Neff Corp.

3750 N.W. 87th Avenue, Suite 400
Miami, Florida 33178
U.S.A.
Telephone: (305) 513-3350
Fax: (305) 513-4155
Web site: http://www.neffcorp.com

Public Company
Incorporated: 1995
Employees: 1,600
Sales: $324.09 million (1998)
Stock Exchanges: New York
Ticker Symbol: NFF
NAIC: 532412 Construction Machinery and Equipment Rental or Leasing Without Operator

Neff Corp., a leading U.S. construction and industrial equipment rental company with 89 locations in the United States and South America, has witnessed substantial, steady growth during the past three years. It prides itself as being a top of the line company for earth moving equipment, compressors, generators, and lifts. It also acts as a new equipment dealer, sells used equipment and parts, and provides repair and maintenance services. Earth moving equipment comprises 40 percent of its fleet. Until it signed an agreement to sell Neff Machinery, Inc. on November 12, 1999, and sold S.A. Argentina on November 24, 1999, Neff Corp. had three segments: Neff Rental, Inc., Neff Machinery, Inc., and S.A. Argentina. The divestments were part of a new, and apparently necessary, strategy to increase shareholder value and refocus the company on its core rental business. However, the strategy perhaps also signaled that what remained of Neff would, very shortly, be up for sale. GE Capital owns 24 percent of the company and members of the Mas family, who are also principal shareholders for telecommunications network builder MasTec, own about 40 percent.

Early 1990s: The Beginning of an Equipment Rental Company

Neff Corp. began in 1988 with only one store located in Miami, Florida. Little information is available regarding the company’s early years. Big changes arrived for the company, however, in 1995, when it incorporated in Delaware and welcomed GE Capital as a major shareholder. GE Capital’s role involved providing strategic counsel, acquisition support, and five series of financings to facilitate Neff’s growth. GE Capital increased its ownership in Neff in 1996.

During 1995, Neff also began an aggressive new business plan to foster financial growth. The company established a goal of becoming a nationwide rental company with the best people and highest quality fleet by making additional acquisitions of equipment rental companies, increasing fleet at its existing rental locations in both existing and new product lines, continuing to open new equipment rental locations, and expanding its dealership operations. At the time the plan was administered, the company had six Florida locations.

Late 1990s: Rapid Growth

Since that time, Neff opened 26 start-up rental equipment locations. As it did so, the company noticed a trend toward the start-up locations generating significant revenue but marginal profits during the first three years of operations; generally, the stores became profitable in the third year. The delayed profitability was attributed to the gradual addition of more equipment and the maturity of the rental location.

From 1996 to 1997, revenues increased by nearly 50 percent. The company was still operating in the red, however, as it awaited future profits. In August 1997, the company purchased Industrial Equipment Rentals, Inc., the parent company of Buckner Rental Service, Inc., for approximately $63.6 million. Industrial Equipment Rentals had similar operations as Neff in Alabama, Louisiana, Mississippi, and Texas. In 1997 the company suffered a loss of $6.4 million on sales of $142.22 million.

In January 1998, Neff acquired Richbourg’s Sales and Rentals, Inc. for approximately $100 million. Richbourg boasted 15 locations in three states. During April, Neff announced its purchase of Road Machinery, Inc. and Iliff Rent Center, Inc., equipment rental companies with a total of four locations in Denver, Oregon, and Washington. That year the company rebounded somewaht, generating net income before extraordinary charges of $1.2 million on sales of $324.09 million.

Despite its short and tenuous track record, the company also went public in 1998. Using the approximately $94 million in proceeds from the public offering, Neff purchased eight companies, strengthened management’s infrastructure by hiring key people, broadened its store base, and completed two bond offerings. Notable among Neff’s purchases was that of a 65 percent stake in S.A. Argentina, for approximately $36.1 million, and earn-out payments equal to 82.8 percent of S.A. Argentina’s net income for 1998 and 1999. S.A. Argentina rented and sold industrial and construction equipment throughout South America.

