Market update from Raffi Aharonian, Managing Director of Rouse Appraisals

With the landmark Orlando auction officially in the books—attracting 26,000+ bidders and generating US$213+ million in gross transaction value—it’s a good time to take a step back and see where the market has been and where it might be headed.

Since the onset of the pandemic in early 2020, we have experienced interesting market dynamics develop, carrying forward to present day where we are driving very strong pricing for consignors, but how did we get here?

Initial Pandemic Response

After the initial shock of global lockdowns in Q1 2020, we saw markets react abruptly with some sharp price reactions. For the equipment industry, the good news is downward pricing moves were short lived, on the back of the essential nature of construction work. Despite that, looming uncertainty caused a lot of disruption in terms of normal fleet replacement cycles. Rental companies, OEM dealers, and contractors deferred or cancelled orders placed earlier in the year, and many began selling equipment to right-size fleets in the event of a prolonged downturn.

Supply Shortfalls

As the demand for equipment continued to pick up throughout the end of 2020 and into 2021, we saw a combination of effects take hold. First, equipment owners sought to add to their fleets, calling on manufacturers for new orders, leaving manufacturers with extended lead times, on account of re-upping their production capacities to meet the sudden, renewed demand. Alongside that, the world saw supply chain disruptions and chip shortages, exacerbating the supply dilemma.

As a result, beginning in Q1 2021, used equipment pricing heated up, surpassing pre-pandemic levels, and eventually surpassing prior-peak levels, reaching a new five-year high. To date, we have not seen any slowdown in price increases for used equipment.

Demand Dynamics

While supply issues are continuing to make headlines across all industries, one of the untold stories of the pricing dynamic rests with the healthy levels of demand observed across the equipment industry. Total construction spend continues to rise, and manufacturers continue to report strong backlogs for equipment.

The demand story is particularly telling, by way of utilization trends across the rental industry, tracked uniquely by Rouse Analytics. In 2021, we observed rental utilization—a measure of demand for equipment out of rental fleets—exceeded levels achieved in 2020 and 2019.  Further to that, YTD 2022 is demonstrating utilization levels that exceed the same time frame for each of the three preceding years. This, on the back of increasing fleet levels, indicates demand for equipment from end users and contractors remains very strong.

Present Day

As we look at the Rouse Value Index for auction pricing above, it’s clear pricing has reached recent highs, driven by a combination of supply challenges and strong buyer demand.

Importantly, as we look at price realization in the annual Orlando auction last month, we see pricing continuing to inflate.

To learn more about Rouse and its services, visit rouseservices.com.

Rental Equipment Register highlights top rental companies of 2020

Rental Equipment Register magazine has released its list of the top 100 equipment rental companies of 2020, including 63 Rouse Services customers.

The 2020 RER 100 totaled $25.6 billion in revenue, making it the second largest year in the list’s history. However, this was down approximately 8.8% from the record US$28 billion reported in 2019.

The top 10 companies listed in the RER 100 make up approximately 74% of the list’s rental revenue, led by United Rentals (~US$7.1 billion), Sunbelt Rentals (~US$5.2 billion), and Herc Rentals (~US$1.5 billion).

Rouse customers featured on RER 100

Rouse has spent decades building its reputation as a trusted partner in the industrial equipment industry. It serves as a central hub for equipment rental data, using industry-leading software to collect and analyze fleet and transactional data. This gives Rouse a deep understanding of where the marketplace is at in terms of secondary market pricing and real-time equipment rental activity.

