Two of the country’s largest equipment rental companies plan to merge in 2012, creating a mega-firm that is expected to hold about 15 percent of the US rental market. United Rentals has announced it will acquire RSC Equipment Rental for $1.87 billion, plus $2.3 billion in net debt. The combined company will be three times the size of rivals like Sunbelt and Hertz.
The merger underscores the consolidation and increasing competitiveness in the rental industry over the past few years. Although the top 50 companies account for only about half of industry revenue, local and regional companies still struggle to compete with giant firms. Larger rental companies often have more access to credit and advantages in buying equipment and negotiating with suppliers, according to First Research’s Commercial & Industrial Equipment Rental & Leasing industry profile. The United-RSC deal may further shift the competitive landscape, creating more challenges for small and large competitors alike.
The timing of the merger may be ideal for United and RSC. The rental market, which slowed during the recession, is expected to pick up this year. Construction activity may increase slightly, so there may be higher demand for equipment. However, financial recovery is still fragile for many construction firms.
Renting, rather than buying, will allow many customers to get the most technologically and environmentally up-to-date equipment without extensive capital or worrying about qualifying for financing. About two-thirds of construction companies plan to rent equipment in 2012 versus 40 percent that plan to buy new equipment, according to the Associated General Contractors of America.
The American Rental Association predicts the rental market will grow nearly 7 percent in 2012 compared to 2011. Rental prices are also increasing. In 2011, equipment rental prices were nearly 9 percent higher than the previous year. United plans to take advantage of this recovery by hiking all rental rates up 5 percent to help pay for the RSC acquisition.
Overall, the equipment rental market outlook for 2012 seems positive for most firms. However, the formation of the rental giant may overshadow growth opportunities for smaller rental companies, possibly leading to an imbalance in industry recovery.