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City News:

Audacious Ashtead

Catherine Stratton discusses Ashtead’s significant new acquisition in the US, and the implications for its UK subsidiary A-Plant.

Three weeks after announcing record results, Ashtead surprised the City with its boldest move so far. On 17 July, following a drop in its share price, the company issued a statement to the effect that it was in ‘advanced, exclusive discussions’ about the possible acquisition of a leading US rental company for a consideration of approximately $1 billion. The next morning’s Financial Times identified the company as NationsRent, number six in the US market; on 19 July Ashtead announced full details of its proposed acquisition, including a three-for-eight rights issue raising £150m. Additional funding comes from drawings out of a new $1,600 million senior secured credit facility and the issue of a new $550 million senior loan note. The company stresses that its new facilities are very much in line with its existing capital structure.

This audacious move will make Ashtead’s US subsidiary Sunbelt the third largest player in that market (previously it had been fourth). Ashtead moved into the States 16 years ago with the purchase of Sunbelt, which then had two outlets. It had expanded through acquisitions and greenfield openings to 80 locations by 2000, when the company undertook a quantum leap with the acquisition of BET USA. This left Ashtead with a high level of debt and vulnerable in the economic difficulties following the 9/11 terrorist attacks. But by 2005 it was recovering fast, with the US business growing strongly.

Once again, this major expansion doubles the size of Sunbelt. NationsRent appears to have been almost tailor-made for its new owner, with 268 locations in 26 states and Ashtead says there are only approximately 25 locations where there is an overlap. For its billion dollars, it is acquiring a fleet of $960m at ‘first cost’, of which $665m has been purchased since June 2003.

Founded nine years ago in Columbus, Ohio, NationsRent had acquired 58 companies across the US by 2000 through debt financing, but failed to integrate its acquisitions fully and by 2001 was struggling. At the end of that year, it filed for Chapter 11; in 2003 Baupost and Phoenix Partners acquired the major part of the secured bank debt and in June that year it emerged from Chapter 11. However, despite the substantial fleet investment, NationsRent management has not achieved the kind of returns that Sunbelt has. Whereas Sunbelt revenues in the year ended April were up 24% in dollar terms, NationsRent saw 7% growth in the year ended March. Sunbelt ‘s EBITDA margin of 38% compares with 21% for NationsRent. Clearly, Ashtead sees considerable scope for improvement, as well as achieving estimated overhead savings of $20m/per year.

Ashtead Group will become the world’s second largest hirer, enhancing the buying power of not only Sunbelt, but also the UK subsidiary A-Plant. The latter has diminished in its share of group revenues and profits considerably in recent times, and looks set to do so further. However, Group Finance Director Ian Robson states that it remains an important part of Ashtead’s overall strategy and that A-Plant is increasing its fleet re-investment.

Ashtead Chief Executive George Burnett emphasises that the NationsRent deal is very different from the BET USA, one when the company’s capital structure was less robust and much of the acquired business was in areas where Sunbelt had little presence. Furthermore, the BET fleet was skewed towards powered access. Like Sunbelt, NationsRent has a diverse range.

The deal represents a swansong for George Burnett, a co-founder of Ashtead, whose retirement this December was announced at the time of the annual results. His successor Geoff Drabble has been a Non-Executive Director of the Group for 15 months. He is currently Director of Laird Group’s Building Products division and has both UK and US business experience.

The deal raises questions about Ashtead’s long-term aims for the UK. Ian Robson stresses that the Group remains committed to the UK, both as a quoted company and in business terms. A-Plant is quietly rebuilding and reshaping its business here. Its overall 2005/2006 results mask the positive effect of its sales force restructuring in early 2005, which has gradually improved revenues.

SPEEDY’S CONSISTENT PROGRESS

Speedy’s consistent progress resulted in the promotion of its shares to the FTSE 250 Index on 28 June. Aggreko and Ashtead are already constituents. At the recent AGM, Speedy Chairman David Wallis stated that the development testified to “the commitment and dedication of all our people”. He told shareholders that turnover in the first quarter of the new financial year (beginning 1 April) was up 29% on the same quarter of 2005. If adjustment was made for the acquisition in May of LCH, the underlying increase was 25%.

The tool hire division increased revenues by 17%, with ‘like for like’ up 7.4%; David Wallis described this as “highly satisfactory” in view of the timing of the Easter industry shutdown. All the companies in the equipment division were described as having “performed strongly”, with divisional turnover up by 50%. The statement affirmed that the market outlook remained “positive”, but added that there was evidence of “certain government-backed projects being delayed”.

Executive Hire NewsArchivesAugust 2006City News › Audacious Ashtead

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