Microlease has just received
investment of nearly €10 million. With its fingers in many pies
already, from defence finance to asset management, it will be worth
watching what it does with its latest cash injection. Fred Crawley reports.
Many success stories in recent
months have come from leasing companies, working in specific asset
fields, which have taken an aggressive approach to their niche
markets at a time when generalist funders are pulling back to
larger and more well-trodden areas of business.
Go deeper with GlobalData
One of these successes is test equipment
specialist Microlease which, after two years of growth beyond
expectations, was reinforced last month with a €9.8 million
investment from LDC, the private equity arm of the Lloyds Banking
Group.
LDC had already shown its faith in Microlease
by funding a €34.5 million MBO by COO Nigel Brown in late 2006,
after which Brown wrote a business plan proposing a doubling of
EBITDA (Earnings Before Interest, Taxes, Depreciation, and
Amortization) to €11.9 million within two years.
At the company’s February year end in 2009,
EBITDA stood at €12.4 million, setting the scene for the most
recent cash injection from LDC.
Much of this growth spurt can be attributed to
Brown’s flair for product design and marketing innovation – he
joined the company as marketing director in 1996, after having
worked on marketing for several technology start-ups.
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By GlobalDataThe Microlease he joined in 1996 was
essentially a short-term rental company for telecoms testing
equipment, as it had been since its inception in 1973, with around
90 percent of business comprising rental contracts of under two
weeks.
Whereas the telecoms boom of the late 1990s
bought prosperity to the company, when that sector sagged between
2001 and 2004, Microlease saw significant decline.
A long-term future
One route back to growth, in
Brown’s opinion, was a move towards the offering of long-term
rental products – when contract hire was introduced in 2001, and a
two to five year operating lease product soon after, he was
confident that business could be doubled within five years.
His reasoning was that test equipment assets,
with their high requirements for calibration and maintenance, were
regularly costing owners around twice their purchase price over
their lifetimes. A three-year operating lease, he said, with an RV
written in and operating costs included, would regularly save 25
percent of the overall cost of outright purchase.
Asked whether he saw any difficulty in
adopting a range of long-term products on top of Microlease’s core
rental business, Brown comments that in systems terms at least, it
was not a difficult move.
When long-term leasing was introduced to the
company, its internal IT team merely modified Microlease’s
homegrown IT system to reflect the new products. Considering the
business’s systems had already been configured to process data from
Europe, the US, Africa and the Middle East (an IT goal that many
dedicated companies are still trying to pursue), adding long-term
lease support was a smaller challenge.
Given the sudden demand fluctuations and
specific equipment needs common to the R&D departments that
form Microlease’s client base, flexibility to match user needs is
at the heart of Microlease’s product range.
Exemplifying this, the company has recently
begun to offer asset management services, from straightforward sale
and leaseback deals, right through to the renting out of a client’s
unused assets to third parties.
To show just how prominent the
long term mentality has become to Microlease, one need only look at
the figures: as opposed to the predominance of short term rental in
1996, the company now does at least 50 percent of its business on
contracts lasting more than one year.
Another important strategic decision for
Microlease was its push into other client sectors, such as
aerospace and defence (A&D). Now, with heavy activity in
A&D and telecoms, it boasts regular customers such as
Alcatel-Lucent, Ciena, EADS Astrium, Nortel, Sagem and Siemens.
Microlease’s attempt at complete market
coverage for test equipment in the aerospace, defence and telecoms
sectors has been achieved through the formation of more than 100
manufacturer partnerships, through which it has leased more than
3,200 models of test equipment.
Some of these partnerships are particularly
symbiotic, such as that with telecoms test equipment maker JDSU,
for which Microlease ships some 2,000 products a month to and from
customers, and with microphone specialist Agilent, for which
Microlease manages around €75 million worth of products.
For Microlease, the most difficult point in
the current recession was the start of 2008’s fourth quarter, when
business flattened due to budget freezes in many companies’ R&D
divisions.
This year, says Brown, business has picked up
rapidly, with the last three months having been especially
busy.
Last year, Microlease wrote €4.7 million in
operating lease business, a figure it hopes to grow by 20 percent
this year. It also generated €23.6 million in revenue through
short-term rental, which it expects to grow by around 15 percent
this year.
In the longer term, Brown wants to double
EBITDA again in the next three to five years, expanding either
organically or through acquisitions in Microlease’s sectors of
expertise. With an increase of operating lease demand in the public
sector anticipated (see The sleeping giant), Microlease
may also make inroads into medical and life sciences markets.
Needless to say, if progress continues at this
rate, LDC will not be far behind him.
Microlease – room to
innovate
Brown’s product innovation has
continued into the present era of growth.
A great success has been the company’s
short/long-term hybrid Easy Rent product, which allows customers to
rent equipment at 5 percent of list price monthly.
After six months, users have the option to
continue to rent at the same rate, purchase with a 50 percent
rebate on all rental costs paid, or return equipment with no
further commitment.
Since its inception 18 months ago, €5.5
million of business has been written on the scheme, compared to €6
million of standard operating lease business.
