Electro Rent Buys Competitor

Van Nuys-based Electro Rent Corporation bought a bankrupt electronic test equipment company for about $10.7 million, in a move company officials say will immediately add to its earnings. Electro Rent rents, leases and sells general purpose electronic test equipment and other products. The company has a market value of about $358 million and 371 employees worldwide, including 198 in Van Nuys. Electro Rent purchased Las Vegas-based Equipment Management Technology Inc. in a bankruptcy sale. The company provides test equipment primarily to the aerospace and defense industry. The deal closed on Aug. 24 but is still subject to post-closing purchase price adjustments, company officials said. Industry observers say the acquisition will help the company to expand its rental inventory and customer base. Electro Rent has been able to benefit from an industry shift as more companies turn to renting and leasing equipment in order to cut costs, they say. The purchase of Equipment Management follows Electro Rent’s purchase of Telogy LLC in March 2010 for $24.7 million, which added about $10 million to the company’s revenues for fiscal year 2011, said Craig Jones, Electro Rent’s vice president and chief financial officer. Equipment Management Technology was one of Electro Rent’s smaller competitors, Jones said. He noted that Electro Rent is acquiring the company’s assets, which primarily include its equipment and receivables, as well as its customer base. “We will not be acquiring other types of expenses to go with it, so the rest of the revenue will go to the bottom (line), except for depreciation of the equipment that we’re acquiring,” Jones said. “It integrates very easily and quickly with little risk, or no costs.” Electro Rent already has moved the acquired equipment to its headquarters in Van Nuys, he said. David Gold, senior equity analyst for equity research firm Sidoti & Company LLC, said the acquisition is not a landscape changer for Electro Rent. However, he said it helps the company to increase its product volume. “It expands their rental pool,” he said. “It gives them more equipment at a good price.” Rick Nelson, editorial director for Test & Measurement World magazine, agreed. He said expanding Electro Rent’s rental product pool helps the company better take advantage of a test equipment market that has been growing. “With the economy the way it is, companies are now saying they can get by with last year’s model,” Nelson said. That kind of shift in thinking benefits companies such as Electro Rent, which provides used equipment. “That’s attractive to a lot of companies who are trying to get by on more of a reduced budget for purchases,” Nelson added. In its most recent earnings statement, released this month, Electro Rent announced that its rental and lease revenues rose by about 17 percent to $30.9 million during the fourth quarter of fiscal year 2011, compared to $26.5 million during the same period in 2010. The company attributed the increase to higher rental demand and rates in North American and Europe. It said the Telogy acquisition also contributed to the increased revenues. Equipment sales for the company nearly doubled to $34.3 million for the most recent fourth quarter, up from $17.5 million the previous year. Beside higher rental activity, Nelson said more manufacturers appear to be moving toward a distributor model, or using resellers like Electro Rent, a shift that has been accelerating over the past couple of years. Electro Rent has been able to benefit from this new direction. In 2009, the company signed a contract to be the only reseller for measurement equipment maker Agilent in the United States and Canada. The contract bumped up Electro Rent’s sales activity, Jones said. He said the company had just over $32 million in equipment sales and some other revenue in fiscal year 2009. For fiscal year 2011, that figure jumped to nearly $110.7 million, creating more of an even balance between Electro Rent’s rental and lease revenue and its sales revenue. Gold said the Telogy acquisition last year made Electro Rent bigger than its largest competitor, Livermore, Calif.-based McGrath RentCorp. Before the deal, the companies were “neck to neck,” he said. “They’ve been doing relatively well, given the economic downturn, so they’re pretty well positioned,” he said. “They were pretty well capitalized, so that really helped.” Jones said acquisitions have been an important growth strategy for Electro Rent, though he’s not sure there will be many more acquisition opportunities to pursue in the future. “If any of those companies (our competitors) want to sell, we’d certainly listen, but we can’t be very aggressive about it because there’s a limited number of companies that are out there,” he said. “We have to wait and see if they want to stay in business.” Jones said the company is now going to channel its efforts on growing its geographic presence. In addition to its headquarters in Van Nuys, Electro Rent currently has offices in Norcross, Ga., as well as offices in Canada, Belgium and China. “We’re going to focus on growing all those geographic areas and continue to develop our Agilent relations and try to expand that same type of resale relationship with other vendors,” he said.