1 Nov 21

Mergers Wheels-Donlen, ALD-LeasePlan: What’s next?

Last week, two major stories set the fleet and mobility industry abuzz. On Wednesday, LeasePlan and ALD Automotive confirmed they are discussing a merger. On Thursday, Donlen and Wheels Inc. announced they had in fact just merged. Each story could have far-reaching implications, and put together, they may point to a larger trend. So, what to make of them? Here are our thoughts and questions, and last but not least, some first reactions from fleet customers.

To better indentify and understand the impact of the two events, we also refer to our biographies of the 4 companies: ALD Automotive, LeasePlan, Donlen, Wheels Inc. And we have pictured the current presence of the 4 companies and their alliance on a world map: ALD Automotive, LeasePlan, Donlen, Wheels Inc

1. Our thoughts

Two differences, one common motivator
On the face of it, both stories point to an accelerated consolidation in the fleet and mobility industry, and more particularly in the vehicle leasing and fleet management sector. But there are some important differences.

Firstly, there is geography. Although there is some overlap, these stories are mostly relevant in different regions. LeasePlan and ALD are global players, but with a European focus. Donlen and Wheels Inc are important players in North America.

Secondly, there is a difference in finality. The Donlen-Wheels merger is done and dusted. It’s a fact. ALD and LeasePlan, however, are still in talks – and the outcome of those talks could still take various shapes. A straight merger is an option, but it’s not the only one (but more of that later).

Having said that, we do see a common motivator behind these two stories. And it is that leasing and fleet management companies, especially in the industry’s two most important and mature regions, have a strong need and a clear interest in seeking economies of scale.

We are in a transformation towards sustainable mobility – a process that is urgent, vital and costly. If mobility providers want to continue delivering quality services and products in the global mobility arena, they must achieve economies of scale – both operationally and financially.

Donlen-Wheels: interesting, promising, logical
Now let’s take a look at the Donlen-Wheels merger. Considering the configuration of the North American fleet market, this is a move that’s interesting, promising, and even logical.

In March 2021, Hertz sold Donlen to Athene Holding, a financial and retirement services company. Donlen is a fleet management company with approximately 304,000 vehicles in portfolio. That’s a reasonable size, but still well behind Element Fleet Management for example To compete in that market, which is highly competitive and dominated by open-end lease, you need size and scale.

And that’s what Athene Holding has achieved: combining Donlen with Wheels Inc results in a fleet size of about 550,000 vehicles. This will increase leverage and facilitate investment, notably regarding sustainability and fleet electrification, topics that surely will only become more prominent in 2022, also in vehicle fleets in the U.S.

What’s even more interesting: both fleet management companies are customer-driven and have complementary customer portfolios. Donlen has over 50 years’ experience with truck, pickup and LCV fleets, with an increasing focus on telematics. Wheels Inc has experience with car-focused, sales-driven fleets of pharmaceutical companies and the like, and is known for the quality of its service.

So, this marriage benefits both fleet management companies, but also holding company Athene, and the fleet customer – on the condition that the merger manages to maintain the distinct culture of each company, and keeping in mind that there is a clear difference of mentality between Athene Holding, which is publicly listed; and Wheels Inc, which has always been a privately-owned company.

Shlomo Crandus, the CFO of Wheels Inc, has been appointed the new CEO of the Donlen-Wheels combination, so the Wheels culture at least seems to be secure for now.   

ALD-LeasePlan: the big beast, with a big if
Now let’s head over to Europe for a closer look at the announcements by LeasePlan and ALD Automotive. 

The fact that LeasePlan is up for sale is one of the worst-kept secrets in the industry. Rumours to that effect started circulating shortly after the company’s failed IPO in October 2018. Just in April of this year, reports that both ALD and Santander, the Spanish banking giant, were both – separately – interested in acquiring LeasePlan were neither confirmed nor denied by all parties involved.

ALD Automotive had a rather more successful IPO in 2017. It has since positioned itself at the forefront of several trends transforming mobility worldwide, and has entered into partnerships with OEMs, startups and mobility specialists. ALD’s aim is to become the biggest leasing and business mobility provider, covering at least 50 countries by 2025. It now covers 43.  

