5 Greenwich Office Park
The mission of United Rentals, Inc. is to create a world-class equipment rental company. We are committed to: helping our customers become more successful by offering them a modern, diverse, and reliable fleet of equipment for rent or sale, as well as providing outstanding service; providing our employees with extraordinary challenges and fulfillment, and the opportunity to significantly enrich their careers; and delivering superior returns to our shareholders by achieving strong and consistent financial performance. In order to attain our objectives, we focus on both growth and discipline in equal measure: growth, because we can achieve operating advantages through economies of scale and geographical diversification; and discipline, because it is the essential element needed to ensure that these advantages translate into benefits for our customers, employees, and shareholders.
United Rentals, Inc. was founded in 1997 by Bradley S. Jacobs in Greenwich, Connecticut. With more than 722 branches in 45 states, six Canadian provinces, and Mexico, United Rentals is the largest equipment-rental company in North America. The company's rental fleet (original equipment value of approximately $3 billion) consists of more than 500,000 individual units of rental equipment and is the largest in the world. United Rentals rents out more than 600 different types of equipment, such as aerial work platforms, construction equipment, industrial and heavy machinery, traffic control equipment, trench safety equipment, and equipment for special events and for homeowners. Among the company's diversified client base of over one million customers are construction and commercial companies, manufacturers, utilities, municipalities, homeowners, and others. Rental equipment accounts for more than two-thirds of United Rentals' revenues; the company also sells used equipment and supplies and is an authorized dealer for many leading tool and equipment manufacturers. The company took an industry-leading position in e-commerce in February 2000 when it launched a new business-to-business web site: E-Rental Store allows customers to rent or buy equipment on a 24-hour basis, seven days a week. Since going public in 1997, United Rentals has met or exceeded financial analysts' estimates for every quarter of each fiscal year.
Keeping America Beautiful, Global Warming, Legislation, Consolidation: 1979-97
The 1980s' crusade for 'The Greening of America,' scientific studies of the consequences of global warming, growing awareness of pollution, and continuing publicity about the need to protect the environment precipitated the emergence of many small, privately owned garbage-collection companies throughout the United States. In 1989 Brad Jacobs created United Waste Systems, Inc. with the intention of consolidating these small solid-waste companies into an efficient and profitable organization. By focusing on acquisitions of companies in mid-sized cities and in rural areas, he bypassed competition with industry mammoths, such as Waste Management and Browning-Ferris; small companies in these markets were less expensive to acquire and United Waste could charge higher collection fees without having to worry about competitors.
Jacobs was an experienced administrator. From 1979 to 1983, he had served as chief executive officer of AmerexOil Associates, Inc.--an oil brokerage firm that he cofounded; from 1984 to 1989, he was chairman and chief operating officer of Hamilton Resources Ltd., an international trading company. For eight years Jacobs and his acquisition team built up United Waste by purchasing more than 200 landfills and waste haulers.
By the third quarter of 1997, United Waste serviced over 700,000 commercial, industrial, and residential customers in 16 states. Jacobs sold United Waste to USA Waste Services (at that time the nation's sixth largest waste hauler, later known as Waste Management, Inc.) for $2.2 billion. When United Waste went public in December 1992, its stock was traded at $6 a share. However, the company was sold to USA Waste in September 1997 at $45.42 a share. United Waste had shown that roll-ups (by which a company grows through continuing acquisitions) were a viable way of capitalizing on an investment.
An Industry Ripe for Consolidation: 1997-98
But was United Waste's acquisition and operating strategy applicable to another industry? According to Silvia Sansoni in the June 1, 1998 issue of Forbes magazine, Jacobs 'enlisted Merrill Lynch to help screen for new opportunities. Equipment rentals popped up and turned out to be a consolidator's dream.' The equipment-rental industry was 'a $20-billion-a-year market, highly fragmented into more than 20,000 mom-and-pop rental shops; the top 100 companies had less than a 20 percent share of the industry.' Equipment rental was 'a booming business, growing 15 percent a year, where economies of scale' were a tremendous advantage. For instance, larger companies could obtain '40 percent discounts on equipment that retailed for $50,000 or more.' Industry watcher Clifton Linton noted, in the July 6, 1998 issue of Investor's Business Daily, that several factors favored 'the growth of the rental business. First, contractors lost an equipment deduction when the tax code was changed in 1986. Second, the recession in the early 1990s forced many contractors to sell under-utilized equipment.'