Rouse equipment values and rental benchmarks are considered the gold standard in the equipment industry. Here’s what some of the RER Top 100 say about Rouse and its services:

8. H & E Equipment Services (~US$662.9 million)

“The services offered by Rouse, and more specifically the data they supply for our equipment rental business, are invaluable to our company,” said Brad Barber, President & CEO, H&E Equipment Services. “Not only do they provide clean, accurate, actionable data in ways our business can use it, they also do so with a sense of urgency and professionalism that is unrivaled.  In my career, I have never worked with a more forward-thinking and pleasant team”

18. Cooper Equipment Rentals (~US$157 million)

“Rouse has provided incredible value in its strategic partnership with the industry,” said Doug Dougherty, CEO of Cooper Equipment Rentals. “The access to aggregated competitive data to benchmark our performance has enabled Cooper Equipment Rentals to maximize opportunities in each of our distinct markets and further support our expansion efforts across Canada.

43. Holt of California (~US$72 million)

“Rouse Services has been a game changer for the rental industry,” said John Johnson, Vice President, Holt of California. “Utilizing their software gives us a lot more knowledge at our fingertips which has enabled us to make better informed decisions to drive profitable revenue growth in rental and used equipment. A professional group of employees dedicated to customer satisfaction with industry leading technology.

62. Berry Companies (~US$48.7 million)

“We have found the Rouse Analytics dashboard to be powerful and intuitive,” said Adam Berry, COO, Berry Companies. “It has unearthed the insights we have needed to navigate the increasingly unpredictable environment. Their team has been knowledgeable and flexible in their approach and we wish we would have come on board sooner.”

All in all, 63 companies on the RER 100 are using and Rouse customers, including 8 of the top 10. To learn more about Rouse and its services, visit rouseservices.com.

For decades, both Rouse Services and Ritchie Bros. have been serving the equipment and truck industries with their respective appraisal businesses. With Rouse joining the Ritchie Bros. family last year, we’ve combined these two appraisal businesses into one team with unrivalled hands-on equipment experience, knowledge, and data.

While Rouse has historically focused on construction, our industry expertise has expanded to transportation, agriculture, cranes, O & G, and more now that we’ve joined Ritchie Bros.

“Our appraisers are armed with the richest dataset anywhere in the industry,” said Raffi Aharonian, Managing Director, Rouse Appraisal Services. “We can also directly connect customers to Ritchie Bros.’ disposition solutions, should they choose to go that route post appraisal.”

Rouse Appraisal Services will offer appraisals and detailed inspections for a wide variety of use cases, including asset based lending, company and contractor driven needs, M&A support, and residual values for leasing institutions.

“Our goal is to help customers through all stages of an asset’s life cycle, whether that be purchase, inspection, appraisal, or sale,” added Mr. Aharonian. “All these services are available through our end-to-end asset management and disposition system: RB Asset Solutions.”

For more details on Ritchie Bros. Asset Solutions, visit rbassetsolutions.com.

In December Rouse Services joined Ritchie Bros, a trusted leader in equipment, truck, and other commercial asset disposition solutions. This union will enhance the data analytics and service offerings available, as well as provide more innovative solutions to help Rouse customers run their businesses more efficiently.

Who is Ritchie Bros.?

Like Rouse, Ritchie Bros. has spent decades building its reputation as a trusted partner in the industrial equipment industry. Ritchie Bros. was founded over 60 years ago by Dave Ritchie and his brothers Ken and John. The brothers were running the family’s used furniture store in Kelowna, B.C., Canada, when, in need of cash to repay a bank loan, they held an unreserved auction. When the auction was successful, they began holding them regularly, going on from furniture to industrial and construction equipment and trucks.

From a small-town auctioneer to the largest global auction marketplace, selling over $5 billion of equipment each year, Ritchie Bros. owes its 60-year success to an unwavering belief in doing what’s right for the customer.

What does Ritchie Bros. do?

Ritchie Bros. helps customers buy and sell a wide range of used and unused equipment for construction, mining, transportation, agriculture, oil & gas, lifting & material handling, forestry & other industries. This is done by creating compelling business solutions for the world’s builders to easily and confidently exchange equipment. Ritchie Bros. has moved from being strictly an auction company to a solutions, insights, and services company.

