Consolidator' - that's a bad word to us," says James Kirk, chairman and CEO of NationsRent, a roaring rental newcomer that sure looks like a "consolidator" at first glance. Since Kirk founded the company in September 1997, it has grown to 135 locations in 20 states, with 2,300 employees and $610 million in new-cost inventory, doing $460 million in annualized revenue (that is, a pro forma run rate assuming all current holdings had been part of the company the whole year) and generating $23 million in net income. Not a consolidator?

No, at least not long-term, Kirk explains: "We're a consolidator to a point. We've also opened six greenfield stores, and our plans call for us to open a lot more. We are very short-term with the buying approach."

Kirk says the NationsRent business plan calls for the company to stay on the acquisition track for about 24 months and then concentrate on greenfield sites - new stores, built from the ground up in exactly the right places, in the right markets.

NationsRent will add another 15 to 20 greenfield locations in three additional states in 1999, says NationsRent Director of Investor Relations Gary Strong, and when acquisition targets currently under letters of intent come into the fold, they will increment the revenues by another $100 million.

Add it all up - the current $460 million revenue run rate, the $100 million the new acquisitions will bring in and internal growth - and financial analysts who cover the company think NationsRent should be doing in excess of $650 million in revenues in 1999, 68 percent of which is rental, the rest sales of rental-related merchandise and used equipment.

Kirk and his management team on the top floor of a sparkling office building in downtown Fort Lauderdale, Fla., are looking for what they call "the right platforms" for acquisition by NationsRent - that is, rental companies that meet NationsRent's criteria: good companies that are doing extremely well, have established strength in their markets - and aren't for sale. Companies like A-1 Rentals in Fort Worth, Texas, whose former CEO, Don O'Neal, is now president of NationsRent.

"We're very targeted," says Kirk. "We've targeted companies we felt were good companies, from our experience in the environmental construction business - ones that knew how to do it, and also the ones that didn't. So when we went out on the acquisition trail of those 15,000 or 20,000 companies out there, we were very targeted on the ones we wanted."

Kirk and many of his senior managers came to rental from OHM, an environmental construction company that owned about $150 million worth of construction equipment - not incoincidentally, the very stuff that's in their rental fleet now, from small tools to Cat D9s - and on top of that, rented as much as $45 million in equipment each year.

"We were Hertz's largest account for four or five years," says Kirk. "We dealt with all the major companies out there. And so as the environmental business started to tail off, we looked at ways to diversify - horizontal diversification. We studied this business for a couple of years and we understood it pretty well, I thought, because we came from a user perspective. We felt we knew what was missing out there."

Kirk says the ideal acquisition target for NationsRent is a company that "doesn't need us."

"Of the ones we bought, none of those were for sale," says Kirk. "The ones that we want are the ones that are very successful, are not for sale, doing fine, and not the ones that want to sell - that's not the kind we go after. We're after the platforms - the ones you have to convince that you're going to create a great company that is greatly needed and is going to be a national company and is going to enhance [the previous owner's] position, if he comes with us. So we're selling to them more than they're selling to us. We're not out there competing on price, because none of those platforms are talking to anybody [any other buyers] but us."

A "platform," in the NationsRent lexicon, is a very successful rental company, in a good location, with high potential for growth under the NationsRent flag.

"They're buying into the strategy of the plan, the long-term building of a company to last," says Executive Vice President Phil Petrocelli.

So what is this plan that sways owners who aren't for sale to sell?

"See that First Union From Page 28 Building over there?" says Kirk, looking out across the skyline from his 14th floor boardroom. "We've had 50 guys on one floor over there for seven months, working on systems. They're rolling out an all-new system [for rental business management]. There's nothing like it in the industry."

"You don't invest that kind of money up front if you're only in it for the short term," Petrocelli interjects.

What the chosen rental owners are seeing is financial clout, the wherewithal for growth - capital, inventory, facilities, technology, big-business savvy and marketing experience, systems ... the whole pie.

The rental software itself is a Solutions by Computer system, but the whole package that has all these people occupied full-time goes into every nook and cranny of rental management, especially financing: NationsRent intends to keep a flow of new, high-quality equipment coming into the rental market to cement its position in the marketplace by creating permanently satisfied customers.

The NationsRent top brass learned a lot about this full-court-press style of play from H. Wayne Huizenga's prior experience as chairman of Blockbuster Video, and from the National and Alamo car rental companies and the AutoNation car megastores owned by Republic Industries, of which Hui-zenga is chairman and CEO. Huizenga is also chairman of the holding company that owns the Florida Panthers hockey team, along with a chain of luxury hotels. And he's also a director of NationsRent.

