How Sunbelt Rentals plans to become a $14-billion company in five years

Sunbelt Rentals plans to be a US$14-billion company by 2029, according to the recently announced five-year plan the company calls, “Sunbelt 4.0.”

The plan focuses on leveraging Sunbelt Rentals’ large existing platform and infrastructure, expanding into new markets through greenfield locations, advancing their cluster strategy, improving operational efficiency, and maintaining pricing discipline to drive revenue growth and margin expansion. The overall goal is to increase revenue to over US$14 billion by the end of the plan period in 2029, while also improving EBITDA margins by 3-5%.

“We are poised to advance and leverage the very tangible structural progression that we’ve experienced in this industry and therefore, in our company,” said Brendan Horgan, CEO of Ashtead Group, parent company of Sunbelt Rentals. “Our plan is built to deliver strong growth and performance through volume, pricing, margins... all amounting to improved returns, and finally positioning us in an ever stronger way when it comes to our overall financial growth.”

Projections for future expansion

Sunbelt Rentals foresees compound annual growth rates in revenue of 6 to 9% in the US, 9-12% in Canada and 2-5% in the UK over the five-year period.

Sunbelt Rentals foresees compound annual growth rates in revenue of 6-9% in the US, 9-12% in Canada and 2-5% in the UK over the five-year period.

Supporting that growth will be between 300 and 400 greenfield depot openings, comprising between 180 and 240 specialty locations and 120 to 160 general tool stores.

These new locations will generate up to 30% of the growth anticipated in the five-year period.

Key to the plan is to further expand the density of locations, or clusters, within key rental markets in the US. The company has already accomplished this for 21 of the top 25 market areas, and sees most opportunity to establish new clusters in the next 75 largest markets, growing the number of clusters in these areas from 35 now to as many as 50.

Specialty rentals remains another key objective, with Ashtead forecasting that such business could represent US$5 billion by the end of the five-year plan. Growth opportunities are seen especially in power and HVAC, climate control and flooring solutions.

A look back at Sunbelt 3.0

Sunbelt 3.0 was outlined in the company’s last five-year plan, back in 2021. Since then, Sunbelt Rentals grew general tool at an 18% CAGR, while specialty expanded at 25% CAGR, essentially doubling the business over three years.

“We expanded our business, both in geographic reach, but also in density of our clusters,” Horgan explained. “If you look at the total output of greenfields, and our bolt-ons of 394 locations - that’s averaging two and three quarters new locations per week.”

In terms of technology, Sunbelt Rentals rolled out Kronos, an order capture system interwoven with the rest of the company’s systems.

“In essence, this put us in a better position to say yes to our customers,” Horgan stated, adding they also rolled out a dynamic pricing system.

When it comes to ESG, the company doubled what it set out to achieve in terms of carbon intensity reduction, Horgan said. 

Finally, the number-two US rental giant put a priority on culture and its workforce.

“We are a service sector business... we have to lean into this so much for us to deliver the level of service we need for our customers,” Horgan said. “We have to have an engaged and inspired workforce that is not only positive, but also has the tools to deliver what we need for our customers and is inspired to do so through development, training, career pathing and opportunity.”

When it comes to capital allocation, Sunbelt experienced a busier end market than anticipated in April of 2021, so it responded with greater investment in CapEx and new locations; “We were also able to have meaningful returns to our shareholders throughout 3.0.”  

‘Sunbelt 4.0’ strategy for growth

Sunbelt Rentals’ growth strategy under its Sunbelt 4.0 plan focuses on leveraging existing locations by capitalizing on what it calls, “latent capacity” and scale efficiencies as locations mature. The company expects 75% of growth to come from existing locations. Some key points include:

• Opening 300-400 new “greenfield” locations over the five-year period to expand into new markets.
• Advancing their “cluster” strategy in top markets to broaden their total addressable market and deepen rental penetration.
• Maintaining pricing discipline and passing through inflationary cost increases via their dynamic pricing system.
• Growing both their general tool and specialty rental businesses, with a goal of increasing specialty revenues to over $5 billion.
• Improving operational efficiency through initiatives like market-level logistics optimization and dedicated repair centers. 

