth.
Before continuing, a quick digression on the
definition of private equity is probably useful,
because several different terms - ‘venture capital’,
‘private equity’ or ‘risk capital’ – are often used
interchangeably for institutions that invest capital
into companies.
It would be more precise to refer to the entire
group of investors as private equity. Venture capital
investors are a sub-group of private equity, more
often making investments in very young companies,
sometimes before they make revenue, where the
expected risks (and returns) are relatively high.
Private equity funds can indeed specialise
in companies that have revenues of up to €10
million, or more than €100 million; some focus on
‘turnarounds’, often companies with some kind of
financial challenge, of which there have been many
in the post 2008 downturn.
Enterprise Valuation
In a previous
IRN
, back in the heady days of
2006, I wrote that rental companies were valued
on the Enterprise Valuation model. This uses
cashflow (EBITDA), multiplied by a factor, minus
the company’s debt, to derive a valuation. At that
time, many companies were bought at a multiplier
of five or six times EBITDA (minus debt). This was
an average of what was happening, rather than a
how-to: sometimes six times EBITDA was larger than
annual company revenue.
In the mid 2000s, multiple bidders were often
fighting for an acquisition, either with private
equity backing or, indeed, the acquirers were traded
on stock exchanges. The logic was that even if the
company acquisition prices seemed high, as long as
the company continued to grow profitably, sooner
or later it would grow out of the expensive price.
Banks were delighted to provide all or part of the
finance for the acquisitions, even at high prices.
Part of the six times EBITDA multiple was the three
or four times EBITDA cashflow bank loans that were
often available. Again, that debt was not frightening:
sooner or later the profitable growth would make
everything OK, and it seemed like growth in rental
would go on forever. The argument went: we would
have today’s debt with tomorrow’s revenue, the debt
would shrink and the company would outgrow it.
Now, everything has changed. The banks no longer
want to finance cash flow without extra support
from assets, especially because growth can no
longer be taken for granted. Or, perhaps the bank
will do half as much cashflow loan as before, but not
easily, and the companies for sale no longer have
multiple bidders fighting for them.
The sellers still want six times EBITDA, but for
companies that aren’t growing like 2006, and where
there is no bank rushing in with half the money.
So very few deals are getting done…and at what
pricing?
Secrecy and disclosure
When publicly traded companies such as Cramo,
Ramirent and Lavendon were acquiring companies
in Europe, and United Rentals and others in the US,
they generally disclosed the prices and profitability
of the target companies to their shareholders.
Some information was visible and either the EBITDA
multiple was disclosed or could be estimated. Again,
this has fundamentally changed. The buyers are
quite often private equity funds which disclose very
little information, except to their own shareholders,
who are often also secretive. Even the stock market
companies are disclosing less information than ever.
One UK private equity fund executive with multiple
investments in equipment rental explained, on the
condition of anonymity, that we should expect more
secrecy in the future. He explained that disclosing
high prices paid for the last acquisition works
against you in the next negotiation.
Interestingly, this executive complained that the
3i is one of the several private equity
firms that have invested in Loxam.
Significant private equity investments in last 12 months
ACQUISITION
COMPANY
PRIVATE EQUITY INVESTOR
DATE
REVENUE
PRICE
MULTIPLE
Ainscough Cranes (UK)
TPG/ Goldman Sachs (UK)
Dec 2012
£96m
undisclosed
undisclosed
Contractors Rental Supply (CA)
Clairvest Group Inc. (CA)
Feb 2013
undisclosed
CAD $39.5m
undisclosed
AFI (UK)
Rutland Private Equity (UK)
June 2013
£50m (approx.) £85m approx
undisclosed
Cross Country Pipeline Supply (US)
Odyssey Capital Partners (US)
June 2013
undisclosed
undisclosed
undisclosed
UK Platforms (UK)
HSS (Exponent Private Equity, UK)
July 2013
€20m (approx.) undisclosed
undisclosed
Ramirent Hungary (HU)
Danube SCA Sicar (HU)
Aug 2013
€7m (approx..)
undisclosed
undisclosed
Mobile Traffic Solutions (EI)
HSS (Exponent Private Equity, UK)
Sep 2013
undisclosed
undisclosed
undisclosed
Solaris (BR)
Southern Cross (AR)
Sep 2013
$120m
“Over $100m”
undisclosed
TecServ (UK)
HSS (Exponent Private Equity, UK)
Nov 2013
undisclosed
undisclosed
undisclosed
Volvo Rents (North America)
Platinum Private Equity (US)
Dec 2013
€450m
€800m approx undisclosed
Nesco (US)
Energy Capital Partners (US)
Dec 2013
$100m+
undisclosed
undisclosed
Dansk Lift AS (DK, NO, SE)
Loxam (FR)
Dec 2013
€17m
undisclosed
undisclosed