In fact, Huizenga is NationsRent's biggest stockholder. Kirk and his family are next. Huizenga, Kirk and other senior NationsRent managers own more than half of the 49 million common shares outstanding.

"That is a relationship that goes way back," says Petrocelli of the Kirk-Huizenga connection. "Jim and Wayne have been personal friends for the last 20 years. Wayne is on the board of directors but he's not involved in day-to-day management. He's available as a mentor."

Petrocelli says the business savvy Huizenga brings to the table is a priceless advantage.

What NationsRent scouts look for in an acquisition is not only a successful, strong company, but also one that has been under-capitalized, one that Nations-Rent can invigorate with transfusions of cash and new inventory.

"We look at the contractor and industrial market base," Petrocelli says. "We're looking at larger metropolitan areas that are growing as opposed to smaller towns. We're looking for larger lot sizes where we can beef up the inventory and push more through that physical location.

"So we leverage the management, leverage the customer base. That's why we want platforms with good experience, good reputation. Then we expand the fleet."

Leveraging the management means that in a NationsRent takeover, unlike many, the management stays. It's an important point.

"That's the first thing we look at - the management team," Kirk emphasizes. "Because if they don't come with the deal, we don't want it.

"Secondly, we look at location and access, availability, the types of equipment and how close the company simulates our strategy. But management is the first thing we look at."

Of course, NationsRent makes some changes. "If they just rent from backhoes on down, we get them into the bigger tracked equipment," says Kirk. "You need a little different facility, you know, if you're handling the big equipment - a wash rack, for instance. A little different maintenance capabilities, service capabilities, pickup and delivery capabilities."

Normally a new, high-powered corporate parent sets some goals - stakes out some bogeys for performance - for an acquired company, mostly to grow the company and meet shareholders' expectations for returns, and often partly to separate the wheat from the chaff. But NationsRent seems to be fairly benign in that regard: no "my way or the highway" threats or a lot of "headrolling," as corporations sometimes put it in the privacy of their boardrooms.

"We're not real strict on [performance bogeys] yet," says Petrocelli. "And part of it is we have done enough acquisition to know that we don't want to overwhelm them. Sometimes these fellows are selling businesses that have been in the family for three generations. So it's a huge decision [to sell] and a lot to get used to right away.

"So we go in and we get rid of the old, tired equipment and then we talk about the systems, the long-term brand equity, and we meet every other month. That's when we just kind of begin to get them focused on goals and bogeys. They know they're expected to grow, so they're asking, 'How can we grow?'"

What surprises previous owners and perks them up, after NationsRent takes over?

"I guess it would be the support they get, the better insight to the marketing and the research efforts," answers Kirk. "Clearly it's the checkbook - to be able to improve their fleets, expand and renew their fleets."

And what scares them?

"The unknown," says Kirk. "The unknown scares them. The only frustrating thing that I have seen is, intellectually they agree that we need to centralize the purchasing, but emotionally, it's hard for them to let go because they have always done it. But they still do the ordering. We do the big deals and they do the buying, but they're entrepreneurs and Page 34 From Page 32 they would like to continue that."

Results do most of the talking: Kirk says the previous owners of the Columbus store, who are still there, have grown the business by 40 percent since NationsRent bought it.

So how does NationsRent tune an operation for this kind of performance?

"You increase margins with cash flow, so from a financial perspective, that's where we start to look," says Petrocelli. "We use our systems to bring it down to return-on-investment per square foot, how quickly the inventory turns, how quickly it should, how many generators of what types, bucket sizes. We're able to see all that at the store level, the region level, the district level. With the systems we're putting in place, we will really be able to model what the customer is looking for and how to turn the equipment quickly."

NationsRent structures its deals with a combination of stock, cash and assumption of debt.

"First, we tend to do an asset purchase versus a stock purchase," explains Petrocelli. "Second, it usually involves some form of cash, debt, debt that converts, or potentially stock - some portion of the deal structure can and does include that. We've only been a publicly held company since Aug. 7 [1998], so up to this point we've used debt to convert to stock. Most of the acquisitions we have done to date were prior to going public, so we didn't have stock to give."

Petrocelli points to a map peppered with dots. "Those are the locations that we have under contract that are closed or will close in the next 45 to 60 days," he says. "We've identified the top states we want to be in and we look at every metropolitan area in the United States, projecting growth in all the major construction categories through the year 2002.

"Our basic approach is to dominate that local market, that geography, that metropolitan district. In some cases six or seven stores might give us 30 or 35 percent market share. In some cases you may need 15 stores, depending on size. That's how we're really looking at the market, as opposed to how many stores we have in the United States."

NationsRent calls this knitting of markets into a nationwide force its "cluster strategy." Readers may find that term familiar - it's the same approach Speedy Hire used to become the third-largest rental company in the United Kingdom .

