BUILDING PRODUCTS & SERVICES UK PLANT, EQUIPMENT & TOOL HIRE REVIEW 2019 | MERGERS & ACQUISITIONS UK PLANT, EQUIPMENT & TOOL HIRE REVIEW CONTENTS INTRODUCTION......................................................... 01 MARKET LANDSCAPE .................................................02 SNAPSHOT OF UK HIRE COMPANIES ..........................03 UK PUBLIC COMPANIES ..............................................06 GLOBAL M&A ACTIVITY ..............................................08 UK M&A ACTIVITY ...................................................... 10 VALUATIONS .............................................................. 12 PLANT HIRE & CONSTRUCTION ................................. 14 RESHAPING THE FUTURE AFTER BREXIT ..................... 16 MARKET DEVELOPMENTS........................................... 17 HELPING YOU ACHIEVE YOUR STRATEGIC GOALS...... 18 CASE STUDY ............................................................... 19 OUR CREDENTIALS.....................................................20 OUR DEDICATED TEAM .............................................. 22 APPENDICES ..............................................................23 UK PLANT, EQUIPMENT & TOOL HIRE REVIEW 01 INTRODUCTION The plant, equipment & tool hire landscape continues to grow and develop as contractors opt to rent rather than deploy capital to buy their own fleet. The UK market has seen sustained and growing demand, and is expected to continue growing at a CAGR of 2.6% over the next five years to reach a value of £7.6bn.1 Public funding for large infrastructure projects, supportive government housing policies and low interest rates will continue to drive demand. In addition, general short-term economic uncertainty will push more contractors to hire rather than tie up capital in fleet. As Brexit plays out there may be short-term drags on growth in the construction market, which accounts for around two-thirds of the plant hire market. The commercial sector is forecast to face a number of challenges and the weak pound will increase the cost of imported materials. However, long-term fundamentals and the outlook are positive for the plant hire and services sector. M&A activity is rife across the sector, with trade and private equity buyers competing for quality assets. In the UK, despite high levels of consolidation activity, there still remains a largely fragmented supply base. Diversification into specialist hire and adjacent services enables alignment with growth sectors, while enhancing geographical coverage is a another strategic rationale for acquisitions. With Brexit on the horizon, skills shortages intensifying, new business models and technologies emerging, this is a good opportunity for hire businesses to review strategies and drive change to meet future demands. Over 100 UK businesses report Average transaction multiple EBITDA margins in excess of in the UK of 6.0x EBITDA 25% Over 90 UK businesses have 20% of UK plant, equipment CAGR in excess of 10% & tool hire transactions have Private Equity involvement Over 300 global and 120 Infrastructure construction UK M&A transactions since to rise by 8.7% in 2018 and 2014 7.7% in 2019 1 Source: IBIS 02 UK PLANT, EQUIPMENT & TOOL HIRE REVIEW MAINMARKET PAGE LANDSCAPE TITLE MAINSPECIALISMS PAGE SUBTITLE AND SERVICE RANGE ARE KEY TO SUCCESS IN A COMPETITIVE MARKET A FRAGMENTED AND have firepower to do so have been building ANALYSIS OF MAJOR PLAYERS CHALLENGING MARKET market share through strategic acquisitions to increase capabilities, geographic coverage We have analysed the plant, equipment The UK plant, equipment & tool hire and create a more defensible market & tool hire landscape to identify the market is highly fragmented with UK public position. Ashtead, VP, Aggreko, Speedy major players in the UK market. Divisions companies representing just a quarter of Hire and AFI-Uplift have all made multiple of larger groups holding significant theSUBHEADING market. Low LEVELbarriers 1 to entry mean that SUBHEADING LEVEL 1 acquisitions during the last three years. asset fleets for internal use have not Bodythere textare many operators creating a highly Body text been included in our analysis, nor have competitive environment. Some have developed capabilities in companies whose principal activity is specialist market niches where it is possible High levels of competition and intense equipment manufacture. to drive higher margins. VP has targeted the price pressure have impacted less resilient development of market leading positions The analysis reveals a healthy contingent businesses. At the commodity end of the in niche sectors including rail, transmission, of high margin and high growth market, characterised by lower margins, there water, and oil & gas. Andrews Sykes and businesses: