26.09.2018

Brazil’s Mills and Solaris to merge?

Brazilian access rental company and contractor Mills has confirmed that it is discussing a possible merger with fellow Brazilian rental company Solaris Equipamentos e Serviços.

A merger would create by far the largest aerial lift rental fleet in South America, combining two of the largest players in Brazil. Solaris sells and rents aerial lifts, telehandlers and generators and was formed in 1997 in partnership with JLG. By 2003 it had merged with the rental division of Sullair Argentina and has been owned by private equity firm Southern Cross since 2013. It runs a fleet of around 4,000 units from 21 locations with 500 employees.

The transaction would see Mills acquire 100 percent of Solaris shares, giving its shareholders 30.5 percent holding in Mills, which is a publicly quoted company. The two companies hope that the move would strengthen their position in the Brazilian rental market while helping create a more profitable business through additional volume and possible cost saving synergies.

The transaction is still very much subject to negotiation and then completion of a legal, accounting and financial due diligence, including anti-trust and compliance aspects. The two parties have agreed mutual exclusivity in the negotiations.

Vertikal Comment

This is an interesting one. Mills has only recently begun to emerge from serious financial difficulties and at one point resembled the walking dead as it struggled to survive the long and steep economic decline in Brazil compounded with its self-inflicted over expansion in the aerial lift market. Solaris will certainly have experienced similar challenges, although it probably did not over expand in the aerial lift market to the same degree as Mills, but would certainly have suffered from the chronic overcapacity that Mills and its financiers inflicted on the market.

Will the move prove to be their salvation? Well the market does seem to have turned the corner and Mills has been ‘de-fleeting’ (I know... horrible word) for several years, with supply and demand now somewhere close to balance. The combination will certainly create a very dominant player in the market although that rarely bodes well for the merged entity but can be a goldmine for smaller competitors.

On balance, given that it is essentially an equity deal it should eventually work out positively for both groups of shareholders.