As part of its strategic effort to focus on its core business, the Volvo Group, Gothenberg, Sweden, in early December agreed to sell Volvo Rents, Shippensburg, Pa., to Platinum Equity, a private equity firm based in Los Angeles, for approximately SEK 7.2 billion (US$1.1 billion).
Volvo Rents currently operates a network of more than 130 company-owned rental stores in North America offering equipment for construction, commercial and industrial markets.
“We looked at different alternatives to grow Volvo Rents’ business and concluded that the best alternative is to sell the operation to another owner. Volvo Rents’ business does not have a sufficiently strong connection with the Group’s core operation to motivate continued ownership,” says Olof Persson, Volvo Group president and CEO.
The transaction is expected to be closed in the first quarter of 2014 and is at that time expected to have a positive impact on the cash flow for the Volvo Group of US$1.1 billion.
The sale of Volvo Rents is expected to decrease the net financial debt for Volvo’s industrial operation by US$1.1 billion, corresponding to a reduction of the net financial debt to equity ratio for the industrial operation as calculated per the third quarter of 2013 by approximately 10 percentage points.
At closing, net financial debt in the Volvo Group’s industrial operation is expected to be reduced by the same amount. The transaction is expected to have a negative impact on the Group’s operating income of approximately SEK 1.5 billion (US$229 million) in the fourth quarter of 2013.
A pre-requisite for completion of the transaction is that Platinum Equity is successful in a debt offering to be made to finance its acquisition. Volvo CE will continue to sell products to Volvo Rents under the new ownership.
Volvo Rents, formed in 2001, offers the rental of a comprehensive range of machines intended for the construction and engineering industry, including Volvo CE products. Volvo Rents has operations in the U.S., Canada and Puerto Rico and has about 2,100 employees. In the first nine months of 2013, Volvo Rents had net sales of SEK 3.1 billion (US$474 million) and recorded an operating loss of SEK 47 million (US$7.2 million).
The company initially launched a franchise network of rental stores before shifting strategy in April 2011 to also run company-owned stores, purchasing many of its franchise operations as well as a number of independent rental stores.
Platinum Equity is a California-based global investment firm with a highly specialized focus on business operations. The company was founded by Tom Gores, the company’s chairman and CEO, in 1995 and also has offices in New York, Boston and London.
The firm has completed more than 115 acquisitions since its inception and has a current portfolio of 34 businesses that includes companies across a wide range of industries, including technology, automotive, telecommunications, manufacturing, distribution and logistics, and media. Platinum Equity also has significant experience investing in companies that serve the construction, commercial and industrial equipment rental market.
All of Volvo Rents’ employees will remain with the company as it is sold. The company says Volvo Rents’ customers will not be affected by the transaction.
Completion of the transaction is subject to certain conditions, including the approval of relevant authorities.