Furthermore, the 1991 passage of the Resource Conservation and Recovery Act--which imposed strict regulations on protecting the environment and the design, construction, and operation of landfills--made it even more difficult for small waste-collection companies to meet requirements for garbage disposal and forced them to sell or suspend operations. Only a few weeks after the sale of United Waste, Jacobs founded United Rentals, Inc. According to reporter Steven Lipin of the Wall Street Journal, Brad Jacobs concluded that 'This industry is ready to be consolidated.'
Most of United Waste's senior management team joined Jacobs. They pooled '$46.5 million of their personal wealth, raised another $8 million, and talked to underwriters,' wrote Forbes's Sansoni. Suitable acquisitions 'were tough to find because there's little public record of family-owned rental companies. So Jacobs read five years' worth of trade magazines, downloaded the web sites of hundreds of rental stores and hired a private investigating firm with dozens of databases to identify potential targets.'
United Rentals' goal was to create a geographically diversified equipment-rental company in the United States and Canada. The company bought six small leasing companies and in October 1997 began to rent a broad array of equipment to a highly diversified customer base that included construction companies, industrial organizations, and homeowners. The company based its growth strategy on expansion through a highly disciplined acquisition program, the opening of new rental locations, and internal growth that increased equipment categories and customer markets. The company went public in December 1997 and was traded at $13.50 a share.
Initially, much of the company's revenues came from renting equipment to the construction industry and from sales of used equipment. Increasingly, large industrial companies chose to rent, rather than purchase, equipment that they needed for repairing, maintaining, and upgrading their facilities. United Rentals also sold used equipment. By June 1998, United Rentals had acquired 38 rental companies--109 stores--in 20 states. It was now 'the fifth largest player in the industry,' according to Forbes's Sansoni, and its stock had risen to nearly $37 per share. By mid-August United Rentals had completed more acquisitions and was operating in 236 locations in 31 states and Canada.
United Rentals continued to buy small companies and gradually began to seek out the best companies, regardless of their size. In September the company acquired U.S. Rentals, Inc.--at that time the second largest equipment-rental company in the United States--and became the largest and most geographically diverse equipment-rental company in North America. By year-end, United Rentals owned 103 companies located in 439 locations in 39 states, five Canadian provinces, and Mexico. The company offered rentals of more than 600 different types of equipment and served over 900,000 customers. Although renting out equipment accounted for nearly 75 percent of revenues, United Rentals also sold used equipment, acted as an authorized dealer for many types of new equipment, and sold merchandise and parts. Total revenues for fiscal 1998 were $1.22 billion, representing an increase of 149.1 percent over 1997's $489.84 million.
Disciplined Acquisition-Related Growth, Specialty Markets, National Accounts: 1999
United Rentals had quickly positioned itself to benefit from a general trend toward corporate outsourcing. Construction companies and other leading industrial companies, municipalities, government agencies, and utilities recognized the advantages of renting equipment rather than incurring the expense of ownership. They discovered that renting offered many advantages: namely, avoidance of the large capital investment needed for purchasing equipment; access to a broad range of equipment for selecting the specific equipment best suited for each job; reduction of maintenance and storage costs; and the opportunity of renting the latest technology without having to pay for new equipment. 'What's driving this business day in and day out is that companies and individuals are discovering the benefits of renting over buying. And this should continue whether we are in a boom or a recession,' Chairman Brad Jacobs explained in an interview reported by Robin M. Grugal in the June 9, 1999 issue of Investor's Business Daily.
In May 1999 United Rentals acquired seven companies having 21 rental locations in nine states and two Canadian provinces. The largest acquisition was that of the rental division of Mi-Jack Products, Inc., with ten locations in Illinois, Indiana, Michigan, and Texas. In June United Rentals acquired 12 more companies having combined annual revenues of $125 million in 26 locations. The largest of the 12 was Udelson Equipment Company, which ranked 30th in the business. United Rentals also completed the acquisition of ARAYCO Inc., a unit of Raytheon Co. As part of the ARAYCO deal, United Rentals became the preferred provider of equipment-rental services to Raytheon construction projects in North America for a minimum of three years.
However, United Rentals did not limit its 1999 activities to acquisitions. For example, the company's special events unit, provided portable air conditioners, generators, and trailer kitchens for both the U.S. Open golf tournament in Pinehurst, North Carolina, and for the prestigious Ryder Cup, held that year in Boston.
