Although their signature styles may vary widely, well-run party rental operations share several important characteristics, according to industry consultant Fred Hageman. His firm — Hageman, Stansberry & Associates — handles mergers and acquisitions and provides operations consulting for rental companies. Hageman is based in Cameron Park, Calif.
Special Events Magazine: What are the telling characteristics of a well-run party rental operation?
Fred Hageman: We like to see $60,000 to $75,000 revenue per employee per annum. We like to see that the quality of inventory is there, and reinvestment in the fleet of 20 percent to 25 percent per year, to keep their fleet four years old or so.
We also like to see professional sales staff, and that means an outside sales force. That's what gives a business loyalty. If you think about it, the salesperson is the doorway to your business. He should embody what your company stands for. If you have somebody out there who believes in the product and has good delivery, that's an asset you can't just call up and order 100 of.
We also like to see qualified heads of departments: the warehouse, the laundry, etc.
We like well-laid-out inventory. You go into some companies, and they just don't know where those props are.
We also like a hands-on manager or owner who interacts with customers and gives personalized service. This is a service industry. It's the people who make the difference.
I think the best-run operations have a more commercial-type clientele and, more importantly, clientele that gives repeat business and referrals to other end-users. Having loyal customers is important.
Also, dollar utilization in the 300-percent-plus range is a characteristic of a well-run organization. If a chair costs $20, we like to see $60 or more brought in on that chair in a year.
Finally, we like to see EBITDA [earnings before interest, taxes, depreciation and amortization] at 20 percent or higher.
Q: On the flip side, what mistake do you see made most often?
A: The No. 1 mistake is excess staff and payroll. It's the easiest and fastest way to deteriorate your bottom line.
Q: Have you seen any improvements in party rental operating ratios over the years?
A: Absolutely. There are definitely movements toward better operating procedures, better purchasing, better systems — things of that nature.
Q: Can a party rental operation be easily systematized and replicated — the McDonald's model?
A: Every market is different, so I don't think that you can have the cookie-cutter approach in the special event industry. The best way to replicate from store to store is proper training and consistent superior service levels.
Q: What trends are emerging in party rental?
A: Although the big boys — United, RSC, etc. — will do very selective acquisitions, we're seeing some regional players enlarging their geographic footprint and acquiring some strategic businesses in their own markets.
Alliances are very important, whether it's linens or tents, props, stages or lighting. You have to have those strategic alliances with other companies in order to completely serve your customer. It's difficult to be everything to everybody. Maybe it's not all under your roof, but if you can say, “Hey, we don't do the lighting, but here's who does,” [you] help your customer by being a one-stop source.
I think you will see companies pick and choose avenues in which to expand. They may say, “We really need to ramp up our linen — we're doing too much re-rental; we need to get into that ourselves.” I think that is where you're going to see growth.
Q: Special Events Magazine often receives calls from venture capital firms asking who might be interested in a deal. What is driving this?
A: These guys are saying, “It's a fragmented business, there is no clear-cut leader, and there's money to be made there.”
Fred Hageman can be reached at 530/672-1885 or via e-mail at [email protected].