05.02.2006

Atlas Copco may quit rental business

Atlas Copco announced last week that as a result of a thorough strategic review, it is “exploring the divestment of RSC”, its USA based equipment rental business.

In 2005, the rental business had revenues of $1.6 billion, an increase of 17 percent on 2004, and an operating profit of $358 million, up 23 percent. The company employs a total of 5,100. It runs the second largest aerial lift fleet in the world.

Gunnar Brock, president and CEO of the Atlas Copco Group said, “The Rental Service business is growing and performing extremely well. The operating environment and the business characteristics, however, are very different from Atlas Copco’s industrial equipment operations and the possibilities to capture and develop synergies are limited.”

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Gunnar Brock CEO of Atlas Copco

The company says that its strategy is to be a global leader in all of its businesses. The Rental Service operation is only active in North America, where it is the second largest rental company behind United Rentals.

“To grow Rental Service aggressively - in North America and even more so internationally - would accentuate the operational differences and lack of synergies vis-à-vis the rest of the Group. This would also change the Atlas Copco Group’s business and capital profile in an unwanted direction,” continued Brock.
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Tom Zorn

Tom Zorn, president and CEO of RSC Equipment Rental commented: “We have benefited tremendously from being owned by Atlas Copco for the past several years. They provided capital, structure, discipline and management guidance at a time when we needed it. As a result, we have achieved record operating and financial performance and set a strategic vision for the company. We now have the right team of people in place and we have premier products and industry-leading services that will allow us to continue growing and taking market share.”

The divestment process will start immediately, with the aim of generating the highest possible value for Atlas Copco shareholders. Deutsche Bank has been retained to advise and assist in the sale.

Atlas Copco sees attractive opportunities to develop its industrial equipment operations.

Vertikal Comment

Atlas Copco purchased Prime Service Inc, its first rental operation in July 1997, two years later it acquired RSC, merging the two in 2001, the Prime brand is still used for the specialist compressor rental business.

The 1997 move into rental was the brainchild of Giulio Mazzalupi who took over as CEO of Atlas Copco in 1997 and sent shock waves throughout both the rental and manufacturing indutries.

His idea was to involve Atlas Copco in the rapidly growing equipment rental market in order to get closer to end users.
It was the first manufacturer to get serious about rental and as a result was a major influence on others, including Caterpillar which shortly afterwards launched its CAT Rental stores.

In the late 90's the rental operation propped up poor results from Atlas Copco’s manufacturing operations, but then it went the other way and looked bleak for a while.

Gunnar Brock took over in 2002, his three strategic directions when he assumed the top job were “organic and acquired growth within existing business areas, innovations and continuous development, and expanding the “use-of-products”, including maintenance, spare parts and accessories, and equipment rental”.

Given that the rental business is probably at the top of its cycle, the loss of interest in this business area is probably linked to the fact that this is the best time to sell. While if retained, the business will require substantial capital investment over the next few years, with a downturn quite possible during the key payback period of such an investment.

The key thing is WHO will buy? most likley a venture capital fund, but who knows?