The company’s buying and selling channels include: Ritchie Bros. Auctioneers, the world’s largest industrial auctioneer offers live auction events with online bidding; IronPlanet, an online marketplace with featured weekly auctions and providing the exclusive IronClad Assurance® equipment condition certification; Marketplace-E, a controlled marketplace offering multiple prices and timing options; Mascus, a leading European online equipment listing service; and Ritchie Bros. Private Treaty, offering privately negotiated sales.

The company also offers sector-specific solutions including GovPlanet, TruckPlanet, and Kruse Energy, plus equipment financing and leasing through Ritchie Bros. Financial Services. 

How does Rouse joining Ritchie Bros. help customers?

Ritchie Bros. is trusted as the world’s leading global marketplace for used equipment, vehicles, and services. With Rouse as part of the Ritchie Bros. family of solutions, we increase connectivity and deepen our already strong relationships with fleet owners and asset-backed lenders. Together we are stronger and will accomplish even greater things for our customers!

Ritchie Bros. and Rouse are excited to bring these services to its customers around the world, while providing Rouse with the power of Ritchie Bros.’ expanded sales force.

Stay tuned for more news and announcements on product innovation between Ritchie Bros. and Rouse Services.

The corporate ecosystem does not look the same as it did a year ago with thousands of companies and people having to adapt to an online new world. When the COVID-19 pandemic started, Rouse was swift to encourage its employees to work remotely. The safety and well-being of the employees is Rouse’s number one priority. Rouse had recently expanded its headquarters in Los Angeles to accommodate its 70 employees, including nearly 55 full-time employees and an offshore group of engineers who support our product development, feature enhancement, and database support– over 130% growth in employee count since 2013 when the Company had approximately only 30 employees. Among the added features to the recent office expansion is a separate space outfitted with technology to support training sessions and team presentations.

Rouse boasts a diverse team that includes professionals from China, Brazil, Russia, and more. The office possesses a startup ambiance, which continually encourages employees to always do their best, think critically, and stay motivated which translates into excellent customer services to Rouse’s clients. This blends together with the longevity of the Company and the strong position within the equipment rental industry to provide customers with industry-leading products founded on knowledge and experience.

This year, Rouse celebrated its 100^th year anniversary. The company started in the auction business in the 1920s and transitioned to the intelligence business in the early 2000’s serving lenders and construction equipment rental companies with appraisal services. Later, Rouse added two lines of services: sales/remarketing tools and rental/utilization benchmark. In late 2020, Rouse announced another big step in its growth: the proposed acquisition from Ritchie Bros. Auctioneers, bringing Rouse’s journey as a company to new heights.

Rouse team members demonstrate a curious mindset with a thirst for continual learning and growth opportunities. Rouse’s employees come from many different professional backgrounds, with a good portion coming from financing and consulting companies such as Deloitte and Ernst & Young or cutting-edge companies such as Space X. The majority have graduated from prestigious colleges throughout the world, including California local colleges such as USC and UCLA. What everyone has in common is that Rouse’s clients are always a top priority and customer service is taken very seriously throughout the organization. Rouse is the type of company where you can ring the front desk and speak with someone that can help, if not immediately, very quickly. The customers really appreciate this approach.

The executive team is committed to providing transparency and regular updates about the Company’s growth and future and that motivates the employees to work hard and grow with the Company. Although this year looks a little different, Rouse has a tradition of doing a mid-year business update that usually includes a happy hour and allows time for the employees to socialize while learning about what’s happening behind the scenes. Jacob McCarthy, who’s been with the Company for five years, started as a Senior Analyst and got promoted to a Director role a couple of years ago stated, “Rouse fosters an entrepreneurial spirit across the organization that motivates me each day in and out of the office. This breeds a culture of ownership that cuts across both my own industry knowledge and capabilities and the value that we deliver to our clients. Our team is engaged and always looking to maintain a pulse on the industry and clients that we serve.”

