Sumitomo makes additional investment in Sunstate Equipment Co.
02/01/2013

Japanese company now owns 80 percent of rental company founded in 1977

Sumitomo Corp., through its subsidiary, SMS International Corp., has acquired controlling interest of Sunstate Equipment Co., Phoenix, by increasing its ownership of common membership interest to 80 percent, effective Dec. 31, 2012.

Sunstate is one of the major regional equipment rental companies in the United States, with 51 branch locations in nine states, primarily in the southwestern U.S.

Sumitomo made the original investment in Sunstate’s convertible preferred interest in 2009 at a time when the U.S. construction equipment rental industry was undergoing a severe downturn that started after the financial crisis.

Sumitomo was convinced that the industry was poised for long-term growth. Since the investment, Sumitomo has focused on strengthening the partnership with Sunstate’s management team while gaining a deeper understanding of the industry. In April of last year, Sumitomo converted the convertible preferred interest to common membership interest after observing a solid recovery trend for the equipment rental industry.

Mike Watts, Sunstate’s chairman, retains his equity holdings of 20 percent of the company and he and the current management team will continue to run the business as it has in the past.

“The increased investment in Sunstate by Sumitomo was done because both parties believe the industry is poised for more growth. This new capital and ownership structure will allow us to capitalize on the opportunities as a result of this growth. Our cost of and access to capital will further strengthen the company,” Watts said.

“Sumitomo invested in and supports the management of the company and all of us will continue to manage as we have in the past. Sunstate and Sumitomo are very much in sync with culture and approach to managing a business and the plan is to continue both,” he said, adding that the next steps are to evaluate opportunities with a focus on greenfield starts and selected acquisitions.

“We will continue to have a conservative approach to both, however,” Watts said.

Sumitomo said it believes that now is the opportune time to further grow Sunstate’s business because the U.S. equipment rental industry remains more fragmented than other industries and is expected to grow due to the continued increase in the rental penetration.

Sumitomo currently operates construction equipment dealerships in North America with annual turnover of about 150 billion yen (US$1.69 billion). Sumitomo also has an existing equipment rental business in Canada. Through this investment in Sunstate, Sumitomo says it is determined to expand its equipment rental business portfolio and become a leading company in the North American equipment rental market.

Sunstate was founded in 1977 and currently has 51 branches with locations in California, Nevada, Utah, Colorado, Arizona, New Mexico, Oklahoma, Texas and Tennessee focused on providing construction, industrial and special event companies with construction rental equipment and tools.