United Rentals to acquire H&E Equipment Services, Inc

Posted on Jan 14, 2025 in Nuts & Bolts

$4.8 billion transaction will expand capacity in strategic U.S. markets and provides attractive risk-adjusted returns

United Rentals, Inc. and H&E Equipment Services, Inc. has announced their entry into a definitive agreement under which United Rentals will acquire H&E for $92 per share in cash, reflecting a total enterprise value of approximately $4.8 billion, including approximately $1.4 billion of net debt.

Founded in 1961, H&E provides its customers with a comprehensive mix of high-quality general rental fleets including aerial work platforms, earthmoving equipment, material handling equipment, and other general and specialty lines of equipment. With approximately 2,900 employees and $2.9 billion of the rental fleet at original cost, the company serves a diverse mix of customers across both construction and industrial markets through its network of approximately 160 branches in over 30 U.S. states.

On a trailing 12-month basis through September 30, 2024, H&E generated $696 million of adjusted EBITDA on total revenues of $1,518 million, translating to an adjusted EBITDA margin of approximately 45.8%.

Strong Strategic Rationale

• The transaction is consistent with United Rentals’ “grow the core” strategy, and legacy H&E customers will benefit from one-stop access to United Rentals’ specialty rental offerings across Fluid Solutions, Matting Solutions, Onsite Services, Portable Storage & Modular Space, Power & HVAC, Tool Solutions, and Trench Safety.

• H&E’s fleet, experienced employees and customer service footprint of branches across over 30 strategic U.S. states are complementary to United Rentals’ existing network. Importantly, the combination will increase capacity for United Rentals in key U.S. geographies.

• 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 the non-rental fleet.

• United Rentals and H&E share many cultural attributes, including a strong focus on safety, a customer-first business philosophy, and best practices for talent development and retention. Critically, H&E employees will bring a wealth of experience to United Rentals, and will have greater opportunities for career development within the larger combined organization.

Strong Financial Rationale

• 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.

• 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. Additionally, United Rentals expects to realize procurement savings of approximately 5% as compared to historical H&E pricing.

• 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.

• The acquisition is expected to be accretive to United Rentals’ adjusted earnings per share and free cash flow generation in its first year post-close.

• Return on invested capital (ROIC) is expected to reach the company’s cost of capital by the end of year three on a run-rate basis, with compelling IRR and NPV across multiple macro scenarios.

• 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. Upon closing, the company intends to reduce its leverage with a goal of reaching net-debt to EBITDA of approximately 2.0x within 12 months after the acquisition close. Accordingly, the company has paused its share repurchase plan in anticipation of driving toward this goal.

• 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.

• The transaction is not conditioned on the availability of financing. United Rentals has obtained bridge commitments to ensure its ability to close the transaction as soon as possible, with the expectation that it will use a combination of newly issued debt and/or borrowings and existing capacity under its ABL facility to fund the transaction and related expenses at close.

• Notably, the transaction will not impact the company’s current dividend program.

Matthew Flannery

CEO and Chairman Comments

Matthew Flannery, chief executive officer of United Rentals, said, “In H&E we’re acquiring a well-run operation that’s primed to benefit from our technology, operations and broad value proposition. Most importantly, we’re gaining a great team that shares our intense focus on safety and customer service. We’ll be working side-by-side throughout the integration to capitalize on best-in-class expertise from both sides. We will use our well-honed integration playbook as we prepare the acquired branches to take full advantage of our systems and operational capabilities, and gain from our employee and customer-centric culture. I look forward to welcoming our new team members upon the closing of the acquisition.”

Flannery continued, “This purchase of H&E supports our strategy to deploy capital to grow the core business and drive shareholder value. This acquisition allows us to better serve our customers with expanded capacity in key markets while also providing the opportunity to further drive revenue through our proven cross-selling strategy. Not only does the agreement satisfy the rigorous strategic, financial and cultural standards we set for acquisitions, but it also drives attractive returns for our shareholders.”

Bradley W. Barber, chief executive officer of H&E, said, “I’m extremely proud of what we’ve built at H&E over the last 60 years and am confident that our combination with United Rentals will take the business to new heights going forward.”

John M. Engquist, Executive Chairman of H&E, added, “I couldn’t be more pleased with this win-win outcome for both organizations, our customers and our shareholders. Importantly, I want to thank our employees for driving the results that made this transaction possible. I am confident that we’ve found an excellent landing spot for them and I am excited for the new opportunities they will have as part of United Rentals.”

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. 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. Following completion of the tender offer, United Rentals will acquire all remaining shares not tendered in the offer through a second-step merger at the same price as in the tender offer. The transaction is expected to close in the first quarter of 2025. The company plans to update its 2025 financial outlook to reflect the combined operations following the completion of the transaction.

The merger agreement includes a 35-day “go-shop” period which runs through February 17, 2025, during which H&E—with the assistance of BofA Securities, its exclusive financial advisor—will actively solicit, evaluate and potentially enter into negotiations with, and provide due diligence access to, parties that submit alternative proposals. H&E will have the right to terminate the merger agreement to accept a superior proposal subject to the conditions and procedures specified in the merger agreement, which H&E will file with a Current Report on Form 8-K. There can be no assurance that this 35-day “go shop” will result in a superior proposal, and H&E does not intend to disclose developments with respect to the solicitation process unless and until its board of directors decides requiring further disclosure.

Advisors

Sullivan & Cromwell acted as the company’s legal advisor. Morgan Stanley Senior Funding, Inc. and Wells Fargo have provided committed bridge financing. BofA Securities acted as financial advisor to H&E and Milbank LLP acted as H&E’s legal advisor.

Non-GAAP Measures

H&E’s adjusted EBITDA is a non-GAAP financial measure as defined under the rules of the Securities and Exchange Commission. United Rentals and H&E believe that this non-GAAP financial measure provides useful information about the proposed transaction; however, it should not be considered as an alternative to GAAP net income. A reconciliation between H&E’s adjusted EBITDA and GAAP net income is provided in the investor presentation available on United Rentals’ website.

Conference Call

United Rentals will hold a conference call today, Tuesday, January 14, 2025, at 8:30 a.m. Eastern Time. The conference call number is 800-420-1271 (international: 785-424-1634). The replay number for the call is 402-220-6985. The passcode for both the conference call and replay is 73193.