Rental Service Corporation

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Rental Service Corporation

6929 E. Greenway Parkway, Suite 200
Scottsdale, Arizona 85254
U.S.A.
(602) 905-3300
(800) 441-3353
Fax: (602) 905-3400
Web site: http://www.rentalservice.com

Public Company
Incorporated : 1992
Employees : 2,600
Sales : $578.47 million (1998)
Stock Exchanges :New York
Ticker Symbol : RSV
NAIC : 532412 Construction, Mining, & Forestry Machinery & Equipment Rental & Leasing; 53249 Other Commercial & Industrial Machinery & Equipment Rental & Leasing

Rental Service Corporation (RSC) is one of the largest equipment rental firms in the United States. For more than 50 years, RSC has provided equipment (ranging from electric hand tools, forklifts, and backhoes to post hole diggers and 100-foot telescopic boom lifts to earth-moving equipment, computerized and manned tool trailers, and mill supplies) for rental to the industrial, petrochemical, and construction industry, as well as to contractors and homeowners. The company also sells parts, supplies, and used rental equipment; distributes new equipment for manufacturers; and provides support services, including onsite maintenance and repair.

The rental equipment industry comprises more than 15,000 competitors engaged in the daily, weekly, or monthly rental of a wide range of equipment to virtually every segment of the economy. Industry size estimates range from $15 billion to $20 billion, with real growth rates variously estimated to be between ten percent and 20 percent per year. This growth stems from corporate America’s increasing interest in outsourcing noncore business operations. This trend is being recognized by all industry participants including rental chains; large equipment dealers; manufacturers such as Caterpillar, Deere, and Case; and private equity investors. The full size potential of the industry is not known, but it is estimated that more than 85 percent of the relevant equipment (i.e., backhoes, bulldozers, aerial lifts, air compressors, etc.) continues to be owned by the end user. Industry growth also is being complemented by the substantial improvement in the breadth, depth, and quality of rental equipment being offered by major industry competitors such as RSC, Hertz, National Equipment Services, Prime Service Inc., and U.S. Rentals. As a result of its rapid growth and local service nature, the rental business is highly fragmented and in the early stages of consolidation. The business has been dominated, traditionally, by “Mom and Pop” shops until such companies as Rental Service and industry leader United Rentals began acquiring them to take advantage of projected growth in the business as more and more companies decide to rent, rather than buy, equipment they do not need on a full-time basis.

Founding: 1992-95

The company was formed in 1992 in California. Because the company was private until 1996, little information is available regarding these first years in business. Since going public in 1996, however, the company has released information about its early financial history. Total revenue for 1993 reached $25.63 million, with a net loss of $294,000. Fiscal 1994 revenues grew to $41.82 million, and net income jumped to $1.98 million. In 1995 the company moved its headquarters to Arizona. Total revenue for the year reached $65.92 million, with a net income of $3.24 million.

First to Go Public: 1996

In September 1996 RSC was the first rental industry participant to go public, being traded on the NASDAQ. In the first day of trading, the stock shot from its initial opening price of $16 per share to $21.75. According to analysts, it was the sixth largest gainer in U.S. markets, and the 5.5 million shares went for $88 million, making it the largest initial public offering (IPO) in Arizona in 1996. U.S. Rentals, Prime Service, Hertz, and United Rentals soon followed suit with public offerings. By that time, the company had opened 25 locations and acquired 65 others, mostly concentrated in the Southeast. In 1996 total revenues climbed to $128.35 million, and net income dropped slightly to $2.72 million.

