Hirequip looks at selling off core business

Option to cash in. Picture / Hawkes Bay Today

Listed hire company Hirequip New Zealand is considering selling its core equipment hire business, prompted by the good price achieved by rival Hirepool.

Hirequip co-chief executive George Paterson said a planned review of the hire business would get under way next week.

"It's come about in part at least because of what appears to be the success of the Hirepool transaction and so the board has concluded that it is probably timely to review strategically our hire business," Paterson said.

Last week, Goldman Sachs JB Were and transport group Mainfreight sold their respective 51 per cent and 24.5 per cent stake in Hirepool in a deal that valued the firm at $172 million.

Hirequip is one of New Zealand's largest equipment hire companies and has a market capitalisation of about $138.7 million.

The Hirepool deal showed a multiple of 8.2 times operating earnings.

For the year to last June, Hirequip's hire and equipment business returned operating earnings of $27 million, which if the same multiple was achieved would see it sell - excluding debt - for $221.4 million.

Paterson said the review by Hirequip was not launched because of the Hirepool transaction but had gained momentum from it.

"It's provided the impetus I guess. It's something that we believe that any company needs to do from time to time."

Hirequip could sell its core equipment hire business and move into other ventures or return cash to shareholders. The review process would look into all options.

"I would imagine ... it will be about continuing to grow and develop the hire business to maximise the opportunities that are available," Paterson said.

Hirequip, which was founded in Dunedin in 1954, went public in May 2003 when listed investment company Southern Capital bought the business and renamed itself as Hirequip.

Apart from the hire business, the company owns some residual assets from its days as Southern Capital, including property interests and a stake in a listed Tasmanian dairy farming company.

In the year to last June, the equipment hire business earned revenue of $87 million, with the company's residual assets earning $14.7 million in revenue.

Hirequip shares closed up 9c yesterday at $1.18.

ABN Amro Craigs analyst Selwyn Blinkhorne said considering the price paid for Hirepool, the Hirequip management and board were doing their duty to the shareholders to explore the possibility of selling.

"As I understand it there were three or four bidders for Hirepool and one bought it so I suppose that leaves another two or three parties around who would look at buying a hire business without looking any further afield than that," Blinkhorne said.

Next Capital - formed by three former Macquarie Bank private equity executives - bought Hirepool and Blinkhorne suspected the bidders who lost out on that deal were private equity funds.

"I suppose comparing the price that was paid for Hirepool with the price at which effectively the Hirequip hire business is valued you'd say well there's a significant margin there if they can find somebody to pay up," Blinkhorne said.

Paterson said the review of the Hirepool business was about ensuring shareholder value. The review could even recommend not selling out of the hire business.

The review was not a reaction to the state of the economy.

"In fact, we are quite bullish about the sector in which we operate in the economy.

"There are not insignificant opportunities with the Government's planned infrastructure spend over the next decade."

Acting chairman Ray Polson said conclusions from the review were "some way off" and any sale of the equipment hire businesses would be subject to shareholder approval.

"There is considerable interest in the equipment hire sector and a growing appreciation of the value of businesses with strong earnings and growth potential," Polson said.

"We need to ensure that Hirequip is well placed to take advantage of that interest."