Rouse’s goal is to provide the best service to their client base and all divisions work together to maintain top-notch customer service for all clients regardless of size. One of the product managers from the Rouse Sales solution shared their view: ”working at Rouse Services has been a more rewarding experience than I imagined when I joined. I am continuously empowered to make decisions that meaningfully impact the product in our customers’ hands. I have greatly enjoyed, alongside the rest of our talented team, navigating the challenges posed by our client growth and our plans to upgrade the Rouse Sales technology platform. Every day, I feel like we’ve helped our clients run their businesses a little bit better.”

The ambiance is set where employees are free to be creative and discuss their ideas and thoughts.  “Rouse is a gathering of intelligent, motivated analysts and developers working together to tackle complex problems. Our industry-leading adoption of cutting-edge tools ensures that employees are able to expand their skills while delivering actionable insights to our clients. The human-focused environment provides me and my colleagues with the support and flexibility necessary to maintain Rouse’s dominant position as the gold standard for industry intelligence” says Evan Hilderman, a Senior Analyst, from the Analytics division.

Working for Rouse allows you to be part of a growing company and to work alongside smart and talented individuals while having fun and helping customers in a booming industry. The company hosts happy hours, lunches, team outings, learning & professional development opportunities, and more. Employees can balance careers with their personal lives while staying engaged and working together to achieve success.

Interested in being part of the Rouse Team? Click here to check the current job openings.

The end of World War I, the start of prohibition, and the first presidential election in which women could vote were some of the events that marked 1920 as a year of changes.  The industrialization that would fuel the Roaring Twenties had begun to transform daily life.  In cities across America, cars powered by internal combustion engines now lined the streets and ever taller skyscrapers filled the sky.  Draught animals, an integral part of farming since prehistory, were being replaced by tractors with names like Fordson and Farmall.

Amid this wave of changes to the way Americans lived and worked Max Rouse saw the need to remarket the equipment that was driving the economy.  Industrial machinery was introduced, enhanced, and made obsolete faster than ever.  Max knew an effective auctioneer could give buyers and sellers the capability and capital to grow their businesses, so he founded Max Rouse & Sons in May of 1920 to facilitate that growth.

The size of Rouse’s auctions increased steadily throughout the 20^th century, and the scope reflected the events of the time.  Manufacturing facilities were liquidated during the Great Depression.  The military surplus was sold after World War II.  Drilling equipment was auctioned off in the wake of the 1973 oil crisis.

In the years after the Cold War, Rouse conducted its biggest auctions to date at McDonnell Douglas and Northrup Grumman’s multimillion square foot production facilities in Southern California.  Bidders were kept in small groups by security and prevented from wandering around the factory that had once produced the highly classified B-2 stealth bomber.  Although sensitive materials such as computer hard drives and sophisticated machining tools were previously removed or destroyed, bidders were banned from possessing cameras, tape recorders, cellular phones, or pocket calculators.

As the 20^th century came to an end, Rouse evolved from an auction into an appraisal firm.  This transition was made possible by the massive amount of auction and retail sales data collected over the years.  Construction equipment rental companies and the lenders who served them began to view Rouse Appraisals as a reliable source of information on equipment values.

When the biggest names in the equipment rental industry started to develop their own online marketplaces in the first decade of the 21^st century they turned to Rouse for the knowledge of what equipment to sell and what price to set.  In response, Rouse Sales developed a suite of pricing and remarketing tools to help their clients achieve higher returns at resale.

These same companies then pressed for more visibility into the equipment rental market.  Rouse Analytics responded with the introduction of an unprecedented service that provides product type level comparisons of rental rates, utilization, and other key performance metrics to industry benchmarks.

Today, Rouse tracks $55 billion in equipment fleet value, $24 billion in rental revenue, and $14 billion in sales transaction data annually.  It has over 170 clients in the United States, Canada, and the United Kingdom.  Expansion into Australia, Japan, and elsewhere is set to take place in the coming years.

