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The heavy equipment dealership industry, known for its lucrative opportunities, has consolidated significantly in recent years, with major players acquiring smaller dealerships. Alta Equipment, based in Michigan, has emerged as a beneficiary of this trend, expanding its geographic reach and gaining access to trained technicians, giving it a competitive advantage over smaller players. However, as the industry continues to consolidate, will Alta be able to maintain its momentum, or will it face challenges from larger rivals?
Building a Strong Foundation
Alta Equipment Group is a heavy equipment dealership and rental business focusing on sales and rental services for forklifts and heavy construction equipment. Founded in 1984 as a forklift distributor, the Livonia, Michigan-based company went public through a SPAC in February 2020, raising close to $144 million in proceeds.
Alta offers an array of specialized equipment, including aerial work platforms, cranes, earthmoving equipment, forklifts, and other construction equipment. With 65 full-service locations in 11 states and Canada, Alta has slowly crept into the market largely dominated by equipment rental giants United Rentals and Ashtead Group's Sunbelt, which control approximately one-quarter of the market.
In contrast to larger rental players, Alta Equipment Group distinguishes itself by prioritizing sales and its high-margin service business. To achieve this, the company partners with trade and technical schools near its branch locations to proactively hire, train, and retain service technicians, who make up roughly half of its 2,000+ employees. With over 37 years in the business, Alta has also cultivated long-standing relationships with more than 30 material handling and construction equipment OEMs, who prefer to collaborate with fewer financially sound dealerships like Alta.
When Alta enters a new market, the company aggressively introduces new and used equipment (at low gross margins), which over time generates higher-margin revenue from parts and services. The company's exclusive geographic coverage on equipment and replacement parts from top OEM partners like Hyster Yale and Volvo enables it to create a regional monopoly that keeps its competitors at bay.
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From Acquisition to Action
Alta Equipment's acquisition strategy has been a key driver of its growth in recent years. The company has actively acquired small, private companies where owners are looking to sell, and this strategy has paid off. In the past three years alone, these acquisitions have contributed $376.0 million of top-line revenue and $42.4 million of EBITDA for the company. Notably, Alta Equipment's acquisition of Yale Industrial Trucks in southeastern Canada marks the company's first foray into an international market.
Resolving supply chain challenges can bring about significant tailwinds for Alta Equipment. The company has faced supply chain constraints, affecting its ability to convert backlog into sales. However, during its Q2 2022 results briefing, Alta Equipment reported that it had recorded sales that could have occurred earlier had supply chain issues been resolved. The company has highlighted that the backlog is there for new equipment, and if it can get the supply, it can convert that backlog into sales quickly.
Recent reports point to a decline in the supply-chain stress index indicating improvements in areas like lower delivery times, cheaper costs for shipping raw materials, and fewer logistics backlogs. These improvements in the supply chain are expected to benefit Alta Equipment in the near term. Resolving supply chain constraints will enable the company to meet the rising demand for industrial equipment and capitalize on the sales backlog.
Financials and Valuation
Alta Equipment Group's 2022 financial results revealed a promising year of growth, with net income reaching $9.3 million, a significant increase compared to the previous year's net loss of $56.1 million. Alta's revenue increased by 29.62% to $1.57 billion in 2022, supported by the company's acquisition strategy. The company also generated an EBITDA of $172 million in 2022, compared to $158 million in the previous year. Despite the successful financial performance, the company's leverage profile and debt remain a concern for some investors. With nearly $600 million in outstanding debt, Alta's balance sheet strength may be an issue in the future.
At the end of the fourth quarter, the company had reserves of $2.7 million and an available credit facility of $219 million. While most of the company's debt isn't expected to mature until 2025 and 2026, its high debt load could make it vulnerable to economic downturns and market fluctuations. As of Friday, Alta was priced at close to $17/share, resulting in a market cap of $550 million. With a price/sales ratio of close to 0.35x, Alta's current valuation seems reasonable, although the company's leverage may still be a cause for concern among investors. Overall, Alta Equipment's growth and acquisition strategy is encouraging, but the company's financials and leverage should be closely monitored.
Alta Equipment Group's growth in the heavy equipment dealership industry has been largely driven by its acquisition strategy and focus on the high-margin service business. The company's exclusive geographic coverage on equipment and replacement parts from top OEM partners, as well as partnerships with trade and technical schools, have given it a competitive edge in the market. Although the company faces challenges with supply chain constraints, improvements in the supply chain are expected to benefit Alta Equipment in the near term.
The company's successful financial performance in 2022 is also promising, although its high debt load may concern some investors. Moving forward, it will be important to closely monitor Alta Equipment's financials and leverage, but its growth potential and acquisition strategy suggests a positive outlook for the company in the industrial equipment market.
Source: Heavy Lifting