“NewALD is the latest of the big traditional lease mergers”

Philippe Bismut (on the picture), until the end of 2018, CEO of Arval, remains a keen observer of the rental and mobility industry, whose opinions and ideas remain highly valued. Here is what he will take away from the acquisition of LeasePlan by ALD and the imminent emergence of a “New ALD”.

The operation amounted to 4.9 billion euros. With your own experience of previous transactions (Arval acquired GE’s European activities in 2015, editor’s note), does this seem too much, too little or roughly correct?

“I’m not aware of the details of this deal, but if you consider that this transaction was between two companies that had no urgency in making a deal – in other words, neither the one nor the other had to make this deal – one can only conclude that the deal has to be good for both parties. The fact that the sum is expressed partly in cash and partly in shares reinforces this impression.

“There’s really no comparison to Arval’s acquisition of part of GE. It was a ‘clearance sale’ – GE actively wanted to get rid of its business, so we were able to buy it back for a very good price, at least for us.

“To check how fair this agreement is, just divide ALD’s stock market valuation (around 5.28 billion euros, Editor’s note) by its number of vehicles. Using this criterion, you will see that this chord is very balanced.

ALD and LeasePlan are big players. In some countries, their common market share reaches 60 to 70%. This will not happen with the so-called “competent authorities”. How will this influence the agreement?

“This is typical of mergers of a certain size – there will always be markets where the combined presence results in ‘dominance’. And the answer is always the same: for the merger to happen, companies must accept that they will have to divest certain assets.

“However, fusion erosion is not just a market-to-market phenomenon. You also need to look at it from the customer’s point of view. While some are happy in a sole supplier relationship, others insist on having multiple suppliers. If the merger between ALD and LeasePlan puts them – against their will – in a sole supplier relationship, they will actively seek alternatives.

“I am sure that ALD and LeasePlan take these losses into account and will compensate by offering discounts and other special offers. Nevertheless, it is an interesting opportunity for their competitors to recover some of these losses. And it will mainly be other multinational leasing companies rather than local players that will benefit, as this is the type of supplier that customers were looking for in the first place.

About these other rental companies: how do you think they are reacting to this merger?

“I think at the moment they’re pretty relaxed. No doubt ‘NewALD’ will eventually emerge as a very strong player. It has all the ingredients to do so: international coverage, advantages of scale, access to financing. In the long run, this will of course make a difference. But in the short term, as the two companies go through the necessary restructuring to become one, there will be turmoil – say, two to three years. Thus, other donors will not be immediately worried.

“A word about these advantages of scale. ‘NewALD’ itself talks about a recurring benefit of 380 million euros. Considering the combined fleet of 3.5 million, this is a total of less – around – € 100 per vehicle per year. Although this is a nice bonus, it is likely that “NewALD” will keep the bulk of these profits, which means that the customer will only notice a price advantage of a few euros per month. And while this may influence some of the more price-conscious fleet customers, it won’t make a difference for most – also because price isn’t the only factor in any buying decision.

Do you think other leasing companies are currently evaluating their own merger options?

“Although this is a big merger, the mergers in the fleet and the mobility space are not new. As far as I can remember, the small players have been acquired by the means and the means by the big ones. The question is: if you look at the current Top 10 leasing companies, is there room for further mergers? May be. But the market alone does not decide. It is also a question of a shareholders’ agreement.

“In my opinion, rather than looking for mergers, the industry will look for partners. Alliances with players from different sectors are more interesting, as they bring together different skills, which may be exactly what this fast-paced industry needs. For example, if a rental company like Europcar teamed up with an equipment supplier like Volkswagen. Or maybe vertical integration, from rental companies to vehicle retailers. I think these kinds of combinations, these new kinds of wedding rings, are going to be the new trend.

If this is true, then the marriage of ALD and LeasePlan is a very old fashioned merger.

“Make no mistake, this is a good opportunity to increase value. The prospect of growth of 6% per year is a great story, from a shareholders’ point of view. However, this does not solve any of the big questions about the future of mobility. They are two great rental companies, which will soon be an even bigger rental company.

“That in itself will create changes in the market. For example, it will be interesting to see if the emergence of “NewALD” will change the relationship with OEMs. At present, it is one of, as we say in French: I love you, neither do I. Maybe the merger will inspire them to take proactive steps in the rental market.

“But yeah, it’s a pretty old-school deal. I would say, the last of the big traditional lease mergers. But don’t use that – because if you do, I’ll bet you next week Arval is going to make do with Athlon, or something like that (Laughs). “

No, of course we won’t!

Here is our report on the emergence of ‘NewALD’. Right here is an ALD profile, and here is one from LeasePlan.

Image: Fleet Europe

Mary I. Bruner