Interview: from zero to $1bn rental fleet in 10 years

Holt Group knew what it was doing when it appointed Don Myrick to lead its new rent-to-rent business, Texas First Rentals, in early 2015.

It didn’t want the rent-to-sell model common to many equipment distributors – and Caterpillar dealers - but a pure-play rental business, and in Myrick it was getting a specialist. He had operated his own rental business Diamondback Rentals in Phoenix, Las Vegas and Orange County, which he sold to Papé Group on the US West Coast, and then switched to Volvo Rents when it acquired Papé’s Phoenix rental business.

“Caterpillar wanted Holt Cat to get back in the rental business, the rent-to-rent business”, remembers Myrick, senior vice president and general manager, talking to International Rental News via video call, “They did a market study and in September 2014 started looking for someone to build a business. I got a call in early December, interviewed, and got the offer on January 4, 2015. Peter Holt says, all right, you’re in. I was the first employee.”

Don Myrick has led Texas First Rentals since its founding in 2015.

Ten years later and San Antonio-based Texas First is celebrating a decade of growth and acquisitions that have made it one of the largest rental businesses in North America, and one of the largest Cat Rental Stores on the continent.

Myrick doesn’t want to talk rental revenues – the Holt Group remains privately owned – but the rental business now has more than 750 staff, 38 rental locations, and a US$1 billion fleet valued at original cost.

There will be more on the growth trajectory later, but first things first, how does the rental business fit alongside the Caterpillar dealership?

“The Cat Rental Store model over the years, you go back to the early 2000s when they started pushing that model, it was a fragmented manufactured-dealer combination of wants and needs. It really wasn’t a rent-to-rent business model.

“When I came in, I put in a rent-to-rent model, no different than United, Sunbelt, Sunstate. We put that model in to go to market, to deal with the customers in a competitive landscape. Even today, the Cat Rental Stores throughout the US have different levels of separation.”

He says Cat dealerships predominantly like large equipment, with a customer base of large contractors, and they do a lot of rent-to-sell rental options. The challenge, says Myrick, is with small to medium sized contractors.

Quick decisions necessary

“[With rent-to-rent] it’s quick decisions. When you’re moving a D8 dozer it’s okay to take 3, 4, 5 days to get it set up, move it and deliver. In the rent-to-rent business you get 3, 4, 5 hours. So, they couldn’t apply what was needed through their dealership business model.”

That rent-to-rent model means that Texas First has separate facilities and resources from the main Cat dealership; “All of our drivers, all of our technicians and everything is done separately. We don’t rent-to-sell, we don’t sell our equipment. We use the dealership for some repairs, because they’re the specialists on the Cat equipment. If something’s got to be torn down, instead of doing it in our shop, it goes to them. We buy our Cat parts through them.

“When it comes to rolling out the product, we buy the product ourselves, we have our own dealer code, and we put it into the fleet, it goes through its life cycle, and then we dispose of it. One of the things that I did early on is I said to all the Caterpillar salesman, ‘Hey, you’re not going to rental option the small product anymore, we’re going to do that. But when it’s time to sell the product, the Caterpillar engine serialized product, we’ll allow you to sell it on an exclusive basis’.”

Texas First Rentals has 5,000 Caterpillar machines in its fleet, up to around 50,000lbs (23 tonnes). This is a Cat D3 dozer.

He sees the big picture of the relationship with the Caterpillar dealership; “If you look at the rollout of Caterpillar equipment, and if you think about the seed, grow, harvest model, where you put a piece of equipment in your rental fleet or take the first lifecycle out of it, push it into the used market, then you’re going to generate a parts and service opportunity, which the dealership is fantastic at.

“So, you sell it in-territory, and if you sell it out of territory, then there’s parts and service opportunity for other Caterpillar dealers. If you look at the 600 to 800 machines a year that have been going out of the rental fleet - that’s been populating that parts and service opportunity. That’s really how we help feed that dealership, in addition to what they do with the larger equipment.”

Texas First is now firmly established within the family of Holt Group businesses, which include Holt Cat, Holt Truck Centers, Holt Crane & Equipment, Holt Industrial Systems, Holt Manufacturing, Holt Renewables, Holt Used and two rental-related divisions, Holt Industrial Rentals and Holt Aerials.

The Texas First fleet

Texas First rents Cat machines up to around 50,000lbs (23 tonnes), although its fleet is truly mixed, with 5,000 Caterpillar machines in its 27,000 unit fleet. Cat iron represent around $280 million of the total $1 billion fleet.

