Construction machinery juggernaut United Rentals Inc. and industrial contractor Fluor Corp.’s AMECO unit are teaming up to offer equipment, tool and logistics services for oil-and-gas owners along the Gulf Coast. However, both say the venture may expand beyond the region.
“We are just getting started,” says Michael Kneeland, CEO of Greenwich, Conn.-based United.
As most construction markets remain in a slump, companies sitting on capital equipment are looking to put their idle assets to work. Both firms have received a lift from Gulf Coast cleanup contracts but want to push deeper into the more-predictable industrial market. If successful, the JV would help both firms grow sales and margins in what Kneeland expects to be a “choppy” recovery.
“We see the primary market, nonresidential construction, continuing to decline, though we see the rate of decline mitigating,” Kneeland says. “It’s not going to be until �11 until you see year-over-year comp improvements.” United is ranked first and AMECO 13th on trade journal Rental Equipment Register's list of top rental firms in North America.
The industrial sector, with its long lead times and predictable nature, is prime for a rebound, the joint-venture’s executives add. “As most people know, there has been a delay in oil-and-gas spending. We think that has got to come back,” says Gary Bernardez, president of Greenville, S.C.-based AMECO, the equipment-supply arm of Fluor Corp. “Even though they cut back their spending, it is more sustainable, though it becomes more and more competitive because it is the only game in town.”
One-Stop Shopping
Both firms lack something the other offers. As part of the deal, United gains access to Greenville, S.C.-based AMECO's site-management brain trust and its vast inventory of tools. In return, AMECO taps into United's broader vehicle fleet and North American distribution.
United is no stranger to industrial rental; it accounts for just under 20% of United’s sales. Total revenue was just over $1 billion for the first half of 2010, down 14.4% over the same period last year. After downsizing and selling off machines, United is ready to reboot. The storehouse is valued at $3.76 billion with an average age of 45 months, down from $3.79 billion and up from 40 months last year.
Executives at United—AMECO is one of its largest customers—also hope the deal will help the rental giant transition quickly from a roll-up to a higher-margin, client-oriented business. “A lot of our customers have asked us about things like site-management services,” says Kneeland. “It would take a lot of time and effort for us to fine-tune and replicate that.”
How the JV’s revenues are reported on both sides is still sketchy, but Kneeland says United will provide regular updates. On the AMECO side, equipment revenues will continue to roll into Fluor’s “Global Services” segment, which does not provide breakouts for individual business units. AMECO’s fleet is valued at $625 million, not including tools, safety gear and consumables.
Post a comment to this article
Report Abusive Comment