KEY POINTS:
More consolidation and acquisitions are likely in the equipment hire sector but unlisted companies could have an advantage, says listed operator Hirequip New Zealand.
Hirequip shareholders will vote on December 18 on a deal to sell the core equipment hire business to PES Finance for $165 million, plus up to another $7.5 million based on performance.
The company - whose directors unanimously support the deal - said yesterday the hire business would expect to be presented with a number of acquisition opportunities during the next two years, allowing an expansion both geographically and in the products offered.
"The board also expects the New Zealand construction market to follow the worldwide trend towards increased reliance on rented equipment, as construction companies and contractors seek to achieve more efficient use of capital," the company said.
However, when substantial capital investment was required a listed company would generally be at a disadvantage to unlisted firms in fully exploiting opportunities, it added.
Hirequip had undergone substantial growth during the last three years - a period of market consolidation - and chairman Graeme Wong said the competitive landscape was changing.
Unlisted firms could put more debt on the balance sheet compared with their public equivalents, he said. Hirequip tended to be geared (debt to equity) between 30 and 45 per cent "but in a typical private equity structure ... it's conventional to have upwards of two to one [ratio], not less than one to one."
"There's going to be opportunities but there's also going to be a lot more capital chasing those opportunities and so in that circumstance the return on investment margin may contract," Wong said.
The memorandum had a tone that things were not doom and gloom, "having said that there is an opportunity to sell, there were a number of buyers who were attracted to the sector and were looking to do a transaction if they could".
Although Hirequip did not commission an independent valuation report the process had been cleared by the Stock Exchange.
"We still had to comply with the normal process and we took the view that in reality if we'd just been through a competitive market tender then some so-called expert trying to tell us what the value might be is purely hypothetical because we've market tested it," Wong said.
Paul Collins, executive director of Active Equities - joint venture partner in 13.3 per cent shareholder Willpro Holdings - said he supported the firm's decision.
Collins intends to vote in favour of the sale, which with chairman Wong and director Stuart McKinlay could already expect about 45 per cent support - it needs more than 50 per cent to be approved.
