Editor's Note: You all know by now that the British have landed: Meyer International of London bought RentX Industries for $98.7 million in July. Rental Management interviewed Meyer International CEO Alan Peterson in London; Malcolm Boyce, managing director of Jewson Hire Point, Meyer's U.K. rental subsidiary, in Gloucester, England; and RentX CEO Skip Evans in Denver, to determine what this development in the consolidation of general tool companies - backed by British money and experience - may mean to the U.S. rental industry. We begin with the Skip Evans interview.

How do you envision the new, revitalized RentX under the Meyer organization? How will things be different under new ownership?

Evans: RentX will again start to grow both internally and through acquisitions. The people within RentX will also grow with training and added opportunities. As far as operations are concerned, Meyer purchased RentX because of the management structure and this is why I believe Meyer will let us run the operation the RentX way. How will things differ? We now are a public company and along with that come greater demands for brand recognition, doing everything the same and greater profits. There will be more reporting and some formats will change. My counterpart in the U.K., Malcolm Boyce, has been of great help, along with the Meyer USA people, Harry Fedden and David Sullivan. Alan Peterson, John Edwards and the entire U.K. team have been so helpful.

What will your role be?

Evans: I am president and CEO of RentX, a wholly-owned subsidiary of Meyer. It is my job to take RentX to the next level within the rental industry and to make RentX and all of its people leaders. There has been very little change at the store level. All Meyer and I want to do is make RentX a better place to work and bring our shareholders (owners) value.

What are your satisfactions and disappointments, looking back over the three and a half years that RentX has been operating?

Evans: My biggest satisfaction is to see RentX grow and how area managers, store managers and all employees learn, knuckle down in hard times and make RentX prosper. RentX has always been a good company. We just did not have the ability to raise capital like the other large players in the industry. My largest disappointment was in the early days when management wanted to recreate the wheel. They disregarded previous policies and procedures and ignored the help that A.R.A. had available. They wanted to do it their way - don't we all?

What have you learned about running a large rental company?

Evans: I have learned you cannot do it all yourself. You cannot micro-manage the people you have put in place. You must let them run their departments and offer guidance. Also, things do not operate the same throughout the country. Equipment demand is different and brand preference varies. Customers and employees differ from area to area as well. I learned a lot about banking relations and finance and met many very influential people in the investment banking community. In other words, I got a crash course and feel like I earned an MBA in finance in six short months.

What has surprised, excited or pleased you?

Evans: I cannot say anything surprises me after 25 years in the rental business. The most exciting event was also the most pleasing, and that was the sale of RentX to Meyer. What a great opportunity for everyone - the RentX investors, the employees and our customers.

What lessons have emerged from this experience?

Evans: Lesson No. 1: consolidation alone will not work. You must also operate the company you are building. Operations must have the final word on new acquisitions as they, operations, must continue to operate the acquisition. Lesson No. 2: a seller should take six months to a year off, then come back if he/she still wants to be in the business. Things change and most ex-owners do not like the change or someone telling them how to run their old business. That is why they were entrepreneurs and self-employed in the first place, because they could not work for someone else.

Is there an "ideal" rental store - in terms of size, markets, inventory mix, number of employees, location, appearance, revenues and returns?

Evans: There are three different types of ideal stores: 1. General tool - small contractor, homeowner, party. Revenues of $750,000 to $800,000, eight to nine employees, nothing for rent that needs a semi truck to deliver, $800,000 of inventory. 2. Contractor - large equipment. $3 million of revenue, six employees, $6 million to $7 million of inventory. 3. Party or special events - $2 million of revenue, 35 to 40 employees during the busy season, $1.5 million of inventory.

Those "ideal" stores sound like RentX locations - or some Jewson Hire Point locations, for that matter. How might RentX stores change, under the new ownership? Will they be brought more in line with those ideal-store models - homogenized, so to speak?

Evans: RentX stores will not change from homeowner, small contractor, party-type operations or - described another way - hourly, daily, weekly rentals. We are looking at the Jewson Hire shops to glean the best of the best practices from them and they from us. But remember, hire in the U.K. is different from rental in the U.S.

You grew RentX from its initial base of nine stores - the former Zodiac group in Denver - to 77 stores, then halted all acquisitions in order to restore financial control and stabilize the company after an attempt to launch an IPO failed. Is that right?

Evans: Correct, we stopped acquisitions shortly after the failed IPO. You cannot continue to grow on all-borrowed money. You must have a large percentage of equity or the interest will consume all the profits.

What will you and the Meyer International - Meyer USA - Jewson Hire Point organization do now to grow and develop RentX?

Evans: We have started a slow, well-planned acquisition strategy in the U.S. as well as the U.K.

Do you have any plans for geographical market expansions?

Evans: No.

What do you think is ahead for general tool consolidations? What does your crystal ball say? Will that be the next big trend?

