The global COVID pandemic created huge impacts in the economy and the equipment rental industry. Stock market volatility, labor disruptions, constricted supply chains and countless other factors forced the rental industry to pivot and reimagine business practices and growth strategies, including pausing acquisition campaigns in the early days of the pandemic.
During COVID, the industry was deemed ‘essential’ and after the initial shut-downs there was a strong surge in equipment demand. The industry adapted to COVID, delivering exceptionally strong performance and record cash flows. The strength of the industry’s performance and the need for operators to expand in existing and new markets, and the entrance of a number of new industry players has reignited acquisition activity.
So what’s in store for rental acquisitions in 2023?
With a few qualifying factors in mind, we believe the rental M&A market will be very active in 2023. Here’s why:
External Forces
Factors that could take the wind out of the M&A sails are macro-economic, political winds and underlying shifts in equipment demand. But we are optimistic. With the mid-term elections behind us, the political uncertainty has been settled… at least until the next election cycle. Interest rates rose quickly in 2022, but the Fed is signaling a more conservative stance on rate hikes. The Biden administration’s Infrastructure Investment and Jobs Act is expected to propel major project activity for the next decade or longer. And the stock market has recently exited ‘bear territory.’ Are we in a recessionary period now, or is one lurking on the horizon and will that have a material effect on the industry?
Industry Fundamentals Remain Remarkably Strong
We haven’t spoken to a single operator who isn’t doing well and experiencing strong demand. Informal dialogues across the country with both independent operators and the industry majors underscore the fact that the amount of equipment on rent and rental rates are at historic high-water marks.
OEM Manufacturers Remain Disciplined
OEMs are not ramping up production capacity in an amount needed to fully meet demand. This will continue to create challenges for operators across the spectrum and limit fleet expansion in order to meet customer demand. The positive is, this scarcity has buoyed rental rates and lifted used equipment pricing to peak levels.
Rental Businesses are Attractive Acquisition Targets
Whether a general, aerial or specialty rental business, industry demand, supply chain limitations and the need to deliver on growth and differentiation strategies, acquirors are canvassing the country looking for acquisition candidates. They focus on new market penetration and/or increasing density in current markets, and the ability to drive velocity in their growth strategies they acquire business with the essentials; teams of ‘rental’ people, operational and technical capabilities, facilities, and fleets, as well as connectivity customers and market opportunity.
Business Quality and Specialization are Key Value Drivers
General, aerial and specialty rental businesses are all hotly sought-after by buyers for various reasons. General and aerial businesses facilities, people, fleet and operational capabilities attract buyers. With specialty rental the technical and product specialization are differentiated capabilities that provide value added go-to-market capabilities. Specialty rental operators in trench, pumps, power and temperature control segments have been among the most sought-after.
Acquisitions are a Value-added Approach Versus ‘Cold Starts.’
The industry has struggled to find people and add fleet as quickly as market demand requires. The acquisition of an established operator, with a team, facilities, fleet and customers makes an acquisition a very attractive option in contrast to the time required to grow organically. Organic growth is an expensive and time consuming proposition which can take months or years to incubate and mature a branch to full profitability. Acquisitions deliver immediate growth and provide the buyer the opportunity to leverage fleet expansion and local or regional market scale. This is a very attractive vehicle to facilitate growth and avoid the years long ramp-up required for cold starts.
If you are curious or have been pondering the options you might have to continue operate and grow as an independent and how to do so with a bigger balance sheet and with the best practices and competitive positioning, or are wondering about how you could monetize a portion or all of the value locked within your business, we can help you explore your options.
Catalyst predicts that 2023 will be an active and attractive time to pursue your objectives and create or harvest tremendous value. Don’t go it alone. Contact Catalyst and we’ll help you identify and consider all of the options.
What are your thoughts on the 2023 rental equipment market? We’d like to hear your opinions!
