Specialist
Former executive at Ramirent AB (Loxam Group)
Agenda
- European equipment rentals – commercial, residential and infrastructure demand update
- CAPEX across major players, including Renta, Ramirent and Cramo, and committed growth and maintenance CAPEX
- Fleet comparison – economics across equipment, CAPEX, rental pricing and resale as percentage of book
Questions
1.
Loxam acquired Ramirent in 2019 and Boels acquired Cramo in 2020. A specialist in a previous Forum Interview from 2019 [see Cramo & Ramirent-Loxam – European Equipment Rentals – 23 October 2019] said these businesses were pretty similar at the time, with perhaps only a little bit of a difference in the leverage, but it allows a little on the operating side at least. Do you agree with this, pre-acquisition? How have these businesses played out under their new owners?
2.
Do you view Boels or Loxam as having handled the acquisitions better, or would you say they are still pretty similar businesses?
3.
Is there a difference in Ramirent and Cramo’s procurement synergies? Do these just work on the total European scale or is it more of a regional question? Would the procurement synergies across these two players be similar?
4.
How much of the fleet would you say is European, generalised and homogeneous?
5.
Are the recent supply chain challenges making it harder to execute on sourcing synergies, and a procurement organisation focuses more on just getting equipment rather than getting it at a good price at a group level?
6.
In the previous Interview, the specialist said Renta was the key market dynamic to monitor as it was gaining share. Is the Renta dynamic really the key here or would you keep an eye on anything else?
7.
It was outlined in the previous Interview that Renta started from scratch, had a lean cost structure and homogenised and harmonised fleet and could therefore undercut competition. You think the growth is more stabilised, although the company has become number two. Do you still agree with these structural competitive advantages? If the growth is slowing, have these changed over time? Has the fleet aged to a point where it no longer has the ability here?
8.
Are there any structural advances? Obviously, there’s the question around the age of Renta’s fleet, and that’s non-sustainable, but are there any set-up questions or structures that give the company a long-term advantage?
9.
Renta outlines its ambition and how far it’s come in its 2020 yearbook. In 2015, the company had EUR 14m revenue and EUR 5m EBITDA, and then in five years, it grew to EUR 210m revenue and EUR 80m EBITDA. Renta outlined its plans to reach 2-3x its current size by 2025, which would put it at EUR 420-630m revenue. Do you think these plans are reasonable or possible? Does it show constant or accelerating growth?
10.
What is a more reasonable margin for Renta? If we take the growth targets and then back out the pricing strategy that’s needed to grow that quickly, what does the EBITDA margin look like?
11.
How well would you say Cramo and Ramirent, and therefore Boels and Loxam, have done at resisting the competitive threat of Renta? Do you think they’ve handled it well or could they have done more?
12.
How are the dynamics in the Baltics and Denmark? Do you think players have outlined these as expansion regions? Who does that end up impacting the most? Do you think that strategy works?
13.
How could Renta’s position change under new PE ownership? The company outlined it will have to develop digital and sustainable rental services together with expanding operations into new geographies. Do you think the competitive threat to Boels and Loxam changes under the new ownership?
14.
Would you highlight anything else on the Nordic region and how it compares to the US or continental Europe? Are there any structurally important salient features that will remain, or any salient differences that will change?
15.
What’s your outlook for general construction activity in the Nordic region? How are you seeing rising rates and material costs impacting the general outlook?
16.
How is equipment pricing developing in the space? Is it keeping pace with the cost of the equipment that’s been paid to buy it? How are you thinking about payback periods and longer-term ROIC over the equipment’s lifetime? Would you be concerned about building out fleets at the current pricing?
17.
How do you think about decremental margins in the current environment? Obviously, we have cost inflation on the new equipment purchasing models, so what concerns do you have around rising operational costs and decremental margins, or has this only really become a concern when utilisation is impacted?
18.
Where are utilisation rates now, and where do you see them heading over the next year?
19.
Do you think the groups will have a more mature view on expansion CAPEX coming up to a downturn under the ownership of Loxam and Boels, or were they already quite good at that?
20.
How are you seeing equipment rental outsourcing developing? Given the rates environment and the cost of equipment, do you see customers shifting from CAPEX to OPEX and from using only their own machinery to using rental machinery?
21.
What are the most attractive speciality categories in the Nordic regions? We touched on construction, but Ashtead has done a good job of finding new rental categories and specialising in those.
22.
What’s your CAPEX spend outlook for the majors over Q4 2022 and 2023? Would you expect it to drop down just only a bit above maintenance?
23.
How does the CAPEX purchasing process work? How does the interface with the OEMs work, and is CAPEX meaningfully committed, even as markets are being turned down? This was a particular challenge in 2008. We’ve touched on the procurement process changing due to OEMs producing for inventory, rather than for a project. Is that the case in the Nordics, or are there still meaningful committed CAPEX risks?
24.
Renta seems to have started acquiring a number of different businesses. We heard the company is quite a simple, homogenised portfolio, so do you think that now growing inorganically is undermining that strategic advantage?
25.
Are there any large targets left in the space? Are there any remaining big M&A consolidation players to be done, or is it mainly just roll-up at the tail at this point?
26.
Can you comment on the roll-up machines? Within these companies, how many targets can you identify, do a brief bit of due diligence on and then acquire in one year?
27.
What’s the best way to allocate CAPEX in a downturn, particularly the one we’re facing now in a high-cost inflationary environment? Is it better to allocate CAPEX to acquiring small businesses where you can buy second-hand equipment at a discount from businesses going bust, rather than buying new equipment at higher prices due to inflation?
28.
What typical multiples do you see in the space and how do you see them trending? Is there still much room at the top for multiples growth for primarily the small acquisition targets, or do you think they’ll stay at these levels?