As stated, growth of specialty rental is among the primary objectives within Sunbelt 4.0. Kyle Horgan, SVP of business development, explained this includes 12 distinct lines: power and HVAC at the top, with a plan for scale growth approaching US$1.9 billion at the end of 4.0, all the way down to the newest line - temporary walls - with a plan reaching roughly US$50 million in scale

Brendan Horgan, chief executive of Ashtead

over the same period.

“If you sum all of these up, we have a plan that can add US$2 billion over the 4.0 period, resulting in a specialty business that reaches $5 billion through the end of the period,” Horgan stated, noting expectations for incremental growth by way of advancement in rental penetration and continued market share gains.

“We know rental penetration in this space is still comparatively low versus the broader general tool and equipment landscape,” he said. “We know the runway for growth in specialty is very long.”

He continued, “We added three distinctly new lines over the 3.0 period: temporary structures, temporary fencing and temporary walls,” said Horgan. “All are essentially in their infancy, with lots of growth ahead. We know there’s opportunity for more.”

Operational improvements to logistics and service

Sunbelt Rentals named “Operational Excellence” as one of the primary objectives within Sunbelt 4.0. Within that scope, its goals center around improving logistics and customer service.

“We’re in an asset-rich business,” said Brad Lull, EVP of business development & strategy. “This means if you want to be successful from an operational perspective, you need to excellent at two things: logistics and service.”

Lull explained the company plans to affect its margin profile through three areas, the first being market logistics operation.

“This effectively is where we can approach a market level and combine all of the resources - our drivers, our trucks and our dispatchers - to fulfill the needs for our customers, with resources and demand planning at a market level. We do that as a collective size and scale rather than each individual branch having to work on what is a finite number of opportunities and resources at the same time,” Lull said. 

“When we do this, it’s a game changer and it creates a better margin profile and opportunity for growth.”

Market Field Service, Lull said, refers to an initiative that’s actually about 15 years old. It involves dedicating personnel solely to making in-field repairs. 

A new part of the strategy is Market Repair Center, which separates and dedicates personnel between machines coming off rent that only need to be cleaned, checked and processed, vs. those which need a repair before they can go back out on rent. “We have designated within our existing footprint dedicated bays to tackle those problems with dedicated technicians,” he explained, adding, “We are confident these support our path to deliver a 3-5% EBITDA margin improvement at the end of Sunbelt 4.0.” 

Lull concluded by highlighting Sunbelt Rentals’ Connect360 suite, which assists in managing every aspect of the rental process, both from an operational and a customer’s viewpoint.

“There are so many great logistics businesses and lots of software out there that can harness the horsepower to make things happen, but what we do here is different. We aren’t sending packages from a distribution center or a warehouse to your front door, or the loading dock of a hotel. It’s far more complex,” Lull said. “We have a whole web of assets, resources, environments, situations and circumstances that change every hour of every day. It’s not simple. 

“We’re far beyond knowing, was the oil changed, is the tire pressure right, is the battery full... We’re harnessing all of our technology to really make a difference in our company.”

Sustainability as a tailwind

Sunbelt Rentals aims to make its sustainability initiatives a boon to its bottom line by using it to place more emphasis on customers.

“We believe that sustainability will create a tailwind for delivering our 4.0 strategy, reinforcing our customer obsession, while also strengthening our operational focus and strengthening our [green house gas] targets and our approachs to waste water and supply chain sustainability to driving the sustainability benefits of rental inherent for our customers,” said Karen Beadle, SVP, sustainability.

A Sunbelt battery energy storage system (BESS).

She went on to note Sunbelt Rentals is already ahead when it comes to sustainability initiatives, and is on track to exceed targets laid out in its Sunbelt 3.0 plan.

“We’re on track to meet our 3.0 target of 35% reduction in GHG emissions intensity for Scope 1 and 2 by 2030. We’ll meet that target by the end of fiscal ‘25 and possibly sooner. So we’ll rebaseline from 2018 to 2024 to better reflect the growth over 3.0 and the current state of our business,” Beadle said.

New targets for Scope 1 and 2 will be 50% by 2034 from the 2024 baseline.

“We’ll also introduce a commitment to net zero by 2050 for our Scope 1 and 2 emissions,” Beadle said, adding, “We may adjust the year down as we reach various milestones and as low carbon technology evolves as it relates to Scope 3. We’ll engage with our OEMs on the targets that they’ve set.”