Editor’s note: Shareholders of United Rentals, Greenwich, Conn., and RSC Holdings, Scottsdale, Ariz., approved the proposed merger of the two companies on April 27 and the companies closed the deal on April 30. Within two weeks, the transformation of the two largest equipment rental companies in North America into one entity was well underway. The merger, in many ways, can be considered a crowning achievement and has been recognized by many as a defining moment to propel the equipment rental industry forward. “You look at transformational types of transactions and typically these often elude anyone in a business career. To have this is very exciting,” says Michael Kneeland, United Rentals president and CEO. The company presented an update on the integration process to investors and analysts on May 14 and Kneeland later spoke with Rental Management on May 17 to talk about the process and what’s next for world’s largest rental company. An edited version of that conversation follows.
RM: It seems like you’ve hit the ground not just running, but sprinting, with integrating the two companies. We are speaking 17 days after the merger closed on April 30. Would you say you are ahead of schedule?
Michael Kneeland: Things are going very well. We started thinking and planning an approach to integration long before we announced the transaction in mid-December. When you do a major transaction, you need to be prepared for what happens if you end up with the company. What’s the next step? We’ve created an integration management office or IMO. I asked Matt Flannery, who we just promoted to chief operating officer of United Rentals, to head up integration. Our company has done more than 250 acquisitions in our history, but this one is by far the biggest and presents the largest opportunities for us. We took a very methodical approach to make sure that we’ve covered all the bases and captured the best practices of both companies. That’s been the most challenging and one where the folks from RSC are probably asking, “Do they really mean it?” Since we made the announcement, we’ve moved quickly to make sure we do it right. We’ve announced that we have management teams from both sides and another major milestone for us will be putting a common IT platform in place. That’s slated to be mid- to late June. It’s a monumental task. Both companies have worked closely together to get this done.
RM: The company’s website shows the logos of each company with a plus sign in between and the words “Stronger United.” Is that a new theme for United Rentals?
Kneeland: It is a theme. It’s something we wanted to kick off on day one to make sure people — most importantly our employees — understand that’s how we are thinking about it. Collectively, as I’ve said, this merger is a great opportunity for both of us. To me, using the word “stronger” gives people a positive feeling.
RM: Now that you can look more closely at what you’ve purchased, have there been any surprises?
Kneeland: We always knew RSC was a well-run company and that impression has only been confirmed after we closed the transaction. Our senior management team is spending a lot of time traveling around North America visiting both United and former RSC branches. We are very pleased with the reaction. I closed my eyes at an RSC branch and I could hear the passion and excitement about the industry and its future. It’s identical to what I hear at United branches. We share a focus on safety and superior customer service. It’s a common theme of the two companies and our people are dedicated to success.
RM: In a call with analysts on May 14, it was noted that 34 percent of the cost savings to be realized as part of the merger is branch consolidation. I had the impression from the call that a lot of that will be realized by selling the real estate, not the equipment. Is that right?
Kneeland: That’s right. Most of the fleet will be transferred to other branches and we expect demand to be there, so we will have the fleet there for our customers.
RM: Another comment was that capital expenditures of the combined company this year will be more than $1.5 billion. Why is that necessary?
Kneeland: That’s a gross number but at the same time we are selling assets as well. Keep in mind that we have a lifecycle approach to our fleet. When an asset reaches a certain age — it varies by equipment and manufacturer — then it’s time to sell it. On top of that, we are increasing our capital expenditures because we do expect to see demand continue to increase over the next several years. The forecast for the industry by IHS Global Insight is very bullish and we want to lead the way. Remember that even though we do have a large fleet, both companies are running at pretty high utilization.
RM: What does this mean to headcount? Is part of the efficiencies or cost savings in reducing the number of employees or do you need to keep most everyone because the business is increasing?
Kneeland: I’ll break this into several areas. On the corporate side, you don’t need redundant departments. There is one CEO, one chief financial officer, one controller and those types of things. We’ve rolled out the region platforms. We have looked at our districts and we are now taking a closer look at the branch overlap. We have increased the number of potential consolidations. The headcount will come down, but we are bringing in some of the people from those consolidated branches to other locations. I’ve always said this is a business about service and it is a people business. The equipment doesn’t transport itself, it doesn’t run itself, it doesn’t fix itself and you have to have people to do those processes, but there are some efficiencies you can drive.
RM: After a merger, companies sometimes cut rates to increase cash flow and market share, but on calls with analysts, you’ve made it clear that post-merger, you intend to increase rates.
Kneeland: I can’t speak to the strategies of other companies. We have said publically we see the opportunity and we have now upped our outlook to realize a rate increase of 6 percent this year.
RM: What’s next? Where do you go from here?
Kneeland: Right here and now, we’ve got our hands full with this integration. The largest opportunity is still in North America. The percentage of rental penetration is still in the 40s and we see the opportunity for growth as the forecast from IHS Global Insight points out. We see a lot of opportunities from cross-selling trench, power and HVAC. That’s going to be a growth sector for us. We’re going to continue to drive the levels of services for the company. We will continue to look for opportunities, but right now we will focus on the integration.