Its newly-combined fleet takes the business into the FN50 top 10 for the first time, creating a new powerhouse in the contract hire and leasing sector. But what does the merger of Zenith and Leasedrive into the new Zenith Leasedrive Group mean for customers?
In the first media interview since HG Capital completed the two investments, Zenith Leasedrive chief executive Tim Buchan, HG partner Andrew Land and commercial director Ian Hughes sat with Fleet News at HG’s London offices to discuss the deals, what they mean for fleets and how they will impact the wider leasing sector.
But before the first question is asked, Buchan is keen to set the scene with an opening statement about HG’s move into leasing and its importance to the future of his business (see panel).
“We see HG as an investor rather than a private equity firm – it is in it for the long-term,” he says.
“We were able to invest in 2010 with the cash from the private equity deal ; now we are able to invest again with HG.
“We have to be ready: the sector is going in a completely different place – into business services and the employee.”
When news of HG’s investment in Zenith broke earlier this year, there was consternation among some customers. Both Zenith and Leasedrive had put great emphasis on their ability to react quickly to fleet needs with an overriding priority on customer satisfaction. They were among the most innovative companies in the leasing sector, investing millions of pounds in technology platforms to help fleets better understand their operations and identify ways to improve efficiencies. Would this continue as the business doubled in size?
Buchan and his team have worked hard to reassure customers of both brands, in particular Leasedrive after the company’s two figureheads, David Bird and Roddy Graham, decided to leave (they remain shareholders and consultants).
The result: to-date, not one customer has left, and several have already re-signed long-term contracts.
Many elements of the business have changed since the creation of the new group, but what haven’t are the customer service and account management teams. They will continue to run under the two brands; Buchan says there is no financial value in bringing them together.
In addition, the three main offices will remain, although each has been given a particular area of focus: commercial vehicles for Leeds; white label and public sector for Solihull and daily rental for Crowthorne.
Leasedrive is adopting Zenith’s Pulse fleet management software, described by Land as “in the top three technology platforms that we have seen in 25 years”, a decision made easier by the fact that both companies ran off the Kee-Resources platform for pricing.
Any customer re-tendering will be handled by the incumbent brand, while Zenith Leasedrive Group’s new consultancy team will decide on the most appropriate business to go for new tender opportunities.
Historic strength will prevail in these situations: Zenith with mid-to-large corporates; Leasedrive with public sector and daily rental contracts.
Although both companies will essentially be one – the same philosophies, software, system platform and funding relationships – Buchan has no desire to risk losing customers by closing either brand. Precedents already exist: LeasePlan has its Network brand for SMEs and Arnold Clark trades as Activa Contracts in England, for example.
“The two brands were very successful in their own right. There is no ego drive to have them as one,” Buchan says.
“We ran Zenith and Provecta for a long time and we will continue to run sub-brands.”
Most of the changes are occurring in the back office. Some will be transitional as the group moves to next-generation systems like the cloud and web apps rather than integrating an existing platform. The business will account as one while there will be a new approach to asset management and finance – one that will ultimately benefit customers.
“Fleets want effective cost models and for a business to survive it has to have access to a low cost of capital and have a very efficient cost of service delivery,” says Buchan.
Zenith, like many independents, has in the past struggled to compete with the cheap rates of lending secured by the bank-owned leasing companies.
That isn’t so much an issue today as European regulations force lenders to deploy money in the market, increasing liquidity. Zenith Leasedrive, though, is looking to build a sustainable future.
HG’s reputation of ‘buy and build’ will enable the group to benefit from its expertise in the funding market.
“Funding is an Achilles’ heel for independents because they borrow money at high spreads from other lenders,” says Land. “We have deeper relationships with capital providers. Zenith had already done a lot of good work with its securitisation model, but it needed a firm like us to drive that further forward.”
Access to cheaper funding has two main benefits for the business: it increases profits but, just as importantly, a flexible funding base makes it easier to implement service improvements and potentially opens up other marketplaces. “For us it’s a growth point, not a profit point,” says Buchan.
So where does the business go from here? Already it has won “a few milestone contracts”, says Buchan, described as mid-to-large corporates. The priority will continue to be sole-supply relationships, not SMEs or the broker market, while Leasedrive boosts its profile in the public sector.
“We have been successful in securing a big framework agreement for salary sacrifice – that wouldn’t have been an area we focused on in the past,” says Buchan.
However, contract hire and leasing will no longer be business as usual. Buchan forecasts a sizeable shift in the leasing culture of fleets and their employees.
Companies will increasingly demand a total mobility solution, which will require a wider range of services. Among them will be new services for employees.
“Employee attraction and retention are critical so it will be important to have services here,” Buchan says. “It comes under the total automotive mobility heading.”
Electric vehicles and charging cars by the hour – car clubs – are two options being investigated by Zenith. Buchan believes employee purchasing decisions will change to focus on maximum convenience, lowest cost and the minimum impact on the environment.
“As a sector we have to align ourselves to support these,” he says. “Take electric vehicles – we need a cost-effective, greener solution to support the infrastructure for charging at home. Corporate customers will want us to manage all this for them.”
Facilitating total mobility concepts will be initiatives like Zenith’s telemetry pilot, which is nearing completion. The concept is simple: maintenance charged on a cost per mile basis. The system has been deployed in the fleets of several large customers and tracks engine management.
“The pilot supports the business case that different fleets have difference usages and that drives different costs. The question is around customer acceptance and whether the market is advanced enough to adopt it,” Buchan says.
He doesn’t expect it to become a new pricing model in the short-term, but medium-term is “a probability”.
Zenith Leasedrive’s main growth priorities are organic – typically 15-20% a year targeting sole-supply corporates, public sector and vans – and Europe.
Buchan first mooted aspirations to expand into mainland Europe more than a year ago in discussions with Fleet News, although proposals were at too early a stage to publish.
Now, though, with the additional backing of HG, he is happy to go public on those plans – although not in detail.
“It’s our intention to have capabilities across continental Europe – we see value in it for customers,” Buchan says.
“The value of a pan-European business is more an aggregation of analysis and vehicle data than having a leasing solution – our research supports that,” he adds.
“We are talking to customers now and we expect to happen in 2015.”