SPECIAL EVENTS MAGAZINE: When we interviewed Fred in 2002, we talked about how the party rental business was perceived by the investment community as a fragmented moneymaker with no clear-cut leaders. How would you describe it now?
FRED HAGEMAN: There is a clear-cut leader now. {Los Angeles-based} Classic Party Rentals went from being a $30 million to $40 million company in 2002 to a $170 million company with the announcement of their acquisition of Prime Event Group {of Tucson, Ariz.} yesterday {June 19}. Since 2002, we've also seen Chicago Party Rental {of McCook, Ill.} acquire Braun Event & Tent and Events Chicago {both in Chicago}, and M&M {of Carol Stream, Ill.} buying {Dallas-based} Abbey Party Rents and Props of Texas. The business has rebounded significantly from 9/11, and it's definitely grabbed the attention of some of the equity folks in the marketplace. But it still is a fragmented business.
GARY STANSBERRY: If you take the companies that Classic has bought out of the Special Events Magazine “30 Top Event Rental Companies” list, the other firms in the list do $300 million-plus a year. So given that it's a $3 billion market {by ARA estimates}, that leaves about 85 percent of the industry scattered among literally thousands of smaller operations.
Q: What regions in the U.S. are ripe for consolidation?
FH: There are definitely still more opportunities both in northern and southern California.
GS: We're going to see consolidation in the Washington-to-Boston corridor. I think one of the keys {to markets ripe for consolidation} is wherever you have large population centers in close proximity, like here in Texas and really the Southeastern U.S. in general. You look at Atlanta, Charlotte {N.C.} — there are a number of major markets within three to five hours of Atlanta. So I think there is potential anywhere where there are large population centers relatively close together — California, Texas, Florida and the Northeast.
Q: As consolidating party rental companies begin to make regional footprints, how does the smart single-unit operator prosper?
FH: When there was heavy consolidation on the equipment side, a comment we heard over and over was, “{Consolidator} United Rentals coming in here was one of the best things that's happened to my business.” {Party rental} is a relationship-based business, and owner/operators can make the decisions instantly. You can say, “We've got the personalized service, and we're not going to become a corporation with a lot of red tape.”
GS: We've seen surveys that show large numbers of rental customers would prefer dealing with a well-run local company versus a national chain. Given that, though, the independents have got to stay on top of their game. Because, make no mistake, these national companies are going to come in with sophisticated marketing, quality inventory and broad selection. So the locals have got to offer quality inventory with a high level of customer service.
FH: One of the challenges is that price points, at least in the short term, are usually lowered due to the {chains'} purchasing power. A larger consolidator has the wherewithal to spread out purchases over multiple locations versus somebody who's buying for just a single location. As Gary said, the best way to counteract that is to step up your game, and that's with customer service, keeping your inventory fresh, and staying on the cutting edge of what the customer wants. Obviously, you really need to watch for trends and make sure they are not fads. We always say that {a product} has got to have traction; otherwise it doesn't make sense as far as purchasing.
GS: We've seen that these national companies try to raid the employee base of the locals, especially when it comes to salespeople. You should always have a diverse contact base within your company, so the client is doing business with ABC Party Rental, and not with Jim Smith of ABC. Conversely, you need to make sure you're dealing with more than one contact at your customer companies, so if that contact moves on, you don't automatically lose the business. Make sure you've got roots in that business, and the business has roots within your business.
Another thing that we saw over on the equipment rental side is that consolidation raised the level of professionalism for the rest of the industry. We saw better paint jobs on trucks, better facilities, newer fleets. Seeing consolidation in their market made other operations say, “We've got to get our act together — we're going to improve our Web site, we're going to update our logo, we're going to make sure we have quality products.” It really is a benefit for the entire industry.
Q: What steps do you see the successful party rental companies taking in the next three to five years?
GS: They will have broader product offerings, and they will offer a complete tenting selection and more specialty items in tabletops and linen. And — probably the biggest thing — they will develop increased sophistication in tracking some of the labor-intensive parts of the business, such as deliveries, dishwashing, laundry, setup and warehousing. I think you'll also see more sophisticated facilities that are organized for maximum labor efficiency. The top performing companies will be more regional in scope, as opposed to local. And also, I think that we're going to see some real advances in computer software to track operations.
FH: The top performing party rental companies will continue to grow. I think you are going to see the first large publicly traded company in the next three to five years, which, I think, will foster growth among those that are just on the verge of being regional. It will facilitate some other strong companies to say, “You know what? It seems like it's time to get on the radar screen and add branches.”
With offices in Cameron Park, Calif., and Arlington, Texas, Hageman, Stansberry & Associates is a mergers and acquisitions firm that specializes in the special event and equipment rental industry. Principals Fred Hageman can be reached at 530/672-1885 or via e-mail at [email protected] and Gary Stansberry at 817/563-6882 or via e-mail at [email protected]. The firm's Web site is www.rentaladvisors.com.