There are plenty of spaces left on the map, but stay tuned: NationsRent also has plenty of capital - the initial public offering on Aug. 7 raised $97 million and on Dec. 8 a bond issue (10.375 percent Senior Subordinated Notes due 2008) raised another $170 million in net proceeds. Then there's all that income being generated by successful companies that have become a whole lot more successful under Nations-Rent ownership.

Now, what about those greenfield startups that Nations-Rent execs say are really at the core of the business plan?

First, "We really prefer the term 'warm starts,'" says Gary Strong. What he means is, these greenfield stores are not just plunked down anywhere - they're going to be strategically placed in market areas where NationsRent has built a strong presence. "We tend to greenfield in an existing market with tremendous upside potential," says Strong.

These stores go into areas where NationsRent can leverage its existing customer base, identity and inventory to help ensure that "tremendous upside potential" - this is what NationsRent refers to as its "cluster strategy."

"We can leverage the customer base, the infrastructure and the fleet with this cluster group strategy," says Strong.

And does it work? Strong replies:

"Our greenfield locations are generally cash flow-positive and profitable within three months."

How big will NationsRent get? Is there a corporate bogey for the ideal number of locations?

"How big does the market get?" asks Kirk in reply. "No, there is no ceiling figure that we have in mind - it's location, market and growth in the marketplace, and there is plenty of opportunity to grow."

The 20,000 rental outlets that Kirk cites as the size of the industry includes everything - hardware stores, tent specialists, party rentals, anything covered by the rental SIC codes. But in reality, Petrocelli says, "Our universe is probably in the neighborhood of 9,000" - that is, rental companies that have the same market orientation as NationsRent and therefore potential competitors.

NationsRent literature refers to a "$40 billion industry." Petrocelli says that is based on a 10 to 15 percent compounded growth for the foreseeable future.

"Actually, our part of it is growing faster than the tents, parties and all that," he says. "We're looking at a $40 billion market by, like, 2005, 2006. We think that's Page 40 From Page 38 realistic. If you think about it, the U.S. market today is roughly 18 to 20 percent [contracted work done with rental equipment]. So let's assume that's $20 billion, since that's the number that everyone seems to be quoting. So if you double that, you get $40 billion. You would have to get 40 percent of the contractors. Well, they're doing twice that in the United Kingdom - and so you say that's achievable in seven years, because in 1988 or so it was about 5 percent here and it has climbed to 20.

"So as we put in more of these locations and [customers] can get what they want when they want it, they're that much more apt not to buy it themselves. It's believable.

"We'll grow the market. We'll push more through the store. We'll find out who the heavy users are, who the the light users are, and grow the market.

"We're figuring out ways to get the customer in and out real quickly so we can do more customers in a day."

NationsRent has plenty of competition, and as you'd imagine, company strategists are analyzing the changing scene constantly.

"All of those companies, HERC, United, the other majors, they all do something well," says Petrocelli. "United we respect from an acquisition prospective. They're fast. That was one of the reasons we sped up our acquisition process. HERC does certain things well. Cat is always formidable - when you're dealing with a $20 billion company that's focused on this industry, you look at it closely. You look at Sunbelt and Deere and all these others.

"Our strategy takes all that into account. We structured our strategy with multiple layers for long-term advantage. The systems work, the brand identity is all part of it. And we had our own user-perspective.

"But we also went out and touched base with the customers. We did customer focus groups to test our ideas and find out what they were looking for - that's how we really built our long-term strategy."

What NationsRent learned in these focus groups, Petrocelli says, is that customers wanted better "availability of selection, high-quality, newer equipment, superior customer service and affordable parts."

And price? "Price came last," he says. "Price was important, but they were looking for value-added, not the low-cost item."

Industry consultant Dan Kaplan, former president of HERC, told Rental Management that "Nations-Rent is a very operations-oriented business. I'm very impressed with it. I think it's clear now that they're going to stay in for the long term."

"He believes that," says Kirk. "Dan came in here and we showed him what we were doing. What he felt this industry was lacking, that's what he saw that we had."

What NationsRent showed Kaplan was a game plan aimed at increasing customer satisfaction: more convenient access, faster check-in and check-out procedures, shorter lead time, on-time delivery and on-site repair, 24-hour customer assistance, thorough product and applications knowledge and one-stop shopping.

Now a lot of very experienced and capable rental people out there are asking, as we did: Do you really think the industry is lacking in these areas now?

"Sure," says Petrocelli. "From a perspective of consistency. In any one area, there might be some that do a fairly good job of customer service, but they might not be able to supply the quality of the equipment or the newer equipment or the breadth of equipment.

