Published on Dec 23, 2024
RB Global (RBA) subsidiary Rouse Services, which provides benchmarking and appraisals to the construction equipment rental industry, could be at risk of regulatory scrutiny as U.S. antitrust regulators target algorithmic intermediaries across the economy.
Rouse’s business model resembles those of benchmarking firms that have faced lawsuits and probes from the Department of Justice, according to public materials, statements from executives and interviews with former employees. In a series of policy changes and court filings, Biden administration enforcers have discarded earlier precedent that allowed information sharing as long as the shared data was anonymized, aggregated and at least three months old, citing the rise of pricing algorithms.
The government has also intervened on behalf of private plaintiffs challenging algorithmic pricing schemes, some of whom have created important new jurisprudence. Trump’s enforcers won’t try to expand precedent like their predecessors, but Republican regulators and Chicago School academics are sometimes more willing to challenge pricing conspiracies than other kinds of conduct.
Rouse began offering rental benchmarking in 2011 as an offshoot of its original appraisals and sales business. Several equipment leasing giants already used Rouse’s valuations to get loans from banks and had relationships with the company: Industry leader United Rentals (URI), No. 3 HERC Holdings (HRI) and H&E Rentals (HEES) were among the five founding members of Rouse Rental Insights, the new analytics division, which soon began placing columns and advertisements in trade magazines to find new members.
RB Global’s 2020 acquisition of Rouse was an inflection point for the company. As the world’s biggest industrial auctioneer, RB Global, then named Ritchie Bros., gave Rouse access to new data feeds and customer relationships.
By 2021, industry No. 2 Sunbelt Rentals, a subsidiary of Ashtead Group (ASHTY), had joined the service, and since 2023, Rouse’s U.S. membership has risen from 250 companies representing $65 billion in equipment assets to 400 firms representing $100 billion, according to its website. Of the Rental Equipment Register’s 2023 edition of the top 10 North American rental firms, nine used Rouse Rental Insights, the company said in a September blog post.
“Rouse has essentially standardized a lot of the price competition in the industry. Since their involvement, rates have significantly increased,” an industry executive told a British analyst in February. “Over the last few years, its use has become pretty ubiquitous,” he said, referring to Rouse Rental Insights. “If you’re a mid-size or larger company, you’re using Rouse.”
The Ritchie Bros. acquisition coincided with boom times for the construction equipment rental industry. Previous economic downturns had hurt construction profits across the board, including rentals. But as the United States emerged from the pandemic recession, analysts noted with surprise that unlike equipment retail, the rental sector was thriving.
Supply chain disruptions and inflation had increased input costs and decreased supply for equipment rental firms, giving them a bulletproof reason to raise rates. Share prices for the leading providers soon began to skyrocket, consolidation accelerated and private equity flocked to the sector.
In the years since, major equipment rental firms have managed to maintain their elevated rates, even as supply shocks ebb. On earnings calls, industry executives describe an industry transformed by data and “discipline.” Asked by analysts why they’re confident the profits will continue, executives often point to Rouse.
“What gives you confidence and the ability to kind of normalize at these higher levels versus kind of seeing the fall that you might have seen in the past?” one research analyst asked HERC CEO Lawrence Silber during a Bank of America conference last May.
“Great question,” Silber said. “We’re coming out of that post-COVID, which was high growth and primarily because of a lack of gear, and really the big three [United, Sunbelt, and HERC] were the only ones able to respond correctly to that period of rapid growth. But the difference between the company today and what it was maybe 10 years ago or even five years ago is we’re technology enabled. We’re really at the forefront and leadership level of having all the equipment be telematically enabled. We have all kinds of data now in the business that didn’t exist 10 years ago. In fact Rouse Analytics, which is a key tool that we use to help us price in the marketplace, helps us manage a level of fleet that’s in the market, understand what competition—it has over 60% of the market participating, now putting data into that.”
Rouse declined to comment on the record for this article. United, Sunbelt, HERC and H&E didn’t respond to requests for comment.
Business model under scrutiny. Rouse Rental Insights “collects invoice-level transaction data and nightly fleet snapshots from participating rental companies and reports industry benchmarks for rental rates, physical utilisation, dollar utilisation, fleet age, and other key performance metrics at a local market level,” according to a March 2015 magazine advertisement.
As part of customer onboarding, Rouse data engineers standardize a rental firm’s data in line with metrics established by Rouse and the industry’s main trade group, the American Rental Association. Participating companies share not just price data but also equipment utilization rates, which show how much of their inventory is in use.
Only construction equipment rental companies can participate in Rouse Rental Insights because members must have data to share, according to two former employees. (Rouse initially provided some reports for free in exchange for a rental firm’s information.)
In addition to regular reports, Rouse offers customized analyses and professional management. For example, the head of Rouse’s client services division describes his role on LinkedIn as: “Assist[ing] clients in understanding key performance metrics for their equipment rental and sales fleets, comparing these metrics to local industry benchmarks” and “Provid[ing] visibility into market conditions to help companies respond to changing economic trends and prepare for the Future.”
Rouse has said its benchmarks are calculated in compliance with government regulations, which until last year permitted the sharing of aggregated data with a three-month delay. Three former employees said that while Rouse’s appraisals are based on near-current pricing data, their understanding was that the analytics product only uses three-month-old data to align with federal safe harbors around information sharing.
