||RSC gets ready for a SALE
Wayne Walley is editor of Rental Management, the official magazine of the American Rental Association, 1900 19th St., Moline, IL 61265; 800-334-2177 or 309-764-2475, ext. 253; fax 309-764-2747; e-mail firstname.lastname@example.org
| Atlas Copco is selling RSC Equipment Rental, but that isn’t stopping Tom Zorn, RSC’s president and CEO, from moving full speed ahead with his efforts to grow the rental chain’s revenue and return on capital invested. |
In one of his first interviews since February when Atlas Copco announced its intention to divest RSC, Zorn told RM in March that he welcomes the sale and doesn’t expect a change in ownership to impact the company’s 5,100 employees.
Atlas Copco said it decided to sell RSC despite the company’s recent record performance because the operating environment and business characteristics of the rental store chain are too different to develop desired synergies.
Zorn also is a senior executive vice president of Atlas Copco AB, which could give him some say in who buys RSC.
“As an Atlas Copco officer, we are very interested in ensuring that the buyer is of a very high quality. The last thing we want is a turnover situation with reach-back liability or a sale to the wrong buyer who won’t take advantage of what has been done,” Zorn says.
RSC and its more than 500 locations won’t come cheap, either. Atlas Copco wants to maximize shareholder value and the decision to sell RSC comes at a time when the rental company has reported growth for 11 consecutive quarters and recently completed a record year in 2005 with $1.6 billion in revenue, up from $1.4 billion in 2004.
“We’re the second largest rental company in absolute size — revenue and locations,” Zorn says. “But if you look at how the industry values companies, we’re at the point now where the size or potential size of a deal means it is a very blue chip company. We’re looking for good valuation and a good buyer. There aren’t any strategic buyers at this point that have the financial wherewithal. In all likelihood, we’re looking at a financial sponsor of a large venture capital firm.”
Zorn and RSC have been relatively quiet about the company in the past. Part of the reason has been Atlas Copco’s corporate policies, but another has been the wish to build the company before talking about it.
The timing of the company’s sale comes at what seems to be a key turning point at RSC. Zorn has spent the last few years trying to revamp RSC’s corporate culture and put a system in place that rewards company pride and top-notch customer service. The next step is investing in the RSC brand.
He joined RSC Equipment Rental as president in June 2003. Since July 2004, he also has run the regional operations of the business area as chief operating officer. He was promoted to CEO in January 2005.
Zorn, who earned his bachelor of arts in economics and master’s in business administration from the University of Michigan, has instituted a simple corporate strategy aimed at achieving stability and profitability measured by a return on capital employed. RSC has a weighted average cost of capital equal to Atlas Copco’s 12 percent. But RSC’s most recent return on capital employed in the fourth quarter was 26 percent.
“This is an important point, but it is subtle,” he explains. “We don’t allocate dollars to stores or districts or regions that do not have their houses in order, that are not stable enough to achieve the appropriate pricing, the appropriate product mix or the appropriate performance from the sales force, operations and customer satisfaction to drive up profitability to the point where return on capital employed is greater than the weighted average cost of capital.
“And that’s how we pay people and pay bonuses to people. We’re not afraid at all to pay very handsome bonuses to our performers.”
Zorn started his career with Ford Motor Co., left to join Security Capital Group and then returned to Budget Rental Car, A Ford subsidiary, as president of Ryder Truck Rental and Budget Truck Rental. He was president of the directional marketing division for Monster World Wide before coming to RSC.
One of his passions is “attracting, retaining, training and compensating the very best people in the industry. Life is pretty short and you spend your most productive years in your job. I want this to be fun, but before you start having fun, you have to have the right people.”
RSC’s human resources division now looks at hiring people out of the military and out of college through recruitment advertising aimed at hiring the right profile for the job, Zorn says.
“You don’t hire a Harvard MBA unless it’s the right profile for the job. You hire the right person.”
Zorn’s incentive plan for the company starts at the employee level, offering direction and training to help each business get to a point where they are creating economic value.
As time goes on, Zorn’s hope is to continue to help RSC stores differentiate themselves from other rental operations.
“Right now it is impossible to argue that we are not the most successful rental company in the world. If you look at every operational and financial metric, we are No. 1 except for two things — rental revenue and number of locations. We are not trying to be arrogant. We have a healthy level of paranoia. I spend most of my time on how do we sustain this growth? How do we grow faster and how do we protect and sustain and even accelerate?”
One answer is focusing on industry leading customer service. His model, he says, is somewhat patterned after Enterprise Rent-A-Car’s corporate culture, which includes customer satisfaction, growth, profitability and incentives.
“While I was at Ford, we benchmarked Enterprise. They are extraordinarily successful. They don’t take the money and say, ‘Thank you. Work hard tomorrow.’ They share. They pay out a lot of bonuses to their employees all the way through the organization. We have to share profitability of the store to give them the incentive to provide greater customer service,” Zorn says.
“RSC is different because customers are treated differently. Someone can call RSC at 11 p.m. on Saturday or Sunday and someone will take care of the problem. That is primarily how the customer knows it is RSC.”
Future plans include investing millions of dollars in redoing facilities, adding new delivery trucks and coming out with uniforms.
RSC’s focus is on the contractor market and Zorn says there are no plans to change. “We are offering small equipment that appeals to the smaller contractors. But we are not trying to be all things to all people. That differentiates us from the competition.”