With Yak Mat acquisition matting news announcement by United Rentals, we’ll see big changes in the matting world.
Major Points:
- Consolidation in the mat business
- Recognition that infrastructure build out is here to stay for the long term. United says decades.
- A drive towards one-stop shopping irrespective of geographical location.
- For the big players, substantially greater transparency requirements. Publicly held companies have much different disclosure requirements than private companies.
- A likely push towards mat standardization.
However, it’s important to note that this acquisition has come on the heels of a market already in the grips of change. We’ve lived through the following market stages:
- Innovation.
- Expansion of Matting Sector.
- Decline of US Raw Materials.
- More Low-Quality Producers + Declining Materials = Lower Quality Mats.
- Innovation Again.
- Regulation begins. Producers write the rules.
- New Opportunities from Mats.
We are in stage 7 now. This acquisition is the latest example.
Financial Observations:
Kudos to Karl Bahler:
High-level: Both companies share the same customer value proposition: One-stop shopping wherever you are, whatever you need. So, that’s a good match.
Details on the financials are a bit hazier.
Caveats: This is a very simplified analysis by assuming all Yaks operations are leasing. To the extent a significant portion of revenue is generated from sources other than mat rentals, this analysis is flawed.
Furthermore, United Rental are not dumb. There is a reason they are willing to pay these numbers to get into the business. On the surface, though, it is not completely clear why.
Purchase Price & Multiple
- Stated purchase price is $1.1B. Once the tax credits are backed out, the adjusted price is $934mm.
- EBITDA is $171mm, therefore the purchase price multiple is 5.5. Stated differently – EBITDA is a measure of current cash flow before any reinvestment, so they will need to generate this same EBITDA for 5.5 years, with no reinvestment in mats, in order to pay back purchase price.
- However, if mats only last three years, cash from EBITDA will need to be diverted back into mat purchases, further delaying payback on investment well past 5.5 years.
Depreciation
- Annual depreciation expense is $144mm or $240/mat. Assuming most of depreciation is related to mats, that would imply a two year expected life.
- Assuming they use three years for depreciation rather than two, this implies they are currently depreciating closer to 960k mats, even though they have only 600k mats listed in inventory.
Revenue & Leasing
- Stated revenue is $353mm on 600k mats. Assuming most revenue is related to leasing – that implies they generated $588 dollars in revenue per mat. This equates to a lease rate of $1.63/mat/day at 100% utilization.
- Adjusting utilization to 66% and lease rate to $1.25/mat/day, total revenue per mat falls to $297/mat. That is a decrease of 50%.
- After adjusting for a $101mm one time gain from writing off debt last year, Yak’s adjusted net income was -$47mm. A 50% decrease in revenue would add another $175mm to their losses.
Non-Financial Comments from Press Release
Yak is being rebranded as United’s “Matting Solutions” business. They state Yak provides them with scale in a large and growing market segment. Further, United says that this is an extension of their Power Vertical Strategy, where they expect significant industry investment in generation, transmission and distribution over the next several decades.
Final Comments
Three high level points:
1. Consolidation in the matting industry. Pressure on mat brokers.
2. Publicly traded companies have greater state and federal disclosure regulations that private companies. More transparency is good for the sector.
3. Nationwide reach of a public company will likely provide momentum to a set of nationwide mat standards. North American Matting Association already has a timber mat standard and is working on a composite mat standard. Standards will be good for mat users.
