Equipment-as-a-Service model drives rental industry boom

The equipment rental industry continues to experience significant growth as the “as-a-service” model helps meet rising customer demand. 

Equipment-as-a-service (EaaS) is experiencing rapid growth as rental companies and divisions target new customer expectations, Matthew Hudson, managing director and head of equipment-as-a-service within global investment bank Houlihan Lokey’s Business Services Group, told Equipment Finance News. 

EaaS is the use of a core fleet of equipment combined with value-add services or on a complete outsourced servicing, Hudson said. 

Business models within EaaS, he said, include:  

• General equipment rental;  
• Specialty equipment rental; 
• Vehicle fleet management;  
• Route-based EaaS;  
• Infrastructure EaaS; 
• Municipal EaaS; and
• Equipment dealerships.  

“The value-enhancing services include items such as field-level consultation, complex engineering expertise, specialized application set-up, skilled operators, cleaning, testing/recalibrating, telematics and GPS tracking, remote monitoring and more.”  

Modern customer expectations 

Customers today prefer not to own, move, maintain and service equipment, Hudson said. 

“Customers want the right equipment at the right place for a set period of time and prefer not to own it, move it, maintain and service it,” he said. “With the higher interest rates today, customers are paying greater financing costs to purchase/own equipment vs seeking EaaS providers for their needs. Also, many times there are special application needs and technical knowledge that the customer lacks and thus seeks to outsource that expertise and the related equipment.”

Customers also continue to demand more connected equipment and technology-enabled equipment, Alec Jorgensen, vice president of finance and treasurer of EquipmentShare, told EFN. 

“Our assets are connected to a platform that [can] understand where the rented assets are, how are they running, who are the who’s running them, service history, and maintenance,” he said. “That’s what the technology enables and ultimately, our customers really appreciate that.” 

EaaS is the utilization of a core fleet of equipment combined with value-add services or on a complete outsourced servicing, Hudson said. 

“There are a wide range of business models within Equipment-as-a-Service that include: general equipment rental, specialty equipment rental, vehicle fleet management, route-based EaaS, infrastructure EaaS, municipal EaaS, equipment dealerships, etc.,” he said. “The value-enhancing services include items such as field-level consultation, complex engineering expertise, specialized application set-up, skilled operators, cleaning, testing/recalibrating, telematics and GPS tracking, remote monitoring, and more.” 

Projects, spending boost EaaS

Meanwhile, the rental industry’s growth comes across several project areas, United Rentals‘ Chief Executive Matthew Flannery said during the company’s April 25 earnings call. 

“By vertical, we saw growth across both construction, led by non-residential, and our industrial end markets with particular strength in manufacturing, utilities, and downstream,” he said. “We continue to see numerous new projects across many of the same areas we’ve discussed the last several quarters, including power generation, data centers, automotive and infrastructure.” 

Traditional equipment rental stock values rose 69% over the last twelve months ended March 31, with United Rentals leading the way at 85.3% growth, according to Houlihan Lokey’s North American EaaS index. The growth comes as United States infrastructure spending boosted demand, Hudson said.

“There is a large wave of federal stimulus infrastructure bill spending that is still building, and EaaS companies are seeing a building backlog of projects,” he said. “There are also a tremendous amount of mega-projects, new chip plants and onshoring of manufacturing occurring in the U.S., driving significant demand for all categories of equipment and the complementary services EaaS companies provide.”   

Rental industry economic growth 

As a result of increased infrastructure spending and more U.S.-based projects, the EaaS industry in the U.S. expects to expand further over the next several years, Hudson said. Nearly $2 trillion in legislative funding from the Infrastructure & Jobs Act, the Chips Act and the Inflation Reduction Act will continue to push expansion over the next five to seven years. 

The volume for the top 100 equipment rental firms in North America grew to $41 billion in 2023, up 15.8% year over year, according to the Rental Equipment Register 100, which tracks rental and sales volume for the 100 largest rental companies. 

While the decline in the rate of inflation in 2024 has slowed EaaS growth, investors remain confident that cooling inflation and rate cuts will further boost the industry, Houlihan-Lokey’s Hudson said. 

“Performance from the larger players this year in the space is strongly indicative of projections showing a 3% to 4% market expansion this year,” he said. “Sentiment from executives reflects a view that businesses remain confident in their near-term growth plans as project demand remains stable.”

EaaS mergers, acquisitions continue growth

The EaaS market also continues to see consolidation, driven by the largest rental houses, building on the activity of 2023, Hudson said. 

“We continue to see consolidation by market leaders to further scale, diversify and specialize their platforms,” he said. “We also see tremendous interest from financial sponsors, including buyout funds, sovereign wealth funds, family offices and, increasingly, infrastructure funds.”

For example, Ashtead Group, parent company of equipment rental company Sunbelt Rentals, completed 26 acquisitions during the company’s fiscal 2024, which ended on April 30, Chief Executive Brendan Horgan said during the company’s June 18 earnings call.  

As financing markets improve with possible Federal Reserve interest rate cuts, the appetite for investors and financing institutions will grow, Hudson said. 

“Financing markets have opened up recently and are much more accommodative today than a year ago for EaaS companies, supporting more M&A activity,” he said. “We are finding a ready supply of interested lenders, competitive financing structures and pricing from the private credit markets.” 

EaaS industry outlook remains positive 

Still, pandemic-induced headwinds such as inflation and elevated lead times pressure EaaS companies by creating increased costs and delays, Hudson said. Labor is also an area of concern for EaaS companies. 

“Everyone from mechanics to drivers to laborers remains in short supply,” he said. “The outcome is an increase in labor costs while also potentially delaying project timelines and/or resulting in EaaS companies having to turn down large job requests that they simply cannot fulfill.” 

As costs and delays continue to rise, the ability to operate a successful rental house requires much tighter management, Hudson said.

“Increasing integration of technology with equipment continues to boost measures around tracking, pricing and utilization of equipment, which will continue to yield improvements to how well companies manage their fleet, enhancing their overall financial and operational performance,” he said.

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