is little buffer if activity reduces. Hire rates have Carrier Rental Systems (a subisidiary of been relatively static in recent years, making it • 50 businesses report turnover in United Technologies) target environmental harder to sustain investment to grow. excess of £50m control equipment, while Centurion, which A number of businesses have inevitably started out as a specialist rental company • Over 100 UK hire businesses report succumbed to the pressure. Hewden Stuart to the oil & gas and mining sectors has EBITDA margins of 25%+ is a notable example, which went into diversified its services. • Over the last three years, over 90 UK administration in 2017 with debts of more Private equity continue to be active plant hire businesses have grown at than £200m. Management cited uncertainty players in the sector. Recent transactions over 10% CAGR caused by the vote to leave the EU as a include Business Growth Fund’s backing of major contributory factor, which adversely • Many fast growing companies are: Plantforce Rentals, the secondary buy-out affected a number of large construction - part of a larger group of Kelling Group by Alinda Capital Partners projects. Other companies have been from Elysian, and The Carlyle Group’s - backed by private equity impacted, for example HSS issued a number backing of EnerMech, replacing Lime Rock - provide adjacent complementary of profit warnings, and has since refinanced Partners. Experience suggests private equity services and restructured the group. are often well positioned to help drive - operate in a specialist area. In spite of the pressures, a great number of operational improvements and support other businesses are succeeding. Those that management to steer a defensible course. UK PLANT, EQUIPMENT & TOOL HIRE REVIEW 03 SNAPSHOT OF UK HIREMAIN COMPANIES PAGE TITLE HIRE FLEET NBV CORRELATES MORE STRONGLY TO EBITDA MARGINMAIN THAN PAGE REVENUESUBTITLE FIGURE 1: SNAPSHOT OF LARGER UK HIRE COMPANIES BY KEY INDUSTRY KPIS 60% SUBHEADING LEVEL 1 SUBHEADING LEVEL 1 Body text Charles Wilson Body text 50% Engineers Ardent Hire 40% Gap Group Selwood P Flannery Plant Go Plant Hire Andrews Sykes John 30% Nixon EBITDA% Quattro VP Plant Balfour Carrier G Walters Rental AFI-Uplift 20% Systems UK Select Plant TXM L Lynch Speedy Plant Hire Mammoet Thomas UK Armstrong 10% Clive Barford Please note this analysis excludes Ashtead which is the UK market leader, reporting UK turnover of £472m and 35% EBITDA margin, while group revenues are Bubble represents revenue £m £3.7bn, with 47% EBITDA margin. 0% 100 200 300 Hire fleet net book value £m 04 UK PLANT, EQUIPMENT & TOOL HIRE REVIEW SNAPSHOT OF UK HIRE COMPANIES PRIVATE EQUITY AND LARGE CONTRACTING GROUPS HAVE BEEN SUCCESSFUL IN DRIVING GROWTH FIGURE 2: SNAPSHOT OF FASTEST GROWING BUSINESSES IN PLANT HIRE 60% 50% TXM Plant Collins 40% Thorn Plantforce Plant Hire Rentals Earthworks Actavo Group Danfords Amberon Hawk Plant JRL Group Volkerbrooks P Flannery Plant Hire L&J Webb 30% Plant John Group Hanlon Story Gibson & Co Bros Contracting O'Brien 3 year CAGR% Contractors AGO Peri Holdings Bennie City Lifting Power 20% EOM Electrics Rail King Lifting J Devine Civil Engineering 10% Contracting Private Equity Private group backed business business 0% 0 10 20 30 40 EBITDA £m • Please note this analysis excludes businesses which have made transformational UK acquisitions, such as Loxam which has exponentially increased its UK presence. • The analysis also excludes Ashtead, which is many times larger than the other businesses featured above and has achieved 22% CAGR over the last 3 years. UK subsidiary A-Plant has grown at 13% CAGR and reported 2018 EBITDA of £167m. UK PLANT, EQUIPMENT & TOOL HIRE REVIEW 05 06 UK PLANT, EQUIPMENT & TOOL HIRE REVIEW UK PUBLIC COMPANIES REPRESENTING JUST OVER A QUARTER OF THE UK MARKET FIGURE 3: ESTIMATED UK MARKET SHARE OF UK PUBLIC COMPANIES Ashtead (7.2%) Speedy Hire (5.9%) VP (5.4%) HSS Hire (5.0%) Aggreko (1.7%) Andrews Sykes (1.0%) OTHER (73.4%) Northbridge Industrial (0.4%) AGGREKO ANDREWS SYKES ASHTEAD 1.7% 1.0% 7.2% 30% EBITDA margin 33% EBITDA margin 48% EBITDA margin • Generator specialist, offering • Very broad range of equipment temporary power generation services • Offers pumping, heating and cooling solutions through Sykes Pumps provided to diverse end-markets. and temperature control equipment. UK subsidiary operates under the Key end-sectors include construction, and the Andrews family of climate control solutions. A-Plant brand name, and supplies infrastructure, oil & gas and mining. a wide range of construction • A regular acquirer of power • 30 depots in the UK and a growing equipment for rental. generation hire businesses around presence in Western Europe and the Middle East. • US remains the group’s