But antitrust regulators withdrew those guidelines last year before launching a spate of enforcement actions against benchmarking firms. It’s unclear whether Rouse Rental Insights has changed in response to the policy update.
“[T]he suggestion that data that is at least three-months old is unlikely to be competitively-sensitive or valuable is undermined by the rise of data aggregation, machine learning, and pricing algorithms,” Doha Mekki, then-deputy assistant attorney general for the DOJ antitrust division, said in a speech announcing the withdrawal. “To use an analogy, maintaining the safety zones would be like developing specifications for audio cassette tapes and applying them to digital streaming.”
In September 2023, the DOJ sued Agri Stats, a benchmarking service for meat processors. The complaint highlighted several aspects of Agri Stats’ business that appear to match Rouse’s benchmarking practices: a standardized mix of internal pricing, output and inventory data; customized analyses of local markets; sales consultants who help customers interpret reports; exclusive access for competitors but not downstream customers; and an apparent goal of helping companies match rivals’ prices, rather than undercut them.
Indeed, Rouse Rental Insights’ promotional materials suggest it is meant to help all participants. The service’s website describes its “ongoing commitment that we will never utilize your information in a way that harms your interests.”
During a February interview with a British research firm, Josh Nickell, an equipment rental CEO whose previous company was acquired by Sunbelt, explained how Rouse helped the industry sacrifice output for profit and avoid a “race to the bottom” during the pandemic.
National rental companies “were willing, at least in the short term, to endure lower time utilization rather than go too low on dollar utilization,” meaning that they kept rental rates high even if it meant some equipment went unused. “I know that they use Rouse as a factor in making decisions in markets where they’re struggling or seeing something,” he added.
This element of Rouse’s business appears to echo the value proposition of algorithmic rent-setting firm RealPage, which allegedly told participating landlords that its technology would help them maximize revenue, as opposed to occupancy. The DOJ sued RealPage in August over accusations of anticompetitive information sharing in violation of Section 1 of the Sherman Act.
Nickell proceeded to describe what happened when a company used Rouse Rental Insights to cut prices rather than raise them. “EquipmentShare, from my understanding, caused some annoyance among larger and regional rental companies when they joined Rouse. This is because they brought down the rental rates in every market as soon as they went live on Rouse,” Nickell said. “Essentially, EquipmentShare is trying to drive down prices to get their fleet rented out, as they have a large new fleet that isn’t performing well. However, national rental companies aren’t taking the bait and trying to compete with EquipmentShare’s rates.” (EquipmentShare didn’t respond to a request for comment.)
In October, the DOJ expanded on its lawsuits in a lengthy statement of interest filed in private litigation against Agri Stats and a group of pork processors. The department emphasized that aggregating and anonymizing data isn’t a shield against Section 1 liability. “Critically, the legality of information exchange depends on whether it tends to suppress competition—and not on the format of the reported data,” the department wrote.
Last month the department opened an investigation into potential price-fixing in the PVC pipe industry, allegedly facilitated through an industry newsletter. On December 11, the DOJ and the Federal Trade Commission withdrew guidelines for collaboration among competitors, which had been unchanged since 2000.
Industry discipline. Executives at publicly traded construction equipment rental firms routinely field analyst questions about Rouse and how long the industry can maintain its post-inflation “discipline.” Some of their comments resemble quotes from agriculture executives that DOJ included as evidence in its Agri Stats complaint.
At a Goldman Sachs conference in May 2023, HERC executives explicitly linked Rouse and their ability to harness inflation. “The market is accepting the price increases that are being put forth
because everybody knows what’s going on around inflation,” Silber, HERC’s CEO, said. “And those [price increases] have been accepted and received and understood by those customers, and we haven’t had any real significant pushback at all,” even “in what has been traditionally a very difficult environment to raise prices.”
“And how much of an impact does data availability help, Rouse in particular?” an analyst asked.
CFO Mark Humphrey jumped in. “Yes. I mean that was going to be my point, too. I think that is probably one of the biggest differences” between then and now, Humphrey said. “You have sort of 50% to 60% of North American rental companies reporting into Rouse, and we see that data weekly and then more rolled up monthly. And that certainly goes to the discipline in the overall marketplace in the industry that Larry was speaking of. I think it’s invaluable.”
Bradley Barber, the CEO of H&E Rentals, echoed that message in the firm’s first-quarter 2022 earnings call. “I think our pricing is right in line with any of the other firms doing high-quality business,” he said. “We use a lot of information that’s supported by Rouse, not just anecdotal feedback, and we are very comfortable that our pricing is well aligned. And I would comment that the amount of discipline we continue to see, particularly among most of our larger public peers, is very encouraging. I think this is a disciplined environment, and we are all looking to pass on any potential cost increases to the end user and I suspect that’s going to happen across the board.”
At a Morgan Stanley conference in September, United Rentals CEO Matthew Flannery stressed that the pandemic merely accelerated an existing trend. “It would be easy to talk about the COVID bounce back and how that lack of supply created rate discipline. But it has actually happened before that,” he said. “Right now, there’s a couple of public peers that are even talking about time utilization being down, but their rate being up. That wouldn’t have happened 15 years ago.
“The industry is so much more disciplined,” Flannery added. “Consolidation at the top and public information has been part of it. Rouse Analytics has been part of it. We have data now that helps.”
