Herc Holdings has agreed to acquire H&E Equipment Services for $5.3 billion including debt, beating out market leader United Rentals, which had a prior agreement to acquire the Lousiana-based target company.
Herc, which supplies aerial, earthmoving, material handling, trucks and trailers and other equipment for rent, managed to win the fourth largest player in an industry mainly populated by mom-and-pop businesses. After the combination, Florida-based Herc will remain third in market share among North American equipment-rental providers.
Herc’s proposal offered H&E $104.89 per share, a 14% premium to United Rentals’ bid of $92 per share.
Herc will cover a termination fee of approximately $64 million on behalf of H&E, payable to United Rentals.
The acquisition strengthens Herc’s geographic and operational position in providing specialty equipment solutions and general rental products. The company anticipates generating approximately $300 million in annual EBITDA synergies from the deal.
“The equipment rental market is bifurcated into many mom-and-pop shops along with a few mega companies like United Rentals, H&E and Herc. URI was poised to get much larger in scale and dominate the industry, but Herc has blocked that while simultaneously gaining scale,” said Jim Corridore, PitchBook’s senior industrials analyst.
“Historically, H&E traded at a much higher valuation due to its faster revenue growth, but that trend had recently shifted. Herc likely saw the opportunity to grow, block URI and extract value from the merger through synergies and accelerated growth,” he added.
According to Justin Wolfort, a director of the engineered equipment investment banking team at Brown Gibbons Lang & Company, a target like H&E doesn’t appear often.
“Herc’s strategy has been focused on urban densification, being in the top metro areas, and focus on getting a higher utilization of general equipment,” he said.
“The problem with larger acquisitions is the lack of targets. Once you drop below these top four companies, it drops off real fast. There’s just not a lot of opportunities to go after something this significant. I suspect Herc to continue to buy the smaller regional players and execute their plan of increased urban and regional density.”
Founded in 1961 and headquartered in Baton Rouge, H&E Equipment Services reports over $1 billion in revenue and operates in more than 160 locations worldwide.
Herc enlisted Guggenheim Securities as lead financial adviser and Simpson Thacher & Bartlett as legal adviser. Meanwhile, Bank of America Securities advised H&E, while Milbank served as its legal counsel.
Featured image by Artie Photography (Artie Ng)/Getty Images
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