Evans: There will be some consolidations but there will always be the independent. The consolidator supplies a market for someone who wants to get out of the rental business mainly because of burnout or retirement. The feeding frenzy and high prices are something of the past.

A peek inside Jewson Hire Point

Jewson Hire Point, the rental subsidiary of Meyer International* in London, has 172 tool rental stores in the United Kingdom, some of which include an event rental component. They're all directed from a command post in Gloucester, a couple of hours west of London, that's surprisingly small - the British favor lean, tight organizations that can act quickly.

Jewson Hire Point has been in operation only since 1985, but the Jewson organization started 150 years ago as a builders' merchant company and today is the U.K. market leader in that business, with 378 stores. (A "builders' merchant" is a large building supply designed for one-stop shopping, primarily for tradesmen - i.e., professional customers - vs. homeowners, carrying everything from bulk materials to complete kitchens.)

The builders' merchant connection gives Jewson Hire Point a special presence in the market in terms of location, visibility and synergistic advantage with a closely related business: 138 of the hire branches are actually stores-within-stores - separate business units inside the Jewson builders' merchant locations; the other 34 are stand-alone operations, typical tool rental stores.

Total employment for Jewson Hire Point is 540 - amazingly low for 172 units, but most of the 138 in-store operations have staffs of only two or three.

All growth thus far has been in the United Kingdom, but now, with Meyer International's acquisition of RentX Industries, headquartered in Denver, the parent company is moving into the United States. RentX has 72 locations in 11 states.

"We see the United States as the easiest market to move into, because of a common language, similar activity in rental - and a rapidly evolving market," says Jewson Hire Point's managing director, Malcolm Boyce. "We have an entry route here with RentX's 72 sites, and with the laminate distribution business [kitchen and bathroom cabinets and countertops] Meyer already has in the United States, we truly have an opportunity for further development there.

"Buying RentX is the best entry route for us. The risks would be greater to try to do this through the consolidation of small, individual acquisitions, because we would have to have management from the U.K. over there to assist the U.S. management with the integration of the business - and we didn't have the appetite for that. It was too risky. The bricks and mortar would be there, the fleet and the staff would be there, but the team leader, the person who understands the working of that marketplace, would be gone. Yes, we could find managers to run it, but we wanted the person who had built it and could make it work in the U.S."

RentX CEO Skip Evans is staying on to run the U.S. operation.

"And we were looking for a multiple-branch entry route, in states with the best demographic profiles for further development," says Boyce.

"One of the absolute, key criteria was that this is not a U.K. company bringing a U.K. model and arrogantly saying, 'Well, this works over here so it must work over there.' This is not an arrogant company. We know that in the United States, we are there to learn, not just force a British model on an American operation.

"There is a massive amount of subcontracting in the U.K. - many subcontractors working under a main contractor - and that all feeds plant and tool hire, and every time there's a recession, tool hire grows even more but plant hire drops off," says Boyce. "They are two absolutely distinct and separate sectors, plant hire - big metal - and tool hire, and they don't [follow the same economic] pattern.

"We divide the two sectors much more rigidly than you do in the United States, in terms of rates, [financial] returns, everything - our whole philosophy about that is quite different. The boundaries are more blurred in America.

"RentX is an especially good fit for us because it focuses primarily on light plant and tool hire - and many RentX stores have an event business, too."

That fact appeals to Meyer-Jewson. Boyce thinks event/party consolidation is only a matter of time and study: any business with profit potential will find the answers about how to make it happen, no matter how specialized or regionalized the business may be. (For a debate on this issue, see the August Rental Management.)

A tool rental consolidation is the immediate order of business for the Meyer-Jewson organization, now with a solid foothold in the immense but fragmented U.S. general tool market.

"We have seen the feeding frenzy going on in America on the heavy end, but there really hasn't been much consolidation of the tool rental sector, and that's where our interest is - we're in a very good position.

"But I want to emphasize, we do not wish to start another feeding frenzy. That's something we are very, very, very concerned about. But we do definitely have plans to grow RentX, through appropriate acquisitions and some greenfield sites."

In the U.K., Jewson Hire Point's strategy is to organize branches in a "hub-and-spoke" operating system - what they and other large British companies also call a "cluster" strategy - in which each store has a market radius of roughly 25 miles and each market area is tangent to the next, so the whole organization steps across the country with uninterrupted market coverage and stores can draw upon each other's inventory as needed. This also increases the efficiency of distribution from the central office in Gloucester, which handles all purchasing and receiving of rental inventory, retail items and consumables.

But Britain is only a little bigger than Florida, 670 miles from top to bottom, and population density is extremely high. The U.K. structure doesn't work in the United States; in fact, you could put all of Great Britain in the space between the clusters of RentX branches scattered across the country in 11 states.

So how does Meyer International intend to deal with that? Simply to treat the RentX clusters as islands: apply the hub-and-spoke model to each cluster, and not try to link the clusters into one nationwide mat. The Denver metro area, for example, would be treated as a little England: all the locations in that area would be linked, but you wouldn't find a store standing alone like a maverick, far from the core organization.

