A wave of acquisitions is reshaping the U.S. tent and event rental industry in 2017—a trend that began even before Classic Party Rentals announced in mid-July that it was selling substantially all of its tenting assets.
Beginning in 2016 and accelerating pace in the spring and summer of 2017, several recapitalized tent rental companies acquired other like-businesses. The break-up of the Classic Party Rentals network, based in Inglewood, Calif., fueled much of the activity. A trend toward regionalization of tent and event rental brands is also emerging, with companies consolidating to offset some of the persistent challenges of the industry such as seasonality and labor shortages. At the same time, a growing economy and a healthy outlook for tents and events is attracting private equity.
“People see the opportunity that you can truly be a regional player,” says Brady Castro, president and CEO at PRO EM Party & Event Rentals of Phoenix, Ariz. In May and July, PRO EM acquired event companies in Chicago, Ill., and Los Angeles, Calif.
“We are not trying to do every event in the country,” he says. “We are trying to do the real signature, profitable events that make sense for us, be it in the Midwest or on the West Coast. People in our industry have worked very hard to make their businesses profitable, and private equity partners are taking notice of that. They are seeing that there is good opportunity in the special events space to go out and buy premium providers. It’s exciting for us.”
Mark Murphy, CEO at M&M Event Rentals of Carol Springs, Ill., says that markets like the tent rental industry in the U.S.—highly fragmented with many local, independent owners and operators—are ripe for consolidation. M&M was recapitalized by private equity firm Dubin Clark in 2016, and has since acquired several former Classic Party Rentals locations and other rental companies in the Midwest and South. The regional scale offers plenty of benefits to M&M, especially the ability to serve clients with events in multiple locations with a deep and wide inventory.
“As you get bigger, there is the risk that you grow too big and lose that personal touch,” Murphy says. “The challenge we have in the business is to strive to act like a big company when you have to, but be flexible enough to act like a small company when you have to. It is a fine balance.”
Dubin Clark typically invests in a company for four to seven years, and gravitates toward companies in the special events industry, says managing partner Brent Paris. From 2003 to 2006, Dubin Clark was invested in Classic Party Rentals, and it was during that period that Classic added a dozen locations nationwide. Current Dubin Clark companies include M&M, CE Rental in the mid-Atlantic region, and PEAK Event Services in Boston, Mass., in addition to BBJ Linens and SGA Production Services.
“We feel good about the overall industry today,” Paris says. “We are looking at additional rental acquisition opportunities, both new platforms as well as add-on acquisitions for our existing portfolio companies.”
Paris says that its current investments are outperforming the moderate growth of the overall U.S. economy, with both M&M and CE Rental acquiring a number of former Classic locations in 2017.
“We do understand with some of the assets we’ve bought related to Classic, that they had not invested in the people and not invested enough in the equipment, and we are looking to fix that in the coming months and years, which will better serve our customers,” Paris says.
With more than 30 operations nationwide at one time, Classic Party Rentals was known as the largest event rental and services provider in the United States. Bright Event Rentals of San Francisco, Calif., acquired a majority of Classic’s assets in California, Arizona and New Mexico.
Pro Em’s biggest challenge has always been seasonality, Castro says. When looking for an opportunity to acquire another company with a similar client base, scope, and company culture, but opposite seasonality, they found Partytime-HDO in Chicago, Ill.
“Nine days after our acquisition with Chicago, we sent a crew of 10 to Chicago to work, and it allowed them to take on some business that they wouldn’t normally have been able to,” he says. “We’re going to get some of their guys in the winter when we start working on the Phoenix Open and some other big projects. It’s going to be great to keep our guys busy 12 months of the year, which has always been a struggle.”
Based in Charlotte, N.C., Party Reflections has been on a path of acquiring rental locations in North Carolina and South Carolina “strategically and methodically” since 2010, says president and CEO Dan Hooks. He’s excited to see recent consolidations focused on establishing regional presences rather than national brands.
“As this industry continues to get more sophisticated, you are going to see certain players that stand out above the rest and want to grow,” Hooks says. “It’s really about that. Your appetite for growth. Your appetite for change. This is a difficult business to grow in. The smaller you are, the more difficult it is to grow. To get to the next level can be daunting and can take too long for some people, and they decide it will be better to join forces with somebody else who does have the resources than to try and do it all by yourself.”
Industry veteran Dan Nolan echoes the sentiment that undercapitalization is a big hurdle for small business owners. Private equity firms have realized that party rental is profitable, he says, and they are cherry picking solid companies that will be even more profitable with the ability to make capital expenditures. In Nolan’s case, private equity firm Gemini Partners recapitalized Peachtree Tents and Events of Atlanta, Ga., a competitor to Nolan’s Tents Unlimited and related event services companies. Gemini then approached Nolan and his partners about acquiring their businesses.
“This was a big deal for me. This is a family business,” Nolan says. “But at the end of the day, I had to look at this and say, my goal is to get it to that place that [Gemini Partners] want to get it to. Am I realistically going to have the ability in the market as I see all of these rollups coming to compete with the companies who are sticking $100,000, $200,000, $300,000 a year in capital expenditures?”
Nolan is seeing that private equity firms are wanting industry professionals who have built solid companies to remain with their businesses after recapitalization.
“What they are doing is investing in the people who know how to run the business and giving them the tools they didn’t have before,” he says. “That’s the difference I see in this roll-up cycle as opposed to [the Classic rollup in the 2000s]. They are not looking to run us off. They really want us to stick around and they are making it attractive for us to do that.”
For Hooks, the trajectory of Classic Party Rentals indicates that the tent and event rental industry isn’t one that lends itself to national brands. For example, successful tent and event companies know the local culture and weather patterns that affect tent installation, he says.
“We try to be very concentrated in North and South Carolina and not get out of that geographic zone,” he says.
From a positive perspective, Nolan views the rollup of tent rental companies under the Classic Party Rentals brand in the 2000s as an early attempt to bring a level of standardization to the tent rental business in line with other industries. The trend in 2017 toward regional brands, backed by private equity, has the potential to strengthen the industry as a whole, he says.
“We have an opportunity here to really advance the maturity of the market and take out some of the unprofessional element of what we do,” Nolan says. “You are always going to have the fly-by-night guy. The problem is they define things a lot more than they should. The more consolidation happens, particularly regionally, and the more that people do the right thing and run responsible businesses, it will take the stigma of that fly-by-night guy away.”