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Investment in the commercial vehicle industry

Friday, September 19, 2014 - 11:12
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paul jones

Paul Jones, partner in the Industrials team at Clearwater International

Key investment trends in the sector and how businesses can make the most of the growth opportunities

Mid market advisory firm Clearwater International recently advised on the sale of commercial vehicle rental provider Burnt Tree to Enterprise Rent-A-Car.

Following the deal, Paul Jones, partner in Industrials, analyses key investment trends in the sector and how businesses can make the most of the growth opportunities available.

Having proved resilient throughout the recession, the commercial vehicle market is currently showing strong growth, as it continues to benefit from a positive macro outlook, increased vehicle outsourcing trends, and the combination of low cost and high availability of vehicle financing. As a result, the market is attractive to both investors and trade acquirers. We have seen this potential first-hand, after advising on Enterprise Rent-A-Car’s acquisition of Burnt Tree, one of the UK’s largest providers of commercial vehicle rental to private companies and public sector organisations.

Alongside players like Northgate plc, Burnt Tree has been instrumental in developing the flexible commercial rental model within the UK and has seen year on year growth over the last few years. Although Enterprise Rent-A-Car was already present in this market with the Flexi-Rent brand, their purchase of Burnt Tree has been crucial in making a step change in growth. By following a similar strategy, other global brands with business models still dominated by daily car hire and airport operations can develop and widen their service offering.

The Burnt Tree deal is the latest in a string of notable transactions in the commercial vehicles market during the last 18 months. A number of private equity players have taken advantage of the opportunity for growth within the wider commercial vehicle rental, contract hire and fleet management market. For example, in March this year, HgCapital completed the merger of Zenith Vehicle Contracts Limited, a leading leasing, fleet management and vehicle outsourcing business, with the Leasedrive Group, a UK-based fleet management and vehicle rental management service provider.

Now operating a fleet of over 64,000, the transaction makes Zenith-Leasedrive Holdings the largest independent fleet management and vehicle leasing business in the UK, demonstrating the significant potential for expansion through M&A. The primary appeal of HgCapital’s investment lies in Zenith’s attractive operating model and proven management team, strong core profitability and high recurring income bolstered by the potential for double-digit revenue growth. The merger also creates value enhancement opportunities through scale and overhead synergies.

With an active M&A market and willing private equity investors, the next 12 to 18 months should be a busy period for the wider commercial vehicle market.

Paul Jones is a partner in the Industrials team at Clearwater International. He has 20 years’ experience in corporate finance, and specialises in the industrial and support services markets. As well as advising on the sale of Burnt Tree, Paul also recently advised on the acquisition of credit hire provider Kindertons.

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