Within each cluster, what would an "ideal" rental operation be like?

"I can define it only in terms of the U.K. model," answers Boyce. "We would look at a stand-alone site of about half an acre, with three components: off-road parking, a secure yard and a location on a main arterial road with high visibility. The smart scenario would be to look at an independent car dealer: good parking, an all glass-fronted site and a highly visible location. That [ideal rental] store would be doing about a half-million dollars in turnover [revenue] and would have between five and 12 employees."

This "ideal store" profile, in fact, matches the typical RentX tool store fairly closely. That became immediately apparent to Boyce and his management team when they started researching the American scene.

Boyce and Mark Hawkins, who's in charge of business development, came to study the U.S. rental industry a year ago and began reading everything they could lay their hands on. They got a year's worth of Rental Management magazines and found a small item in the February 1998 issue about RentX's latest acquisitions.

"That's how it came onto our screen, that one little article," says Boyce.

In January Boyce met with Skip Evans in Denver. A definitive agreement was reached in June and the deal was final July 1. At that point the Meyer-Jewson organization embarked on a planning phase that Boyce calls "the 100 days," during which the company began examining the present RentX operation and the U.S. setting, and determining what should be done in the next 100 days to begin integrating the business - and "what we could bring to the U.S. party," says Boyce. "By the third month, you have to have an absolute clarity about your plan process for the integration."

One of the things that works for Jewson in Britain is central inventory selection and purchasing. Boyce says one of the things they've learned in the first 100 days is that the U.K. approach would probably fail in the United States.

"You've got to go with what's proven in that marketplace," he says. "The customer has to be the ultimate decider of that. You go with what works."

So what can Meyer-Jewson Hire Point bring to the RentX party?

"The first thing is capital," answers Boyce. "And we do have a business model here that we can measure against the RentX operation, and see what might be applied effectively in the U.S. context. We have the corporate systems, 'umbrella' policies and processes well established. And there is no question about it, we are marketeers - and there are great opportunities for us to develop that business in the U.S. We believe there's a 20-year gap - that the U.S. rental industry is where we in the U.K. were 20 years ago.

"We intend to raise RentX's revenues from $55 million, where it stands today, to more than $100 million over the next 24 months (from the date of acquisition), and grow the network by perhaps 10 sites the first year, perhaps 20 the second year.

"We will increase revenues partly by focusing specifically on other product activities - 'range-focus activities' - that RentX has not [developed]. For example, we might look at the laminate customer profile and match that against the RentX customer base, to see what extensions might be made.

"And also we intend to develop RentX by merchandising, based on our very successful experience in the U.K. We would look to widen the trade-customer base.

"The smartest thing any business can do is find more revenue streams from its existing customers. We are always looking for related activities. We operate 138 locations inside Jewson builders' merchant sites, whose core customer is the small builder. We then expand that business to the wider customer profile in tool hire - trade customers and consumers. We have products that pull customers in to us.

"It's going to be a combination of bringing a little of the U.K. activity and range-focus to the existing RentX network of 72 sites, new product streams, investment in strategic acquisitions and greenfield expansion, the merchandising and sale aspects of the business, and additional focus on some other activities, such as event rental.

"RentX has some fabulous locations in states that have some fabulous growth already. We just need to make absolutely sure that we are integrating this business sanely, to the comfort of everybody."

The typical market mix for Jewson Hire Point is 80 percent "trade customers" (contractors) and 20 percent "consumers" (homeowners) on the rental side, and about 70-30 rental-to-retail sales. Jewson has fine-tuned the mix to maximize revenues based on the most consistent and lucrative business - so that's another of the refinements Boyce expects Jewson can apply to RentX. But, he emphasizes, to make any refinements work, the organization had to be solid to start with.

"The operational structure is so important, and that's one of the strengths of RentX - and the quality of the branches. I had a gang of my guys over there doing asset verification at the RentX locations, and they all 'got married' - it's just fabulous. Minds met within hours, and they became great friends.

"Skip and his team were very willing hosts - ultimately, their whole philosophy was built around trying to develop an American U.K. model. And we over here were trying to learn what can travel across to America."

That is a large topic, but one of the key questions that might be asked is this: What about rates? U.S. rental rates range as high as five, in some places 10 times the rates in the U.K., but tool rental volume and utilization rates in the U.K. are stunning: 80 percent and up, about the reverse of the rental-ownership mix in the United States.

Hence, this question for Boyce: What would happen if we told a U.S. rental operator that if he cut his rate by two-thirds, we would guarantee that he would triple his volume and it would all come out the same, but rental volume would grow with higher utilization?

"He wouldn't do it - and he shouldn't," Boyce answers, pausing briefly and then adding with a chuckle: "You shouldn't try to eat an elephant in one bite."