“NewALD is the last of the great traditional lease mergers”
Philippe Bismut (pictured), until end 2018 CEO of Arval, remains an astute observer of the lease and mobility industry, whose opinions and insights remain highly valued. Here are his takeaways from the acquisition of LeasePlan by ALD, and the imminent emergence of a “New ALD”.
The deal was priced at €4.9 billion. With your own experience of previous deals (Arval acquired GE’s European business in 2015, Ed.), does that sound too much, too little, or just about right?
“I’m not privy to the specifics of this deal, but if you consider that this transaction was made between two companies that had no urgency to reach a deal – in other words, neither had to make this deal – one can only conclude that the deal must be good for both parties. The fact that the sum is expressed partly in cash and partly in shares strengthens that impression.”
“There really isn’t any comparison possible with Arval’s acquisition of part of GE. That was a ‘fire sale’ – GE actively wanted to get rid of its business, so we were able to snap it up at a very good price, for us at least.”
“To check how equitable this deal is, just divide ALD’s market valuation (app. €5.28 bn, Ed.) by its number of vehicles. Using that yardstick, you’ll see that this deal is very balanced.”
ALD and LeasePlan are big players. In some countries, their joint market share is up to 60-70%. That won’t pass muster with the so-called 'relevant authorities'. How will that influence the deal?
“This is typical for mergers of a certain size – there will always be some markets where the combined presence translates into a ‘dominant position’. And the answer is always the same: for the merger to go ahead, the companies must accept that they will have to dispose of some assets.”
“However, erosion by merger is not just a market-by-market phenomenon. You also have to look at it from the client perspective. 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 out alternatives.”
“I’m sure ALD and LeasePlan are factoring in these losses, and will counteract by offering discounts and other special deals. Nevertheless, it’s an interesting opportunity for their competitors to snap up some of those losses. And it will mainly be other multinational lease companies rather than local players that benefit, since that is the type of supplier the customers sought out in the first place.”
Talking about those other lease companies: How do you think they’re reacting to this merger?
“I think that for now, they’re fairly relaxed. No doubt ‘NewALD’ will eventually emerge as a very strong player. It has all the ingredients to do so: the international coverage, the advantages of scale, the access to funding. In the long run, that will of course make a difference. But in the short run, as the two companies go through the restructuring required to become one, there will be some turbulence – say, two to three years. So other lessors won’t immediately be worried.”
“A word on those advantages of scale. ‘NewALD’ itself speaks of a recurring advantage of €380 million. Considering the combined fleet of 3.5 million, that works out to a total minus of – roughly - €100 per vehicle per year. While that is a nice bonus, it’s likely ‘NewALD’ will keep most of that as profit, meaning the customer will only notice a price advantage of a few euros per month. And while that may sway some of the more price-conscious of fleet customers, it won’t make a difference for most – also because price is not the only component of any procurement decision.”
Do you think other lease companies are now assessing their own options for mergers?
“While this is a large merger, mergers in the fleet and mobility space are nothing new. As long as I remember, small players have been acquired by medium-sized ones, and medium-sized players by big ones. The question is: if you look at the current Top 10 of lease companies, is there any room for additional mergers? Perhaps. But the market alone doesn’t decide this. It’s also a question of shareholder agreement.”
“In my opinion, rather than looking for mergers, the industry will be looking for partners. Alliances with players from different sectors are more interesting, because they bring together the different skills, which in combination may be just what this fast-changing industry needs. For example, if a rental player like Europcar teamed up with an OEM like Volkswagen. Or perhaps a vertical integration, from lease companies down to the vehicle retail specialists. I think those kinds of combinations, those new types of alliances, are going to be the new trend.”
If that’s true, then the marriage of ALD and LeasePlan is a very old-fashioned merger.
“Don’t get me wrong: this is a good opportunity to increase value. A growth perspective of 6% per year is an excellent story, from the perspective of the shareholders. However, it doesn’t resolve any of the big questions about the future of mobility. It’s two big lease companies, who will soon be an even bigger lease company.”
“That in itself will create some changes in the market. For instance, it will be interesting to see whether the emergence of ‘NewALD’ will change the relationship with the OEMs. At present, it is one of, as we say in French: Je t’aime, moi non plus. (i.e. a love-hate relationship, Ed.) Perhaps the merger will prompt them to take proactive steps on the rental market.”
“But yes, this is a rather old-school deal. I would say, the last of the great traditional lease mergers. But don’t use that – because if you do, I’ll bet you next week Arval will be shacking up with Athlon, or something like that (laughs).”
No, of course we won’t!
Image: Fleet Europe