Has there been a better time to be in equipment rental?

Timing is everything as the old adage goes.

This is traditionally true in equipment rental. Widely viewed as a cyclic play. Highly capital intensive and heavily influenced by macro economic conditions, particularly around infrastructure and major construction.

It seems clear to most industry insiders that we have at least seen the bottom of the Mining Investment Boom Hangover. The past 12 months have seen an increase in utilisation for most of the major rental players, driven in part by an unprecedented divestment of gear bought by speculators and heavyweight incumbents, cheered on by end market analysts espousing the virtues of a supposed "ten year super cycle," primarily in the Surat Basin in Western Queensland and the mercurial Iron and Gas rich Pilbara region of North West WA.

Of course hindsight is a wonderful thing, and you will have a hard time finding anyone in a decision making role that takes responsibility for the capex binge that left the Australian equipment rental industry in tatters for the past few years. It reminds me of the ex-Coates boffins who questioned the timing of the Carlysle - Stokes foray into rental at what can only be categorised as the cruelest of unfortunate timing, even by the most cynical of observers. There are a generation of Coates ex-pats who put their hands up to take credit for the growth of the business prior to the GFC whilst wiping their hands of the subsequent challenges the business and indeed the industry suffered post the Lehman Brothers collapse. I call them the "Vietnam Crew," because their favourite saying is, "we were winning when I left."

The best part of a decade later and the industry has been through another major up and down cycle and seems on the cusp of a fresh resurgence. Utilisation improvements are at last being met half way with some pricing recovery (albeit off an historically low base). Merger and acquisition activity is ramping up. The Japanese acquisition of Skyreach and now materials handling specialist Fork Force seems like an unfolding growth story and even from personal experience, there is a lot of off shore interest in picking up and rolling up specialists at multiples not seen since the Mining Boom.

As I've said in recent articles, I think Coates is ideally placed to capitalise on major infrastructure investment projects, particularly in the Bowen Basin and Melbourne. The Coates board were the first to shift their leadership appointments away from a toe cutter mix to a more pragmatic and sales oriented spearhead. They flushed out the chainsaw wielding logistics crew and replaced it with a more traditional and balanced rental line up.

Coates traditional rivals have been surprisingly slow to follow the leader when it comes to a change in management and strategy. This leaves the door wide open for a savvy roll up play. The $2bn B2B end user customer pool simply will not tolerate Coates expanding much beyond their 40% market share position as it will create too much price pressure and provide insufficient incentive for service performance that is after all the real value a rental company has to offer a Construction, Mining, Oil and Gas or Government Project or operating site.

I personally have rarely witnessed so much behind the scenes wheeling and dealing as is taking place at present in equipment rental. Everyone who's anyone wants to back the right horse/s in the race to fill the ever vacant Wreckair/National Hire hole that has plagued the industry since the early 2000's. The difference this time is that it's not just money men looking to shake tings up. Some of the smartest and most experienced minds in rental are in my view poised to create a viable newcomer with the strategy and horsepower to present a real challenge to the Big Orange Bear.

With the absence of a viable national established acquisition target, the logical answer seems to be a roll up of savvy product specialists with sufficient geography and scale to present a viable alternative broad product offering supplier to the tier one end users such as CPB, UGL and co.

A consortium with both the money and industry knowledge to mount a serious challenge to Coates will certainly enjoy a strong tailwind at their back. Regardless of the improvements in Coates leadership and culture, customers instinctively crave choice. Staff, suppliers and customers will be lined up to lend support to a fresh faced alliance to bring balance back to the force. Genuine competition is needed to ensure innovation, service and passion once again becomes the hallmark of what has been a critical and unheralded part of the Industrial Services landscape in this country.