Aerials are a significant part of the non-Cat fleet, says Myrick; “It is growing by design because if we get a week of rain my Caterpillar equipment comes back because our soil is a mucky soil, so it just comes back and they wait till it dries out.

“So, we get this roller coaster ride with the 5,000 Cat units that I have with the aerials. We would like the mix to be 40% Cat and 60% allied equipment, in OEC terms. We’re almost at that level of balance. And we believe that it will be a healthier environment for us.”

Of course, being part of the Holt Group brings benefits beyond the link to a major equipment manufacturer. Myrick points out that it has its own financial line of credit, its own relationships, but when it comes to building a new location, it can get assistance from Holt’s real estate group that “will build it and charge us for it.”

The decision to adopt a pure rental model is one thing, creating a successful rental business is quite another. Texas First has managed it with a mix of organic and acquisition growth.

A Vermeer trencher in the Texas First Rentals fleet.

“We had tremendous growth from 2015 to 2022. And then [at the end of 2022] we did the acquisition of Rental One that was the Texas-based, independent rental store with 15 locations. Over the last couple years we have integrated that into our organization, and that’s been completed now.

“Our growth in the last couple years has not been double-digits, because of the absorption of Rental One, changing the culture, getting the team right, getting the facilities set up.”

He says the locations in particular needed to be expanded or adapted to potentially accommodate up to $100 million in fleet.

“So, for me to grow - and the potential is to grow - we’ve got a few more holes that we can fill in. I almost have to look at changing the location to a bigger location to service that customer base, because I can’t get enough product in and out of some of those locations.”

Which territory in Texas?

Texas First Rentals, like any operation run alongside a Caterpillar dealer, has to respect the established territory.

“If you go north to the Red River, the Oklahoma border, and you come straight down through Laredo, Brownsville, there’s 118 counties - that’s our Caterpillar territory. That’s what I get to open to run the rental businesses. I don’t get Houston, I don’t get West Texas, the Permian Basin [the oil rich region in west Texas and southeastern New Mexico]. I don’t get any of that.”

It does get the rapidly expanding urban centres like Dallas-Fort Worth and Austin, with growing suburban areas fuelling demand for tools used in residential and landscaping projects.

The region has been performing well enough in recent years to fuel the expansion of Texas First. Even so, the company is seeing a changed environment; “Demand’s holding up, but we see a softening in growth. You’ve got to go earn that business more today than you did two years ago.

Aerials represent a big proportion of Texas First Rentals’ $1 billion fleet.

“We believe that we’ve kind of plateaued out. It’s very brisk, it’s a good market, good activity, but we don’t see the CAGR trend still going up by 10% or 12%, like we did early on.

Higher interest rates have chocked back speculative building, he says; “We see that segment of the market very soft and we expect it to come back, but not in the next six to nine months, we don’t see it.”

The opportunities offered by mega project are regularly cited by the major rental businesses in the US. Is it important for Texas First? Yes, but not quite yet, seems to be the answer.

“That’s not a large chunk of our business - a few percentage points”, says Myrick, “Our customers may be working on a mega project, but we haven’t focused on that, we haven’t put a facility on site.

“We’re ready to start doing that, to tap into some of that large opportunity. But my philosophy is to build that customer base, build a good solid foundation of in-territory customers so that you’re not reliant on the transient projects coming and going. We see a lot of large projects - solar, data centers - we’re seeing a lot of that pop up now and some of our customers are taking us there.”

He says the company is looking at how these projects are managed; “It’s not the same. You’ve got to be on site, you’ve got to have resources in place. I don’t want to take the resources from our customer base, pull them away for a large project, and they suffer. So, we will go and build up our infrastructure for large projects, and that’s really our plan.”

He says the large project also require greater discounts to gain market share, which is not the Texas First approach; “I don’t want to continue to discount to get more market share because it’s just a diminishing return.

“But we believe, with the research we’ve done, that the next five to seven years is a target rich environment. We have the capacity and the desire and the talent to compete head to head. We don’t find competing with United or Sunbelt a challenge. They’re actually good operators - they’re stable, they want a good return for their shareholders, so we know that they’re not going to do anything crazy.”

Industrial rentals division

Given its territorial limits the Holt Group has chosen to expand its rental operations by creating other specialist businesses, such as Holt Industrial Rentals, which also comes under Myrick’s leadership.

That rents power, temperature control and air compressors from four separate locations. In addition, he manages Holt Industrial Systems, which is a stationary compressed air business, as well as trench shoring and container rental businesses.

The company is aiming for 40% of its fleet to be Caterpillar equipment, at original cost.

