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| Guy Ramsey |
July 21, 2005 — When United Rentals' founder Bradley Jacobs launched his rollup of the rental industry, one of the first people he went after to recruit was John Milne. In the beginning, Milne's position was director of acquisitions. While Jacobs was the master of attracting investors and singing the songs of his vision to them, Milne was in the trenches buying just about anything that had the word rental in its name. I was lucky enough to have been involved with several of the acquisitions URI made, consulting and representing sellers being gobbled up by the URI machine. This involvement afforded me the opportunity to interact with Milne and his acquisition team on numerous occasions. As time passed and deal after deal was sealed, I soon realized there wasn't much that could get in the way of a deal once he and his team sank their teeth into it.
The one thing that always amazed me though was just how many deals were being closed so fast and furious. Competition made it quite evident that the pressure was on to get deals buttoned up ASAP, I often wondered if he or anyone at URI really knew everything that was going on or how things were being accounted for. Some deals were thrown together at such a fevered pace a few had to be unwound due to oversights. Nevertheless, when you consider the results of what they accomplished in just a few short years there's no doubt it was a pretty amazing feat.
But as time passed and the results started to fall out, I pondered just how they made the numbers all add up. Don't get me wrong, I'm no economist. I've never even taken a class in high finance. What I do know is how numbers in the rental industry work. It would seem that many others, including the SEC, want to better understand this as well.
There has been a lot of speculation about the source and scope of the SEC's ongoing investigation. The only issue publicly written about relates to some short-term equipment lease back agreements. These in themselves seem innocuous enough. Some speculation also revolves around a perception that there are problems with the way acquired assets were booked during those early tumultuous years. Just visit www.Unitedrentals.com and look at the used equipment section. There are a lot of used machines with retail sales prices higher than a new unit's MSRP. Of course the value assigned to a piece actually carried on the books is not public knowledge, therefore, it's impossible to know how it was valued. But if you conclude that this is a part of the SEC issue it makes sense that Milne is at the center of the investigation.
The fact that United Rentals recent press release seems to demonstrate that its board is laying the blame for the ongoing SEC investigation, or at least its festering, at Milne's feet is not surprising — at least not to me. If you look more closely, Milne is the only carryover from the original group of high-ranking executives involved with the building of United Rentals. Right or wrong, he is the only one that can be linked back to any alleged improprieties that may have materialized early on.
As the lead acquisition officer and one of the key financial officers when the consolidation was in full gear the board has no other place to turn, no one else to lay the blame on or to offer as the sacrificial lamb to the market. Although it's unlikely anyone outside the boardroom will ever really know what or why it came to this, it's safe to say that Milne's days at URI are numbered — 30 to be exact.
