United Rentals has strengthened its position as a leader in the equipment rental sector with the $4.8 billion acquisition of H&E Equipment Services.
The deal, expected to close in the first quarter of 2025, combines United Rentals’ extensive footprint with H&E’s network of 160 branches and rental fleet of nearly 64,000 units.
This strategic move not only expands the market reach but also capitalises on synergies and emerging industry trends.
The acquisition, valued at $92 per share in cash, represents a compelling valuation for H&E, factoring in $1.4 billion in net debt.
The price represents an over 109% premium to the H&E stock’s last close on Monday.
Shares of H&E Equipment Services rocketed over 106% in premarket trading.
Shares of United Rentals was up over 3% in premarket trading.
The combined entity will leverage its enhanced scale and operational efficiency to capture greater market share amidst growing demand for rental solutions driven by infrastructure investment and industrial reshoring in the US.
United Rentals’ growth plans
The acquisition of H&E Equipment Services positions United Rentals to achieve significant growth by integrating a $2.9 billion rental fleet and strengthening its geographic presence across 30+ states.
H&E’s established operations and impressive financial metrics— $696 million in adjusted EBITDA and $1.518 billion in revenues—make it an attractive addition to United Rentals’ portfolio.
Cost synergies of $130 million are anticipated within two years, driven by procurement savings and operational efficiencies.
Revenue synergies, projected to reach $120 million within three years, will stem from cross-selling opportunities and expanded service capabilities.
This is supported by H&E’s well-maintained fleet, with an average age of under 41 months, which complements United Rentals’ existing offerings.
The deal reflects United Rentals’ commitment to disciplined financial management, with a targeted pro forma leverage ratio of 2.3% upon completion.
Plans to further reduce this to 2.0% within 12 months demonstrate a prudent approach to capital allocation.
The decision to pause share repurchases underscores the company’s focus on deleveraging while preserving flexibility for future growth.
The reasons for United Rentals’ acquisition
United Rentals’ acquisition comes at a time when the equipment rental market is benefiting from multiple tailwinds.
Increased infrastructure spending, industrial reshoring, and supply chain disruptions have heightened demand for rental solutions, offering a cost-effective alternative to ownership.
The combined entity’s expanded footprint and fleet capacity are well-positioned to meet this growing demand.
The acquisition also allows United Rentals to expand its specialty rental offerings, providing customers with a broader range of solutions.
The focus on integrating H&E’s operations highlights the importance of maintaining strong profitability while scaling operations.
To ensure the deal’s success, United Rentals plans to maintain H&E’s customer-centric culture, particularly its emphasis on safety and service.
This cultural alignment is expected to streamline integration efforts and enhance overall customer satisfaction.
Furthermore, the $54 million net present value (NPV) of tax attributes from the transaction provides additional value creation.
By acquiring H&E Equipment Services, United Rentals is not only enhancing its market position but also creating long-term value for its shareholders.
The transaction structure, a cash tender offer, ensures certainty for H&E investors while enabling United Rentals to efficiently deploy its capital.
The projected accretion to earnings and free cash flow within the first year, combined with a return on invested capital (ROIC) exceeding the cost of capital by year three, underscores the financial strength of the deal.
United Rentals’ shares rose 2% following the announcement, reflecting investor confidence in the strategic and financial merits of the acquisition.
As the combined entity prepares to harness the benefits of its expanded capabilities, the company is poised to set new benchmarks in the equipment rental sector.
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