“While our service offerings have evolved over the past 100 years, our focus has always been on providing the most accurate market intelligence for the industries we serve,” said Gary McArdle, Executive Vice President, and COO.  “Our inspectors, analysts, and engineers all strive to build tools that our clients will find informative and intuitive.  A lot is riding on the data we deliver, and we have great esteem for the trust our clients place in us.”

The 2019 RER 100 has been released, and Rouse is proud to announce that 61 out of the 105 companies featured are participants in Rouse Analytics’ Rental Metrics Benchmark Service.  These companies represent $23.0B out of the $28.1B total revenue tracked by RER.

“We’re very pleased with our clients’ continued growth and success,” said Phil Mause, Managing Director of Rouse Analytics.  “Our goal has always been to enable our clients to effectively drive profitable revenue growth through better-informed fleet management decisions.  Our service helps them understand local market dynamics and identify the types of equipment that have the highest return on investment in their territories.”

The information provided by Rouse has become even more valuable to participating rental companies this year as a result of the disruption caused by COVID-19. “Our benchmarking service started in the wake of the 2008 financial crisis as equipment rental companies struggled to figure out how the equipment market would recover,” said Mause.  “While the impact of COVID-19 has not been as prolonged or severe, the economic uncertainty that it has created has made the real-time information that we provide on local market supply and demand dynamics even more vital to our clients.  They need that visibility to make well-informed decisions on fleet purchases, disposals, and reallocations.”

Rouse Analytics provides over 200 rental companies and dealers with comparisons of their rental rates, utilization, and other key performance metrics to industry benchmarks. Rouse currently tracks $65 billion of equipment OEC on a nightly basis and $25 billion in annual rental transaction volume. Its clients in the RER 100 operate 3,693 rental outlets across all 50 states and 10 Canadian provinces.  Rouse is in the process of expanding the service to the United Kingdom, Australia, and Japan.

Rouse partners with more than a dozen of the most widely used rental software systems to make it easy for companies to participate in the service.

For more information or to schedule a demo, email info@rouseanalytics.com or call 310-363-7513.

With uncertain times comes market stress.  In such periods, it becomes critical for stakeholders to put a watchful eye on key metrics and market trends.

In this update, Rouse provides equipment industry stakeholders with helpful direction on the key factors for consideration – while some may be company (credit) specific, others represent broad market characteristics.  A careful examination of these topics will begin to reveal the story for the latest market trends and may help identify the key inflection points.

Secondary Market Activity

Secondary market activity is ultimately the best source of information for understanding trends in collateral values.  Many stakeholders have been surprised to learn that second-hand buying and selling of construction equipment has been quite robust amid the prevailing uncertainty from March through May of 2020.  With a closer examination of this activity, one should focus on two key attributes:

i) Pricing achievements – willingness and ability to pay will no doubt be a sign of the times and can provide a gauge for demand through challenging market environments.

ii) Sales volumes – along with pricing trends, selling volumes (i.e. unit sales) should be weighed into the thought process. Fluctuations in volumes could provide insight into supply and demand across different sales channels, but nonetheless should be closely monitored in order to accurately identify the trends in the market.

Fleet Utilization

Within the context of a rental business, physical utilization can serve as a true and real-time indicator for demand.  Stakeholders should be keen to monitor this on a standardized measure while adjusting for seasonality and geographic market and drawing comparisons to utilization achievements in prior years.

OEM & Dealer Activity

During periods of market weakness, it is not uncommon to see manufactures and dealers demonstrate reduced production activity and reduced sell-through of new stock as demand begins to decelerate.  While manufacturers can be swift in adapting to declines in demand by cutting production, as demand for equipment returns there may be a supply constraint on account of production lags.  This phenomenon may lead to a short-term supply and demand imbalance that can, in turn, lead to an improvement in pricing for used equipment as buyers turn to secondary markets to acquire products needed to fulfill their construction projects.

