Platinum Equity, the Beverly Hills, Calif.-based corporate takeover specialist, is paying $1.1 billion for the 132-outlet, 2,100-employee Volvo Rents, headquartered in Shippensburg, Pa., as Volvo Group focuses on its core business of equipment manufacturing.
The acquisition will result in a $277.2-million fourth-quarter loss for the Swedish-based parent Volvo Group but will reduce overall industrial operations debt. A deal prerequisite entails financing the transaction though a debt offering. The sale is expected to finish in the first quarter of 2014.
“The divestiture helps Volvo improve its cash position while solidifying some if its core businesses through mergers and acquisitions during the downturn,” says Lawrence T. De Maria, an industry analyst with William Blair & Co., New York City.
The Volvo rental subsidiary saw a 30% sales drop and $8.7-million operating loss during the first nine months of 2013 amid declining contract renewals and a slowing mining market, Volvo Group says in an investor earnings report. Last year, Volvo Rents was the seventh-biggest U.S. rental company, with $526 million in total volume, reports industry journal Rental Equipment Register. The 12-year-old rental company more than doubled overall revenues in 2012, after completing the integration of its franchise rental system into one cohesive organization. Volvo Rents additionally upgraded operating software, reduced average fleet age, made multiple acquisitions and added new locations.
“We have a great deal of experience owning and operating equipment rental businesses, and we understand the importance of seamless transitions and long-term operational stewardship,” says Louis Samson, Platinum Equity partner, in a statement. “Volvo Rents represents a tremendous platform to build upon. We intend to deploy our resources to grow the business organically and through complementary add-on acquisitions.”
The acquisition complements Platinum Equity’s portfolio, including Bridgeville, Pa.-based Maxim Crane Works LP, which boasts the industry’s largest lifting fleet, with 1,300 cranes. The 35-branch, 2,900-employee firm had $288.6 million in rental volume in 2012. Platinum Equity has acquired 150 companies since 1995, purchasing in October 2011 Bluffton, Ind.-based NESCO Rentals, with 40 locations and over 3,000 units.
Headed by billionaire Tom Gores, Platinum Equity last year unsuccessfully tried acquiring Las Vegas-based Ahern Rentals, the nation’s largest independent rental company. The 60-year-old, 75-branch rental company emerged from bankruptcy this summer with namesake owner Don F. Ahern still in control.
“We looked at different alternatives to grow Volvo Rents’ business and concluded that the best alternative is to sell the operation to Platinum,” says Volvo Group President Olof Persson in a statement. “Volvo Rents’ business does not have a sufficiently strong connection with the group’s core operation to motivate continued ownership.”
The divestiture helps Volvo Group focus on its core business in heavy-duty trucks and equipment. Volvo Group earlier this month purchased Terex Corp.’s off-road truck business for $160 million. In January, the company inked an agreement with China’s Dongfeng Motor Corp. to acquire 45% of a new subsidiary specializing in medium and heavy commercial vehicles.
The moves are part of a sweeping two-year restructuring effort following Persson’s 2011 appointment as president. The strategic plan is designed to reduce costs and boost profitability through management and consultant cutbacks and truck manufacturing improvements, among other things. Volvo Group, as a result, anticipates $1.66 billion in increased operating earnings by 2015. Meanwhile, Volvo Rents will continue to buy products from Volvo Group and Volvo Rents employees will remain intact, say officials involved with the deal.