In short, ALD – and its main shareholder Société Générale – certainly have an appetite for expansion and growth, while LeasePlan is looking for “What’s Next” – its former adage.

From that perspective, the deal seems logical. But let’s not forget that it’s far from realised. And even if an agreement is reached, there’s still a big if: it will face significant obstacles from the regulators, both nationally and internationally. Because the combination of the ALD fleet (1.7 million vehicles in 43 countries) with the LeasePlan one (1.8 million in 30) countries would create such a big beast that it risks setting off all kinds of anti-trust and monopoly alarm bells.

To put it in tech terms, an ALD-LeasePlan merger is a bit like Microsoft and Apple getting hitched. To illustrate the point: in the Nordics and in some Southern European countries, the combination of both lease companies would have a market share of between 60% and 70%. It seems likely that regulators would only allow an overall merger if ALD and/or LeasePlan would dismantle or sell off certain activities in those markets.

Given the complexities of this deal, we don’t expect much movement in the upcoming weeks, or even months. However, the fact alone that both parties confirm that they’re talking means they are more than ‘just talking’. “It’s a sign that the advantages of this deal outweigh the disadvantages, for both parties”, says Global Fleet expert Pascal Serres.

Close reading of the press releases issued by both Société Générale and ALD on this matter, we can state that ALD’s majority shareholder is looking to create a truly global mobility giant, and that it hopes to do so by combining ALD with LeasePlan – but on the condition that it will not buy back the 20% stocks it has freed up with its IPO in 2017.

Indeed, one of the main advantages of a merger between ALD and LeasePlan would be to give the new company the scale and the means to adapt to the rapid changes in the mobility ecosystem. Another would be to bring simplicity to the customer, as services, solutions and processes can be aligned and integrated on a wider scale.

However, there’s also a downside. For the customer, more concentration means less competition. That could also be bad for innovation in general. At present, LeasePlan is a pioneer on several fronts, for example in open calculation of closed-end leasing, and in centrally directed fleet management, especially at international level. ALD, for its part, is one of the biggest innovators in the industry today, embracing mobility concepts and subscription-based formulas. It would be a pity if the distinctly innovative spirit of both companies would be harmed by an economic rationale that reduces mergers to a cost-cutting operation.

2. Our questions

Click on the picture to enlarge the mapTo enlarge the map, click on the picture. 

Perhaps the most interesting question is about the various international partnerships of the companies involved. In 2009, ALD Automotive and Wheels Inc formed an alliance to serve their global customers. Donlen, for its part, has a partnership with European leasing company Athlon.

Knowing that international customers seek efficiency by consolidating their suppliers, it will be interesting how the partnership angle of these merger stories evolves. Because LeasePlan has its own subsidiary in the United States.

So, what will happen, Will Wheels Inc follow Donlen, and switch partnerships from ALD to Athlon? That would allow ALD to build on LeasePlan USA to expand its presence in North America. Or will ALD and LeasePlan sell the latter’s highly successful U.S. subsidiary, for example to Athene Holding? That could pave the way for ALD-LeasePlan to become a global partner for Donlen-Wheels. Or is there another option on the table? Fleet customers certainly would like to know.

Another pressing question: do these two mergers signal the beginning of a larger consolidation trend in our industry? The two aforementioned constellations would dwarf many of their competitors. These in turn would be motivated to seek some scale as well.

There are some preliminary associations already in place. Alphabet and Athlon already collaborate on mobility under the Now umbrella. Will they move even closer? In North America, it will be interesting to see what fleet management companies like Merchants, Doering or Jim Pattison Lease are going to do.

Further consolidation will bring greater scale, but it will also reduce competition. That’s the inevitable flipside of the coin.

Our final question: How will these mergers affect the strategies of the companies involved? Each of them has their own mid- and long-term strategy, with focus elements like geographic expansion, electrification, mobility, digitisation, and so on. Quite often, the strategies of the merging companies don’t fit together one on one. So at least one of them will have to change its strategy – despite earlier commitments, also by their customers.

