06.10.2006

Atlas Copco sells RSC for $3.8 billion

Atlas Copco has today announced the majority stake sale of RSC Equipment Rental – the second largest equipment rental company in the US after United Rentals - to two US private equity funds for $3.8 million. Atlas Copco will still retain a 14.5 percent share of the business, the remainder being purchased by Ripplewood Holdings and Oak Hill Capital Management.

Atlas Copco announced in February this year that it was ‘exploring the divestment of RSC’ . It is not yet known whether compressor rental company Prime Equipment is included in the sale.

Once the deal, which is subject to regulatory approval, is complete, it is expected that Atlas will receive about $3.3 billion in cash, plus up to $400 million based on achieving profitability targets in 2008.

For the 12 months ending June 30, the company generated revenue in excess of $1.5 billion. 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 has 450 rental locations, employs a total of 5,100 and has the second largest aerial lift fleet in the world.

“We decided to sell because construction equipment rental is not a good fit for our industrial equipment operations,” said Atlas Copco president and CEO Gunnar Brock. “The company will focus on making building and mining machinery. We are very satisfied with the deal. It results in substantial cash proceeds, a capital gain and a minority stake in the best equipment rental company in North America. With three very strong, very profitable industrial business areas, all with leading market positions, Atlas Copco will have excellent opportunities for strong growth and value creation.”

Ripplewood Holdings and Oak Hill Capital will be equal investment partners in the transaction, and both share considerable investment expertise in the equipment rental industry. Ripplewood Holdings first invested in the equipment rental industry in 1998 with its purchase of ICM Equipment Co, a heavy equipment rental company focused largely in the Rocky Mountain region. Oak Hill Capital was part of the ownership group that in 1997 led a buyout of Williams Scotsman, a leading North American provider of modular office space that went public in 2005.

Denis Nayden, managing partner at Oak Hill Capital, was the former CEO and chairman of GE Capital, in charge of its vast leasing and equipment finance operations.

Tim Collins, CEO of Ripplewood Holdings, said: "RSC fits well
within our investment strategy. It's a well-positioned company in an industry undergoing significant change, with strong growth prospects."

Denis Nayden said, "From an operational standpoint, the company's best-in-class business processes have resulted in superior return on capital, which is the key to success in this business. We're excited to play a significant role in supporting the company's continued growth."

Don Wagner, managing director at Ripplewood Holdings, added: "We've been highly impressed by the turnaround effort that RSC management has engineered since 2003. Ripplewood has followed the heavy equipment rental sector, and RSC in particular, very closely over the past several years. We believe management has achieved truly remarkable results."

Based in New York, Ripplewood Holdings is a leading private equity firm established in 1995 by Timothy C. Collins. Through five institutional private equity funds managed by Ripplewood, the firm has invested over US$3 billion in transactions in the U.S., Asia, Europe and the Middle East.

Oak Hill Capital Partners is a leading private equity firm with more than US$4.6 billion of committed capital. Robert M. Bass is the lead investor. Since 1985, Oak Hill's professionals have invested in more than 50 significant private equity transactions.

Vertikal Comment

Well as we predicted back in February RSC has been purchased by a private equity company. Since Gunnar Brock took over as CEO and reversed the company’s strategy, Atlas Copco has been desperate to sell off RSC and exit the rental business.

The fact that it has sold it to two separate funds and retained a significant shareholding might be just what the RSC management needs, providing it with freedom to get on and manage the business.

One of the shareholders though is Robert Bass, of Keystone Inc the company that bought Grove out from Hanson and then mismanaged it to such an extent that it was forced into chapter 11.

The RSC management had better hope that Bass remains as a minority shareholder with hands off approach.