Equipment rental specialist Vp’s (VP.) acquisition of Brandon Tool Hire from private equity group Rutland Partners is big news for the company and should boost earnings within 12 months.

It might appear a risky departure from Vp’s normal strategy but chief executive Neil Stothard says ‘the only real risk to the deal is that it’s the biggest we’ve done’. Brandon set Vp back £41.6m in cash and it had to take on its £27.2m net debt as well.

The deal was financed through new bank facilities and Stothard says lenders have been ‘very supportive’ throughout.

Andrew Nussey, analyst at Peel Hunt, describes the deal as a ‘surprising strategic move’. It seems highly likely that Brandon is going to be integrated with Vp’s existing Hire Station business.

Combining the businesses should deliver economies of scale to create a ‘leading specialist tool hire business’ in the UK.

The deal will extend Hire Station’s reach substantially. It had 58 branches, with Brandon’s stores it will now have over 200. Nussey says ‘the businesses look to be a very good fit with limited geographic and customer overlap’.

Brandon has had quite a history, at one point on the market itself; it was bought by Wolseley in 2006 for around £72m. After the financial downturn, Wolseley sold Brandon to Rutland for £43m.

Stothard says he’s very aware of the risks associated with private equity, especially firms trying to ‘take off the cream in cash’.

He’s planning to invest in Brandon’s fleet to get it up to speed with Hire Station.

Bulking up the UK

Vp is no stranger to acquisitions; in its last financial year it acquired businesses in Australia and New Zealand. Management told Shares earlier this year that this was done to diversify the risk away from the UK. Now it looks like they want to beef up their presence in the domestic market.

The Brandon deal has caused analysts to make upgrades to Vp’s forecasts. N+1 Singer analyst James Tetley has increased his pre-tax profit forecast for the March 2019 financial year by 14% to £46.7m. Stothard says the deal will take 12 months to bed in.

In terms of valuation, with the revisions Vp is trading on 9.1-times 2019’s forecast 92.7p of earnings. The shares also offer a 3.6% dividend yield using Tetley’s forecasts. (DS)

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