The following year, in a strategic about-face, Neff turned to the investment firm of Donaldson, Lufkin & Jenrette Inc. (DLJ) for financial assistance. Neff Corp. announced its partnership with the firm in March as an effort to explore various ways of enhancing shareholder value. At the time of the announcement, Kevin P. Fitzgerald, president and CEO of Neff, said that “the Company will work with DLJ to explore strategic alternatives, including a sale of all or a part of the Company, a recapitalization, or a spin-off. The Company’s board of directors has decided that in the current business environment, it should actively consider strategic alternatives that would increase shareholder value in the near future.”

Looking Toward the New Millennium: The Trend of Selling

On October 6, 1999, Neff announced that it had signed a definitive agreement to sell its equity interest in Sullair Argentina, S.A. (S.A. Argentina) to Alejandro Oxenford, S.A. Argentina’s president. S.A. Argentina had 1998 revenues of approximately $54 million. The sale closed on November 24, 1999, netting Neff $42.5 million. Some $30 million was paid at closing and the remaining amount was to be paid to Neff in February 2000. Fitzgerald, president and CEO of Neff, stated, “The sale of our interest in S.A. Argentina is an important first step in our previously stated objective of increasing shareholder value through the strategic evaluation process we initiated earlier this year.”

Neff also announced on November 12, 1999 that it had signed a definitive agreement to sell Neff Machinery Inc., its wholly owned construction dealership business, to NORTRAX. Total 1998 revenues for Neff Machinery were approximately $103 million. John Deere Construction owned a minority interest in NORTRAX. The sale would bring approximately $91 million to Neff. Illuminating Neff’s cloudy future, Fitzgerald commented, “Neff Corp. will now be a pure rental company. In this regard, we are continuing to evaluate other strategic alternatives including a sale or merger.”

Final Analysis

Due to the fact that earnings were less than anticipated in 1999, Neff made some significant decisions to sell two-thirds of its company. The company claimed that earnings were negatively impacted by rental rate pressures, the Gulf Region stores performance, short-term closures in the Southeast due to several hurricanes, a tremendous equipment sale in the Gulf Region stores, and expenses related to the company’s change in business strategy. Based on trends during 1999, selling could be expected to continue in 2000 as Neff relied on its partnership with Donaldson, Lufkin & Jenrette Inc. Whether the company would survive under its own name for any length of time remained to be seen.

Principal Competitors

The Hertz Corporation; Rental Service Corporation; United Rentals Inc.

Company Perspectives:

Neff Corp. is one of the fastest growing equipment rental companies, with operations throughout the United States and in South America. The company rents construction and industrial equipment through 89 locations. Neff’s fleet is comprised of the latest equipment from leading manufacturers, and includes earthmoving equipment, compressors, generators, and aerial lifts.

Customers benefit from Neff’s commitment to providing quality fleet, 24-hour on-call technical support, and a local store presence. In addition, Neff rental stores utilize an advanced management information system to monitor operations at all company sites. This system maximizes fleet utilization and determines which equipment is in demand on a regional basis, thus speeding customer delivery.

The corporate mission is to build shareholder value through strong internal growth and strategic acquisitions. By leveraging corporate strengths, Neff is striving to be recognized as the leading equipment rental company, with the best people and finest quality fleet.

Key Dates:

1988:

Company opens first store in Miami, Florida.

1995:

Business incorporates in Delaware; GE Capital becomes a major shareholder.

1997:

Neff acquires Industrial Equipment Rentals, Inc.

1998:

Company goes public, raising $94 million in its first stock offering.

1999:

Neff announces a restructuring of its Gulf Coast stores in an effort to mitigate any oil industry impact; company also announces a partnership with the investment firm of Donaldson, Lufkin & Jenrette Inc. (DLJ) to consider strategic alternatives to enhance shareholder value.

Further Reading

Fitzgerald, Kevin P., “Interview,” Wall Street Reporter, New York.

—Kimbally A. Medeiros