AT THE HEART OF HIRE


HIRE CONTINUES TO ATTRACT PRIVATE EQUITY


In late October, after seemingly months of silence following principal owner Archie Norman’s decision to put a ‘For Sale’ sign up outside HSS in May, we received the news that the No. 2 player in the Tool Hire Top Ten had been sold to private equity company Exponent, although the announcement of the deal failed to answer the crucial question that we posed back in our June issue.


To establish the now clear pattern of HSS ownership, we need to go back to Christmas 2003. At this time, Davis Service Group - which had owned the best known brand in tool hire for 10 years following its acquisition of the hirer from contractor Mowlem - sold HSS to a Management Buy-In team, backed by private equity company, 3i, for £143m.


In June 2007, at the peak of the then booming market, 3i secured an astonishing price of £310m when it sold HSS to former Asda Chairman Archie Norman’s private investment company Aurigo, backed by hedge fund Och-Ziff. The 3i press release at the time noted that the deal delivered a return in excess of four times money multiple on its investment.


In these much more challenging times, we doubt whether Exponent will have the same expectation of return as 3i achieved over five years ago. However, given that three of the founders of Exponent are former 3i executives, they may well have! What is significant is that, based on their HSS experience the first time around, they wanted to invest again.


HIGHLY CASH GENERATIVE


HSS is now in its third private equity ownership in less than 10 years. What makes it – and other national hirers, like Brandon and Hewden, that have ended up in private equity hands in the last couple of years – so attractive to such investors? The principal reasons are that hire companies are asset rich, which allows private equity backers to take bank funding against these assets. Hire is also highly cash generative.


So where does this latest deal leave HSS? Each time the company is bought and sold, it must be distracting for its management. There will always be a significant level of cost involved in such deals and the new owners will, obviously, review the previous owners’ direction. Exponent has already named Alan Peterson as the incoming HSS Chairman. He was one of the original 3i-backed


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Management Buy-In team back at the end of 2003. Private equity can certainly bring a broader perspective on the business and, with brands like thetrainline.com, Radley and Dreams in its portfolio, Exponent would expect to do just that at HSS.


Clearly, the 2007 investors paid too much for HSS and the hangover of debt must have been considerable. However, now is a more sensible entry point for private equity investors as Stock Market sentiment is clearly more positive. The meter (and, probably, the reward structure for senior management) has been re-set, as the company has been re-financed.


Having “unlocked new investment from Exponent”, HSS has already signalled its intentions with the acquisition of Abird Generator Hire within days of its own deal. Whether this deal indicates that HSS has found its natural level in tool hire and is now embarking on a strategy to compete with Speedy with a broader offering of equipment is unclear. In all likelihood, its expansion will be both from outside its core tool hire range, as well as its existing network.


For many of you reading this, your overwhelming response could well be, ‘so what? All that’s changed is the owner’s name over the door. HSS will be sold on again within a couple of years, and someone else will have a go at making some money out of it.’ Fair point.


However, it has to be good news that private equity sees such potential in our hire market. It is particularly good news that Exponent has received the backing to do the HSS deal. This ensures that other potential investors see the benefits of investing in our market. It can’t be coincidence that, as the interested parties pored over HSS’ figures during the summer months, Speedy’s share price rose considerably. We said back in June that it could be a ‘Win Win’ bet for our entire hire industry and so it has proved.


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