More Acquisitions: 1997

The following year, however, the company bounced back with a vengeance. In March 1997 the company acquired United Rentals & Sales Inc. of Jonesboro and Blytheville, Arkansas (not to be confused with industry leader United Rentals Inc. of Greenwich, Connecticut). The acquisition brought RSC its 100th and 101st locations added since the company’s formation in 1992. The company also acquired Kastner Rentals of New Orleans, bringing the total acquisitions for calendar 1997 to five, comprising seven locations and with revenue of approximately $7.8 million. Early in April, the company made its sixth acquisition of the year, Cometect Inc. (dba Industrial Air Tool [IAT]) of Pasadena, Texas, for $32.6 million in cash and more than 189,000 shares of RSC stock. A market leader in the areas of onsite rental facility management, integrated tool room management services, and tool trailer rentals for industrial construction job sites, as well as a major supplier of maintenance, repair, and operating supplies to the petrochemical industry, I AT had estimated revenues for the fiscal year ending March 31, 1997 of $50 million from its four locations in Texas and Louisiana. The acquisition played a key role in RSC’s new Industrial Division RSC and expanded the company’s presence in the industrial marketplace.

In May of that year, the company moved from the NASDAQ to the New York Stock Exchange, increasing trading spreads on the company’s stock and increasing volume nearly threefold. The next month’s public offering sold some three million shares; some of the proceeds went to acquire Brute Equipment Co. (dba Foxx Hy-Reach) and Central States Equipment Inc. Foxx, which specialized in the rental and sale of aerial equipment to construction and industrial customers in Iowa and Illinois, was acquired for $32.7 million in cash, plus more than 284,000 shares of stock. Central, which specialized in the rental and sale of aerial equipment, ladders, and scaffolding in Kansas, Missouri, and Oklahoma, was purchased for $18 million in cash, plus more than 200,000 shares of stock. The two acquisitions expanded the company’s geographic coverage into the Midwest, with five additional states, a combined eight locations, 80 employees, and revenues of approximately $32.4 million. More than 180 of Central’s machines were used during construction of Station casino’s mammoth $300 million complex in Missouri. RSC also acquired D&D Rentals, with five locations in Tallahassee and Live Oaks, Florida; Stop Again Rentals of Texarkana, Texas; Carter Rentals, with two location in Valdosta, Georgia; and Breedon Rental & Sales, with two locations in Van Buren and Russelville, Arkansas, bringing in companies with revenues totaling approximately $12.1 million. RSC signed eight additional letters-of-intent to acquire businesses having a combined 23 locations and revenues of approximately $41 million. The companies acquired had operations in Georgia, Pennsylvania, Maryland, Virginia, Delaware, Kansas, Missouri, Illinois, Tennessee, South Carolina, and Florida.

In December 1997 RSC announced it had executed a definitive agreement for Siems Rental & Sales Co. Inc. The 30-year-old independent equipment rental company added to RSC six locations in Maryland, Delaware, Pennsylvania, and Virginia, as well as annual revenue of approximately $18 million. In addition, RSC completed the acquisitions of Roesch Equipment Company, which operated one location in Urbana, Illinois, and had revenues of approximately $3.1 million, and Allen Equipment Inc., with one location in Franklin Park, Illinois, and revenues of approximately $2 million. Also that month, RSC acquired Denver-based Rent-It-Center Inc. (dba Center Rental & Sales Inc.) for a total purchase price of approximately $116.9 million in cash and more than 64,000 shares of stock. The acquisition of Center, one of the premier independent rental and sales companies in the industry, covering small tools through heavy equipment, brought 14 rental locations in Colorado, New Mexico, Texas, Kansas, Missouri, and Nebraska, and revenue of approximately $46 million. RSC’s public offering that month consisted of some four million shares of common stock sold for approximately $24 million. For 1997, total revenues shot up to $261.26 million, a 103.5 percent increase over 1996 sales, and net income skyrocketed to $12.62 million, a 366.7 percent growth rate. By the end of the year, the company had more than 165 locations throughout the United States and Canada.

Still More Acquisitions: 1998-99

In January 1998 RSC completed acquisitions of Siems, R&M Rentals Inc., Panama City Rentals Inc., Frank Wilson’s Rentals & Sales Co., and Ray E. Miller (dba Franklin Rent-All). The acquired companies brought to RSC a combined 14 locations in Arkansas, Delaware, Florida, Georgia, Maryland, Pennsylvania, South Carolina, Tennessee, and Virginia, and had combined revenues of approximately $26.6 million. The following month, the company acquired substantially all of the assets of JDW Enterprises, Inc. (aka Valley Rentals) for $93.6 million in cash and more than 435,000 shares of stock. The independent equipment rental company added clients in Arizona and New Mexico and revenues of some $41 million.

