United Rentals to acquire NES Rentals
United Rentals, Inc. and NES Rentals Holdings II, Inc. (“NES”) announced that they have entered into a definitive agreement under which United Rentals will acquire NES for approximately $965 million in cash. The board of directors of United Rentals and Diamond Castle Holdings LLC, the majority owner of NES, unanimously approved the agreement. The transaction is expected to close early in the second quarter of 2017, subject to Hart-Scott-Rodino clearance and customary conditions.
NES is one of the ten largest general equipment rental companies in the United States, specializing in providing aerial equipment to approximately 18,000 customers across the industrial and non-residential construction sectors. Based in Chicago, Ill., NES has 73 branches and approximately 1,100 employees, with a concentration in the eastern half of the United States. In 2016, NES generated an estimated $155 million of EBITDA at a 42.1% margin on $369 million of total revenue. As of December 31, 2016, NES had approximately $900 million of fleet at original equipment cost.
United Rentals plans to update its 2017 financial outlook to reflect the combined operations upon completion of the transaction.
Strong strategic rationale
• The addition of NES’s branch footprint will increase the company’s density in strategically important markets, including the East Coast, Gulf States and the Midwest.
• The combined operations are expected to strengthen the company’s relationships with local and strategic accounts in the construction and industrial sectors. This will enhance cross-selling opportunities and drive revenue synergies.
• The combined operations are also expected to create meaningful opportunities for cost synergies in areas such as corporate overhead, operational efficiencies and purchasing.
• United Rentals and NES share many cultural attributes, including a strong focus on safety, a customer-first business philosophy, and best practices for talent development and retention.
• NES employees will bring a wealth of experience to United Rentals, and will have greater opportunities for career development within the larger combined organization.
• United Rentals will acquire NES for a purchase price of $965 million in cash. Net of synergies, this represents a multiple of 4.9 times EBITDA for the year ended December 31, 2016, and an adjusted purchase multiple of 4.3 times, including the value of acquired tax assets.
• The acquisition is expected to be immediately accretive to United Rentals’ adjusted earnings per share and free cash flow generation for the full year 2017, and United Rentals expects to maintain a leverage ratio of less than 3.0. Return on invested capital is expected to exceed the cost of capital within 18 months of closing.
• The transaction is not conditioned on financing. United Rentals expects to use a combination of cash, existing capacity under its ABL facility, and newly issued term debt to fund the transaction and related expenses.
Michael Kneeland, president and chief executive officer of United Rentals, said, “The NES agreement satisfies the rigorous strategic, financial and cultural standards we set for acquisitions. This exciting transaction will augment our revenue, earnings, EBITDA, free cash flow and overall scale, and expand our base of local and strategic accounts at a key point in the demand cycle.”
Kneeland continued, “In NES, we’re acquiring a well-run operation that’s primed to benefit from our technology, infrastructure and cross-selling capabilities. 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 look forward to welcoming the NES team to United Rentals.”