"You might find someone who does a nice job of customer service on a lift but not in heavy dirt or vice versa, or simple things - signage, some basic merchandise, how to get in and out fast, invoicing, paper processing. Contractors don't have that half hour to go in there and get their equipment. They go to three or four different locations in town, tucked back into some industrial zone. Or deliveries - [some companies] don't have the ability to get the equipment there fast. We're saying we want it to be there in two hours."

And Kirk adds: "We believe we will be able to increase revenue by establishing a brand name known for consistent quality and an extensive supply of rental inventory in a customer-oriented atmosphere."

The NationsRent mission statement says the company "will become the leading rental company in the construction and industrial equipment industry." But "leading" bears definition. "Largest?" "Best?"

"We're not defining that in terms of necessarily the largest number of outlets," says Petrocelli, "but in customer preference based on broad selection, quality, newer equipment, superior pricing and superior customer service."

NationsRent wants customers to look for the NationsRent sign wherever they are, and know that it stands for these qualities wherever it is. That's why the company is so choosy about its acquisitions. What they're trying to build is brand equity.

"Brand equity," says Petrocelli. "Cat certainly has a great name. Deere. They have built great brand equity.

"But what about the customer perspective? What we're hearing is Deere and Cat have the brand name for great manufacturing and service from a manufacturer's point of view, but not from a rental point of view.

"It's easier to build a culture with a strategy than it is to change a culture with a strategy. Caterpillar is still going to fill its stores with Cat-oriented people. Rental takes a whole different level of customer service- knowledgeable sales help, counter help. That's what this NationsRent brand stands for.

"In terms of extending the identity, the brand equity, [it takes] the systems, the convenience, the knowledgeable people - all of that - to make it easy for the customer to have a great rental experience. We believe if we do that, it's going to give us a loyal customer base and they will come back.

"It's one thing to buy share [with pricing], but we're building this to take share and then grow it. Buying market share, you don't retain market share," says Petrocelli.

"We're going to bombard the customer with branding, advertising. We're going to establish the brand quickly to get top-of-mind awareness with the contractor, so he thinks first of NationsRent."

NationsRent has not gone about this haphazardly. The strategists know precisely who they're after.

"We've profiled our customer base, the psychology of the contractor," says Petrocelli. "We know that 93 percent are men between 25 and 54 and they make $50,000 to $75,000. They have disposable income. They're good, solid, hard-working, no-frills folks. They want to deal with a straight-shooter. When they're done with work, they want to watch sports - football is first, NASCAR second, golf and basketball third. They tend to drink Coke. When they drink beer, it's Bud or Miller. They smoke Marl-boros. We gear our advertising to that.

"We're going to get them in our stores. And when we do, they'll come back, because they will have a good experience. Once you establish a brand, and if you do it right, it will work - that's where you get that brand equity.

"We're even teaching our folks what the 'brand personality' should be - it's rugged, tough and reliable, but it's also friendly, honest and helpful. Kind of a cross between a John Wayne and a Harrison Ford. We're here to help. The relationship we're trying to get is, 'We're a partner in getting your job done.'

"Then you add the systems and the other things - the multiple layers of advantage."

Invariably, when talking about rental mega-companies - whether your call them "consolidators" or not, and the IPOs they launch to build capital with common stock - the question comes up of whether they're in it for the long term or just speculating on an industry that for the moment is hot.

Well, what would NationsRent say about launching a rental IPO as a short-term, hit-and-run investment?

"Good luck," says Kirk. "That's just not our strategy."

So what would happen if some of these companies did exit the industry? "What would happen," says Kirk, "is it would provide us with a heck of a lot more opportunity - but Wall Street would not be good to us if something like that happened today. It's going to be interesting to see how well [some of these companies] integrate their business plan."

All right, then, who will stay the course? Who will be the big companies in the next two years?

"I think clearly we will," says Petrocelli. "You know United will still be around, and Cat, clearly. HERC. That's all I can think of right now."

If you think who NationsRent would regard as its No. 1 competitor, you would probably say United Rentals.

"That may be the obvious answer," says Kirk, "but that is probably not who we focus on. United is not something we're trying to strategize and beat. United is buying like crazy and they're the biggest, but we don't know that they're ultimately going to be our largest competitor."

Who, then?

"We view the competition that we focus on in this business to be the dealers or Caterpillar. So that's who we're tailoring our company to compete against - Cat. Cat is the competition. We're focusing on Cat."

Since NationsRent has done such a considerable amount of homework before leaping, one last question: What would a recession do to the trend of growth in rental?

"I think it would create a more disciplined growth atmosphere out there, which would have to be good for the industry," answers Kirk. "We tend to believe that rental will continue to grow."

Well, in a story full of dazzling numbers and superlatives, that may be quite an understatement.