Kaplan Expects Continued Rental-Industry Upheaval in 2012

Suggests some likely company buyers and sellers, comments on the precarious position of mid-sized rental companies

Dan Kaplan, who was president of Hertz Equipment Rental Co. from 1982 through 1997, predicted continued upheaval in the rental industry for the near term when he spoke at The Rental Show this week.

Kaplan, now proprietor of industry consultancy Dan Kaplan Associates, says the big question now is "How much is an equipment rental firm worth?"

Valuations across the industry are rising as, on the heels of its acquisition of RSC, United Rentals' stock price exceeds $40. United's winning bid for RSC was about 5.8 times EBITDA (earnings before interest, taxes, depreciation and ammortization), but Kaplan estimates that had United been trading at $40 at the time, RSC would have commanded an EBITDA multiple in the mid 6s.

"With the multiples we're seeing now, there almost has to be more consolidation among the major rental firms," Kaplay says.

Most of the rental giants could be either buyers or sellers for the right deal. But Kaplan suggests Sunbelt is most likely to be a buyer, and Hertz, NES and Neff are more likely sellers.

Kaplan says firms with annual revenues down to the $5 million range are in a precarious position, often competing with the purchasing power of much larger national firms. And with the numbers shifting to favor acquisitions, they will come under increasing pressure from larger firms intent on either driving out or buying competition in key markets.

Kaplan expects firms with $5 million in revenues and less to persist as they focus on specialties, serving unique customers and taking advantages of opportunities the majors occasionally leave on the table.