In April RSC completed the acquisitions of James S. Peterson Enterprises (dba Metroquip Rental Centers), T&M Rentals Inc., Rent-It Company Inc., and Southwest Rentals & Sales, altogether operating a combined nine locations in Minnesota, Nebraska, Indiana, Louisiana, and Missouri, with combined revenues of approximately $38.6 million. The following month, RSC bought Midwest Aerial Platforms Inc., with three locations in Illinois and Wisconsin and revenues of approximately $8.2 million. The acquisition expanded the company’s presence in Illinois and brought it into its 26th state.

Company Perspectives

Rental Service Corporation sets the standard for customer service to the construction, manufacturing, industrial and petrochemical industries. Highly trained people, a wide range of rental equipment, and a rapidly expanding service network are combined to satisfy your needs. RSC’s commitment towards customer service is at the forefront of everything we do, and that will continue as we grow. “Where Service Quality is the Difference” is our sign of commitment.

July 1998 saw the company make its first foray out of the U.S. market, and into the Canadian market, as RSC acquired Alberta, Canada-based Fasco Rentals Ltd., which operated four locations in Edmonton and one in Bonnyville and had total revenues of approximately $3.9 million. In addition, the company picked up Sooner Rental & Supply Inc. and Barney Hurley Crane Service Inc., whose combined eight locations in Oklahoma and Illinois brought revenues near $6.3 million.

By the end of the year the company had acquired another 23 equipment rental companies, adding a total of 64 new locations as well as opening 20 new sites. The company’s credit facility was expanded by $150 million, and total revenue for the year reached approximately $578.47 million.

In January 1999 the company announced that it had entered into a definitive merger agreement with Fort Lauderdale, Florida-based NationsRent, founded by James L. Kirk to consolidate the heavy equipment rental industry and funded in part by Wayne Huizenga, son Wayne, Jr., and Huizenga’s brother-in-law Harris W. Hudson. The combined new company, RSC NationsRent, would bring together 375 locations across Canada and 38 states in the United States (244 of which were RSC’s), creating the second largest company in the equipment rental industry, behind only Greenwich, Connecticut-based United Rentals Inc., which had about $1.5 billion in revenue in 1998. The merger/acquisition cost RSC an estimated $366 million. A few months later, United Rentals commenced a tender offer for all outstanding RSC shares at a price of $22.75 per share. The unsolicited offer was referred to the RSC board of directors for review and was rejected. The NationsRent-RSC merger would bring the total number of employees in the joint company to around 6,500. Although NationsRent stock dropped nearly 25 percent following the announcement, analysts indicated that it was not unprecedented, citing Viacom’s purchase of Blockbuster Entertainment in 1994 as an example of similar occurrences. NationsRent itself had been on an acquisitions binge, buying Birmingham’s Reliable Rentals, founded in 1987 by David Upton, in late 1998, as well as Rush Equipment in Pelham, Florida, and AA Rent Village in Tuscaloosa, Florida. NationsRent also was gearing up for a major branding campaign that would include a NASCAR sponsorship in 1999.

RSC’s main rival, United Rentals, which became North America’s largest rental equipment company in September 1998 when it bought U.S. Rentals for approximately $1.3 billion in stock and assumed debt, was not idle during this time either. It had been snapping up smaller competitors left and right and by March 1999 had 470 locations in its empire, throughout the United States and Canada.

By mid-1999, the top 100 competitors in the business, including RSC (of an approximate total 15,000 competitors), were estimated to hold only 17 percent of the full market, with no competitor holding more than a two percent market share. Therefore, as the 21st century neared, an outstanding growth opportunity existed for companies such as RSC, which possessed the management, systems, and financial resources to pursue consolidation aggressively.