3. Fleet managers' first reactions

Mergers are perfectly justifiable from the viewpoint of the companies that are merging. But are they equally logical and desirable for their customers? That’s what we wanted to hear from some major international fleet customers.

We spoke to the managers of some of the biggest and most important corporate fleets in Europe and North America. They were willing to provide some insight into their thinking, on condition of anonymity.

Mixed feelings
The overall impression: feelings are mixed, with more negatives than positives at the moment. Of course, the fleet managers acknowledge that there are advantages of scale to these mergers. Considering that the merging companies have a complementary geographic spread, up to a degree at least, it is also likely that these consolidations will improve global coverage, they admit. So, if done right, these two operations could present a great opportunity for fleets to improve their supply chain.

The elephant in the room is competition, or rather, the lack of it. The corporate fleet managers we spoke to all point out the danger of an industry with fewer, bigger players. “Competition is like an engine that keeps the vehicle running”, said one. All feared becoming dependent on a handful of fleet suppliers, who could impose their conditions virtually at will because they had become unavoidable.

Size risks – and opportunities
A second point, especially in the case of the potential ALD-LeasePlan merger, is the fear that it will leave other players as either too local or too small.

Plenty of multinationals have centralised their procurement and fleet category management, allowing for only a limited number of internal and local fleet resources. Their policy simply doesn’t allow for working with either local suppliers or a wide range of lease suppliers. What they want is simplicity, and a limited number of players, in a competitive setup that generates a fair price.

This is a risk for ALD-LeasePlan, and an opportunity for regional players. If they can offer a consolidated approach for their region, this could lure international customers their way.   

Quality of service
One global fleet manager, one of the most respected voices in the industry today, worries about the Service Level Agreements, and the quality of service. His argument: establishing a cooperation or implementing a merger takes time, demands energy and creates uncertainty, both within the organisations and with the employees:

“We know what they’ll say: that everything will stay exactly the same for the customers. But we also work for multinationals, so we know how it goes with mergers and acquisitions. There is always a loss of energy and focus. So there will be an impact on the day-to-day quality of service. And with all of today’s challenges, including the pandemic, the need to electrify and the chip shortage, this is an added problem we can surely do without.”

Forced to rethink suppliers
A fourth point that emerges from our talks with fleet managers: the looming threat to supply arrangements. Fleet customers choose their suppliers for a variety of finely calibrated parameters. Some link to corporate strategy and internal mandates that require working in a dual or multisupplier scheme.

An eventual merger between ALD and LeasePlan would force many of the most important fleets to rethink their supplier configuration, as they have dual supply deals with exactly these two companies. “That is sad, because we have contracts that cover long periods of time, based on trust, commitment and loyalty”, said one.

The issue goes beyond mere policy, and touches upon strategy. Many fleet customers have set out a long-term fleet, mobility and sustainability strategy, and they’ve chosen partners that best fit those strategies. But how much of that ‘fit’ will remain after their preferred partner has merged?  

One obvious example is LeasePlan, which has committed itself to reduce its entire funded fleet to zero emissions by 2030. ALD has a different approach to sustainability. Which commitments are customers supposed to take seriously? The same goes for other strategic choices in terms of expansion, digitisation and smart mobility. Will one strategy be followed and the other discarded, or will there be a compromise between both?

Customer first
For suppliers, mergers have many advantages. But for customers, the same operation raises many questions – pertinent ones. Certainly, both Donlen and Wheels, and ALD and LeasePlan realise that their most important and most valuable asset are their customers. If they want to avoid ‘streamlining’ this asset, they must step up their efforts to communicate clearly and put the customer first. That is not only what they demand, it’s what they deserve.

Pictured: Tex Gunning, CEO at LeasePlan (top left), Tim Albertsen, CEO at ALD (top right), Shlomo Crandus, incoming CEO of new Donlen-Wheels company (bottom left), Dan Frank, former CEO at Wheels Inc and Vice Chairman of new Donlen-Wheels company (bottom centre), and Tom Callahan, former CEO at Donlen and Senior Executive and Board Member of the new Donlen-Wheels company (bottom right). 

Authored by: Steven Schoefs