United Rentals to Acquire H&E Equipment Services, Inc.

Company Overview - H&E Equipment Services, founded in 1961, provides a comprehensive mix of high-quality general rental fleet including aerial work platforms, earthmoving equipment, material handling equipment, and other general and specialty lines of equipment [1] - The company has approximately 2,900 employees and $2.9 billion of rental fleet at original cost, serving a diverse mix of customers across construction and industrial markets through its network of approximately 160 branches in over 30 U.S. states [1] - United Rentals, Inc. is the largest equipment rental company in the world with an integrated network of 1,571 rental locations in North America, 39 in Europe, 37 in Australia, and 19 in New Zealand [11] - United Rentals operates in 49 states and every Canadian province, serving construction and industrial customers, utilities, municipalities, homeowners, and others with approximately 27,550 employees and a rental fleet with a total original cost of $21.85 billion [11] Financial Performance - H&E generated $696 million of adjusted EBITDA on total revenues of $1,518 million for the trailing 12 months through September 30, 2024, translating to an adjusted EBITDA margin of approximately 45.8% [2] - The purchase price of approximately $4.8 billion represents a multiple of 6.9x adjusted EBITDA for the trailing 12 months ended September 30, 2024, or 5.8x adjusted EBITDA including $130 million of targeted cost synergies and the net present value of tax attributes estimated at approximately $54 million [8] Strategic Rationale - The merger agreement includes a 35-day "go-shop" period during which H&E will actively solicit, evaluate, and potentially enter into negotiations with parties that submit alternative proposals [4][5] - The transaction is projected to result in a pro forma net leverage ratio at closing of approximately 2.3x, well within the company's target range of 1.5-2.5x, with a goal of reaching net-debt to EBITDA of approximately 2.0x within 12 months after acquisition close [4] - The integration of H&E into United Rentals' operations presents opportunities to improve efficiency, productivity, and new business development with the adoption of United Rentals' operational excellence, including its technology offerings [4] - The combination will expand United Rentals' rental fleet by almost 64,000 units with an original cost of over $2.9 billion and an average age of under 41 months, as well as roughly $230 million of non-rental fleet [8] - The combination is expected to generate approximately $130 million of annualized cost synergies within 24 months of closing, primarily in the areas of corporate overhead and operations, with procurement savings of approximately 5% compared to historical H&E pricing [8] - United Rentals expects to realize approximately $120 million of annual revenue cross-sell synergies by year three, as legacy H&E customers take advantage of United Rentals' specialty rental offerings [8] Transaction Details - The boards of directors of United Rentals and H&E unanimously approved the transaction, which is subject to customary closing conditions, including a minimum tender of at least a majority of then-outstanding H&E common shares and the expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 [14] - United Rentals intends to commence a tender offer by January 28, 2025, to acquire all of the outstanding shares of H&E common stock for $92 per share in cash, with the transaction expected to close in the first quarter of 2025 [14][17] Leadership Comments - Matthew Flannery, CEO of United Rentals, emphasized the acquisition's alignment with the company's strategy to grow the core business and drive shareholder value, highlighting the benefits of expanded capacity in key markets and the potential for revenue growth through cross-selling [9] - Bradley W. Barber, CEO of H&E, expressed confidence that the combination with United Rentals will take the business to new heights, while John M. Engquist, Executive Chairman of H&E, noted the win-win outcome for both organizations, customers, and shareholders [9]