During the third quarter, United Rentals added 28 new companies, bringing the number of 1999 acquisitions to 91 companies and an additional 295 rental locations in the United States and Canada. According to Salomon Smith Barney analysts Levkovich and Smith, 'seven of the 28 newly-acquired companies were in the traffic safety market, which stood to benefit from the Transportation Equity Act for the 21st Century (TIA-21), and stood to impact sales in 2000.' In fact, United Rentals had begun to focus on specialty-equipment-rental markets, including companies that required traffic-control equipment to assist in the modernization of the nation's transportation infrastructure. By November 1999, United Rental had bought 13 safety businesses. These businesses provided message boards, traffic control cones, and similar equipment. By the end of 1999 United Rentals owned 14 traffic safety companies with annualized revenues of $250 million, amounting to almost ten percent of total revenues. By means of its ongoing safety program, United Rentals drove down its total cost of risk by more than 20 percent; had 19 percent fewer accidents than did comparable companies; reduced workers' claims for compensation by 45 percent; and lowered the cost of liability claims by 50 percent.
By year-end 1999, United Rentals had the largest and most comprehensive equipment-rental fleet in the industry and could offer 'one-stop' shopping to a diverse customer base, thereby reducing its dependence on any particular customer or group of customers. The company served large businesses that needed to be sure that substantial quantities of various types of equipment could be available on a continuing basis. Although United Rentals increased its pace of acquisition, it remained intensely focused on operations and obtained substantial advantages by grouping its branches into clusters of ten to 30 locations in the same geographic area. The company's strong infrastructure was supported by its own information-technology system--dubbed Wynne Systems--which gave each branch access to real-time data about all available equipment within a cluster, facilitated rapid and informed decision making, and enabled management to respond quickly to changing market conditions.
In 1999, approximately 9.4 percent of the company's rental revenues, or $150 million, was attributable to having the branches share equipment rentals. More economies of scale were realized through United Rentals' large purchases of equipment and other items; these high-ticket items enabled the company to negotiate favorable terms with its vendors. The company estimated that these negotiations had reduced the cost of equipment in 1999 by $50 million and hoped to increase these savings to $150 million in 2000. United also reduced the cost of purchasing equipment by making volume purchases from a narrower group of vendors, thereby slashing the cost of equipment by more than $50 million.
Furthermore, United Rentals' geographic spread in many different locations (branches in 45 states, six Canadian provinces, and Mexico) reduced the impact that weather conditions and fluctuations in regional economic conditions could have on its financial performance. Geographic diversity also allowed the company to offer better service to its National Account (a term used in reference to any customer whose operations spanned two or more markets) customers. The company developed these National Accounts in order to achieve a better balance in its business mix. By year-end 1999, United Rentals had more than 500 National Accounts, including such large industrial firms as DuPont. United Rentals gave these clients a single point of contact to handle all their equipment needs, as well as customized information on their equipment usage.
By the end of the fiscal year, United Rentals had completed the acquisition of another 15 equipment-rental companies with 48 locations. In total, the company had acquired 101 companies during the fiscal year. For 1999, United Rentals posted revenues of $2.23 billion, representing an 83 percent increase compared to the previous year. Net income was $153.4 million, a 111 percent increase from the previous year. Not surprisingly, since going public in December 1997, United Rentals had met, or exceeded, financial analysts' estimates for every quarter of each fiscal year.
2000 and Beyond
The U.S. equipment rental industry grew from about $600 million in annual revenues in 1982 to over $25 billion in 2000, an increase representing a compound annual growth rate of approximately 15 percent, according to United Rentals' data. United Rentals, in February 2000, announced the opening of its E-Rental Store, an Internet business-to-business web site where customers could rent and buy used equipment online. In essence, the store was a 24-hour, seven days a week, branch that customers could access to review equipment specifications, browse through listings of used equipment for sale, locate branches nearest to specific jobs, and gather up-to-the-minute reports on business activity with the company.
At the end of the first quarter of 2000, United Rentals had completed the acquisitions of 17 equipment rental companies with 32 locations and annual revenues of approximately $100 million. Ten of these acquisitions were in the traffic control, trench safety, and special-event segments. These acquisitions established United Rentals as the largest provider of rental equipment for traffic control. Since the beginning of the year, United Rentals had completed 21 acquisitions with total combined annual revenues of approximately $150 million.
Since its founding in 1997, United Rentals, Inc. had grown into the largest equipment-rental company in North America. There was every indication that United Rentals--under the aegis of expert management--would remain focused on its disciplined approach to acquisitions and expansion into new geographic territories--and continue to provide the best level of service in the industry.
Principal Competitors: American United Global, Inc.; Atlas Copco AB; Caterpillar Inc.; The Hertz Corporation; National Equipment Services, Inc.
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