LEASEPLAN: On the prowl for acquisition opportunities to fuel expansion
19 April 2011
"In the next few years there will be more consolidation - it's unusual to have a market where the number two player is at 8% - but you have to have funding."
Leaseplan managing director David Brennan talks Paul Barker through his plans to grow the UK's number two leasing company to 150,000 vehicles in four years
While the country's biggest lease company, Lex Autolease, has been undertaking its massive integration, its largest rival has been quietly going about its business and is now looking to push on and expand by up to 25%.
At present, Leaseplan has around 130,000 vehicles on its books, which is 7.5-8.0% of the UK market, and managing director David Brennan has set out his ambition to get to 150,000 in the next four years, which would mean Leaseplan holds one in 10 of all leased vehicles.
He admits Leaseplan is on the lookout for acquisition opportunities. "The group is acquisitive and has been buying businesses in other countries," he tells BusinessCar. "We're taking a view country by country, and if an opportunity arises, would be a good cultural fit and added something to the business then it's down to whether our offer is better than the others."
Brennan says the lack of competing bidders has helped when Leaseplan has looked to acquire businesses in Europe, but in the UK rivals could come in the form of car manufacturers, private equity-backed mid-sized lease firms and the small number of other international players.
"There are less people buying but there are some out there and we'll wait and see if anything massive goes on the market this year," Brennan continues. "In the next few years there will be more consolidation - it's unusual to have a market where the number two player is at 8% - but to consolidate you have to have funding, which is now more difficult and expensive so more difficult to access." He predicts that as more funding becomes available, then the rate of acquisitions will increase.
But acquisition is not Brennan's only path to growth. "The good thing is that we have so much space to grow organically - we don't need to acquire to grow this business," he says. "We've got 92% to go for, so even if the market is flat or 3% up then 92% of the market is not driving one of our cars; so that is an opportunity.
"We are looking for steady profitable growth, year on year. The business is focused on delivering profit to shareholders," Brennan continues. He reveals all four of the company's operations - large fleet, medium fleet, local businesses and public sector - grew last year, and predicts that three will do so again this year, with the public sector business the only one not expected to expand. "Public sector will reduce in size and I'm confident we will hold our share, but I'm not looking for growth," he says "But we could get it - the supply base in the public sector is very diversified."
Salary sacrifice is also seen as a huge growth area for Leaseplan. "If you look at the Datamonitor five-year forecast, you see a small growth in leasing; salary sacrifice is space where there is room to grow - there are 1.7m leased cars and 1.7m where people have got the cash," says Brennan. "If the first market is very stable and the other is providing a massive opportunity and a way savings can be achieved; salary sacrifice is a big winner for employer, employee and lease company."
Despite predicting a reduction in business from the public sector, Leaseplan's expert in the sector Stuart Walker does see opportunities if outsourcing begins to take hold in the sector. "Because some of the changes that will need to be made to make big savings will be quite radical in terms of how the public sector fleet operates, those decisions are sometimes made easier if someone outside takes them," he says. "To get big savings you've got to make big changes to the structure of the fleet. They are having to look at the fleet profile in a more radical way than in the past and an external third party can help in that process.
"Public sector is going to go through massive change with much smaller budgets, and while it has been focused on costs in the past, perhaps some of the more radical options are going to have to be considered going forward."
Public sector ripe for sacrifice
The public sector is a prime target for salary sacrifice schemes because it understands the concept due to exposure to other sacrifice options such as childcare vouchers, according to the firm's public sector expert Stuart Walker. Leaseplan is seeking tie-ups with benefits providers, to add car salary sacrifice to an existing range of offerings. "Most flexible benefit providers are looking to partner on the salary sacrifice side for cars - they provide the front end across a number of different areas and pass the cars through to us," he says.
Leaseplan launched its salary sacrifice programme last summer, and has delivered 300 cars, with another 450 on order. "We've seen uptake consistent with what we expected, 5-7% of the employee base," said commercial director Matt Dyer, who said the schemes need a continued process of communication and explanation to have an impact.
"We're seeing recognition that offering a company car under the salary sacrifice banner has legs," he says, "but it requires the right level of continued support and communication. It's a complicated topic."