Another rentals business is Holt Aerials, acquired in 2021 when it was known as Kardie Equipment/TGM Wind Services and which was rebranded last year. It sells and rents large truck mounted Bronto Skylift aerials to the renewable sector as well as to industrial facilities. It does not come under Myrick’s remit, but enjoys a close relationship with the general rentals business.

When it comes to the Holt Industrial, Myrick says; “We have a gentleman’s agreement that I don’t market my Cat generators in Houston, but I have a facility in Houston for Holt Industrial Rentals. I don’t market it, and I give ERS [Energy Rental Solutions Cat], which handles that territory, first right of refusal to re-rent me something. We play by the rules.”

He says the forecast for Holt Industrial Services this year is $60 million in revenue – “we’re very pleased with that” – and the goal is to make it a $100 million business.

“The first threshold was $50 million - we’ll eclipse that this year - and then we move on to $100 million. That gives us the scale, and there’s a lot of opportunity out there. Right now we’re seeing the growth really on the battery side [battery energy storage systems – BESS]. Once you educate the user, it differentiates you from the competition.

“We’re seeing that there’s a lot of opportunity just with the power and the air. We don’t see any ceiling on that yet. Now, we may run into it before we get to a $100 million, but right now we see the opportunities are there.”

Myrick sees specialty rentals as an area where he can expand the relationship with customers and ultimate clients beyond the construction phase of a project; “[With] general rents, they go out and they provide the equipment to build the warehouses, then the manufacturing facilities, and then they walk away.

“Inside those facilities there is maintenance, things that need to be done, whether it’s a manufacturing plant or a warehousing facility. We feel that there’s opportunity there that’s really not being tapped into. So, we’re looking to expand into that market next year. It could be acquisitions, absolutely.”

The territory question is one that impacts on acquisitions, as Myrick acknowledges; “If you’re going to do an acquisition and you have facilities outside of your assigned counties, then you have to deal with the other Cat dealers to acquire those and to get into that business. And you can’t really compete.

Trenching and shoring equipment is one of the specialty rentals services offered by Texas First.

“The Cat dealer in West Texas is Warren Cat, and Mustang Cat is in Houston. We have a pretty darn good working relationship that we’ve created over the years to collaborate and to help each other to create success. So, we’re not infringing in Texas, we’re working together. That’s kind of the approach that we’ve taken when we built the Texas First model, to make sure that we all win.”

Rental technology plan

When it comes to technology, Texas First has the usual panoply of tools at its disposal, including telematics data from it fleet, which it can share with customers through its platform.

The business uses data proactively in its fleet planning; “We really have taken the approach where we have one pane of glass for all telematics devices coming into one platform. And that platform can be given to the customer for his equipment or ours. We use it for our safety updates, our service and maintenance, our inspections. So, we use it diligently on our side.

“From a fleet standpoint, we see the usage on an asset. We know the life cycle of that asset and how it’s developing and when to sell it. We have a very strict formula of when to roll something out, how many hours, how many years, whatever it might be.

“And we start to see the trends. We see a backhoe is only going to generate 46 hours of usage a month in the rental fleet, so we know how to provide that lifecycle for that product. Some machines that start to get more hours, then we look at the depreciation on it and we say, well, maybe we better accelerate [the disposal] because we’re working two shifts with that.”

Demand for battery electric?

When it comes to machine technology, Myrick has still to see a significant level of demand for battery powered machines; “We’ve tried a few small electric pieces of equipment that would be for demolition inside. You’ve got a few customers that like that. But there’s no significant direction that we’re going to go with that product.

“We’re going to let the market prove it out a little bit and see if we can get some sustainability and some durability on that before we invest…until the infrastructure is there where someone really wants to do something about it and, and be active in that, we’re not participating right now.”

Being part of a large privately owned business – the current leaders are siblings Corinna Holt Richter and Peter Holt, the fifth generation of the family – gives Texas First Rentals an air of stability.

Texas First Rentals has been benefitting from strong growth in Texas, although the market has softened more recently.

“It’s really looking at generational stability”, says Myrick about the vision the family has for the group, “And so that’s what they’re looking at: How do they give back to the community? How do they make sure that things are all in place for generations to go forward?”

He says there is a healthy working culture at the company; “We do have a good set of values and if you make your decisions based on those values, you create that culture. We have people that want to be here. They have a purpose.”

Myrick shares that purpose, and gets pleasure from seeing staff develop; “My as a leader is to give staff the resources they need to be successful and to watch them grow and develop and become great leaders.

“Renting a piece of equipment is fantastic, but watching someone develop here over the last 10 years has been just a joy.”