Capex plans

Equipment rental companies and other users of construction equipment tend to be responsive to changes in the market by reconfiguring their capex plans quickly as changes begin to develop.

In recent times, many companies have significantly reduced their capex budgets for the year.  As this takes hold, the replacement cycle becomes impacted as rental companies will look to reduce net new purchases and instead manage the fleet they have – either in the form of disposing older and underutilized assets or by allowing the fleet to age out.  As a result of this phenomenon, stakeholders should be watchful of fleet age (in comparison to industry benchmarks) as well as changes to maintenance spending and the percentage of down-line machines.

For more detail on any of these topics, please reach out to your Rouse representative to set up time for a deep dive on the latest market developments.

Keeping a pulse on the equipment quality, movement, and activity helps you head off and plan for any trends or issues that might be emerging within the collateral base. In different economic climates various risks emerge that can be mitigated via close monitoring and communications with the client. These key monitoring areas can be seen below:

• Equipment Maintenance
• Utilization
• Capital Expenditure
• Market Tracking

In tracking these it’s important to understand the company’s data and operations management systems, establish a clear line of reporting on a monthly basis, and know the context and impact of the data you might request and review.

Equipment Maintenance: Maintaining Quality

The condition and quality of the fleet is a key driver in the salability and value of the collateral. In times of uncertainty and business challenges companies often identify maintenance as an area to save and improve cashflow. Decreased maintenance might reduce cash availability downstream as appraisal inspections are conducted. Lenders should consider tracking:

• How has the maintenance spend been tracking?

• What is the volume of down units on a month to month basis, what’s the average down time?

• Are the assets still being maintained in accordance with OEM standards?

Answering these questions should provide certainty that the collateral quality has not deteriorated. Should there be any issues an additional inspection might be discussed to check the physical condition of the assets.

Utilization: Collateral Performance

Lenders are rightfully monitoring cashflow on a month-to-month basis. However, this singular view might not provide the complete story on how this figure might shifting each month. Observing utilization can better help understand seasonality, cashflow trends, and returns on the different types of collateral the company owns.

When looking at construction equipment and rental / dealer operations there are a couple key metrics which should be considered: physical utilization and financial utilization. A clear handle on both of these should help in both understanding variability in cashflow and how that might be trending on a future basis.

CAPEX: Changing Fleet Composition

As companies make investments and manage their equipment base the expenditures in fleet investment will naturally be tied to the borrowing availability at any point in time. As expenditures slow the company will likely be faced with a reduced credit facility in the next appraisal. Likewise, when companies invest in asset types divergent from their core the availability on those assets may be more or less than what they might forecast. Understanding the potential value on these should reduce friction as these come into the facility and companies can understand the cash output they might need.

Market Tracking

Lastly, lenders should be aware and keep an eye on key market drivers that might impact end markets in which their collateral is utilized. Most recently, the decline in oil prices has impacted key segments of the construction equipment market such as mobile cranes. Independently, COVID-19 has driven underperformance in the secondary market across equipment types in drastic ways over the past few weeks. Regular communication around these with your appraiser will enable better modeling and prediction in collateral values in between appraisals.

A comprehensive collateral monitoring approach is key as it reduces any potential looming risks that might only be picked up in the appraisal and keeps lenders and borrowers eye-to-eye.
This concludes the series on ‘ABL Guidance for Construction Equipment.’ Hopefully, this will provide more tools and strategies for managing your Asset Based Lending business and for engaging with your customers.

COVID-19 has driven a high level of uncertainty in the market as the estimated end point is unknown and economic implications are changing on a day to day basis. Rouse has been tracking this in detail and can provide a more complete overview of this were beneficial.

For further information or discussion feel free to contact Raffi Aharonian (Raffi.Aharonian@rouseservices.com) or Jacob McCarthy (Jacob.McCarthy@rouseservices.com).