International Rental News - January/February 2015 - page 42

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IRN JANUARY-FEBRUARY 2015
RENTALMANAGEMENT
For a rental company,
being traded on a stock
exchange has advantages
and challenges – Jeff
Eisenberg fromClaremont
Consulting explains.
investors. An ex Hertz executive, Jose Peres started
the company with backing from the Mas family in
1990, with ahistory in construction.
The company grew during the 1990s and joined
with Neff, a Florida John Deere dealer, reaching
sufficient size for an NYSE IPO in 1998. Like many
rental companies, it suffered in the early 2000s
and the 2008 crisis and went through a three sets
of private equity investors (Odyssey, Lightyear and
Wayzata). Wayzata will be able to sell their shares
in Neff only after six months from the IPO date, a
common arrangement.
Disadvantages
Going to the stock market is complex, costs money
and time. Total costs for the Neff IPO according to
their prospectus were US$5.3 million (€4.5 million)
to raiseUS$146million (€124million).
The management must spend time every quarter
presenting and explaining results to investors
and analysts. A publicly traded company has to
take all necessary steps for health and safety,
environmental compliance, internal audit controls,
and others, with a larger more expensive board of
directors.
The Neff IPO share price target was US$20
(€17) per share, but on the day of the IPO a fraction
under US$15 (€12.7) was achieved. Calculating
from figures in the prospectus, this is equivalent
to an Enterprise Valuation of 6.66 x EBITDA
(Earnings Before Interest Tax Depreciation and
Amortisation).
This is certainly respectable compared to the 6 x
rule of thumb for rental company valuations, lower
than somehigher thanothers.
The share price Rollercoaster
Stock markets have gone up and down for many
reasons as investors buy and sell shares, trying
to predict what will happen next and stay one
step ahead.
Since the end November IPO date, the Neff share
price fell from US$14.8 (€12.5) to US$9.5 (€8) on 7
December, down 36%. United Rentals share price
fell 22% and Head and Enquist fell 41%. None of
these NYSE companies released any information
during that time, the implication being investors
are looking at macro factors such as the oil price
decline and fear of a slowdown.
A low (or volatile) share price makes it difficult
for these companies to raise money, and in
Neff’s case for their investor Wayzata to get their
investment back.
The graph shows the relative movements in the
share prices of United Rentals, UK based Lavendon
Group and Ashtead Group, and Europeans Ramirent
and Cramo since the mid-1990s. Some of these
prices have gone up and down 1000%, or ten times,
with investors rushing in and rushing out of the
industry.
Will rental companies keep using stock markets?
The Neff IPO was a success, despite the (probably)
temporarydecline inshareprice. Expect toseemore
IPOs, in theUS and elsewhere and subsequent share
issues as companies raise first time and additional
moneyon thesemarkets, partlyencouragedbyNeff.
Just United and Ashtead together have more
than US$17 billion of stock market investment (Jan
9), and the available investment for growth isworth
the cost and inconvenience of dealing with the
Rollercoaster. IRN
Rentalcompanies
andstockmarkets
Jeff Eisenberg has spent 18
years in theequipment and rental
industry. He startedand ledGenie
Financial Services inEurope,
providing finance for largeand
small rental companiesall over the
world. Since2000hehasheld senior positions
inanumber of European rental companies, as
well asworkingwith startupsandacquisitions.
Henowprovides consulting services to financial
institutions, equipmentmanufacturers, and
rental companies.
Contacts tel: +447900916933 email
[email protected]
E quipment rental companies used stock
markets to billions of US$ for investment
over several decades. In November, US based
Neff rentals had a successful Initial Public Offering
(IPO) of its shares on the New York Stock Exchange
(NYSE), the first for years. This was followed by HSS
Hire's move for an IPO in the UK as IRN went to
press. For a rental company, being tradedon a stock
exchange has advantages and challenges, but we
should expect to seemore IPOs in the coming years.
Why go to the stockmarket?
“That’s where the money is.” A quote from
Willie Sutton, when asked why he robbed banks,
last century. But the logic applies to the stock
markets, which are larger than the private equity
fundmarket.
The NYSE is capitalised at approximately US$25
trillion (€21 trillion), while the global private equity
market isperhapsUS$2 trillion (€1.7 trillion), thiscan
be “exit” to for private equityor company founders.
Company management generally has more
autonomy on a stock market compared to private
equity. Most investorsarepassiveand rarely require
a seat on theboard. Some stockmarket investorsdo
not require even an annual dividend.
Indeed, the IPO prospectus for Neff says, “We do
not intend to pay dividends … for the foreseeable
future.” Their investors are happy to see the
company grow in value, with a rising share price,
re-investing everything,
Is the stockmarketmoney “cheap
money?”
Once on a stock exchange, it is a straightforward
process to issue more shares, sell them on the
market, and use the proceeds for investments.
Before 2008, some rental companies did this
every year, and using the funds for acquisitions,
equipment and cashflow.
Neff’s history had rapid growth and a series of
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Cramo
Ramirent
Lavendon
Ashtead
United
SHAREPRICES –RELATIVETO IPO (ORIGINALCURRENCY)