United Rentals, Inc. (URI) has announced a definitive agreement to acquire H&E Equipment Services, Inc. (HEES), also known as H&E Rentals, for a staggering $4.8 billion. This landmark transaction, valued at $92 per share in cash, includes approximately $1.4 billion of net debt and is poised to significantly expand United Rentals’ capabilities and market presence, particularly in strategic U.S. markets. The acquisition of by the world’s largest equipment rental company marks a major shift in the industry landscape.
Founded in 1961, H&E Rentals has built a strong reputation for providing a comprehensive and high-quality general rental fleet. Their offerings include aerial work platforms, earthmoving equipment, material handling equipment, and a variety of other general and specialty equipment lines. With a dedicated workforce of approximately 2,900 employees and a robust rental fleet valued at $2.9 billion in original cost, h & e services caters to a diverse clientele across both construction and industrial sectors. Their extensive network spans approximately 160 branches across over 30 states in the U.S.
Over the trailing 12 months ending September 30, 2024, H&E demonstrated strong financial performance, generating $696 million in adjusted EBITDA on total revenues of $1,518 million. This translates to an impressive adjusted EBITDA margin of approximately 45.8%, highlighting the operational efficiency and profitability of h & e services.
Strategic Benefits of the Acquisition
This acquisition is a strategic masterstroke for United Rentals, aligning perfectly with their “grow the core” strategy. By incorporating h & e services, United Rentals will offer legacy H&E customers seamless access to a broader spectrum of specialty rental solutions. These include United Rentals’ expertise in Fluid Solutions, Matting Solutions, Onsite Services, Portable Storage & Modular Space, Power & HVAC, Tool Solutions, and Trench Safety. This expanded service offering will create a one-stop shop for customers, enhancing convenience and efficiency.
The synergy between United Rentals and h & e services extends to their geographic footprints and operational strengths. H&E’s extensive fleet, experienced personnel, and established branch network across over 30 key U.S. states are highly complementary to United Rentals’ existing infrastructure. Crucially, this combination will substantially increase United Rentals’ capacity within strategically important regions across the United States, enabling them to better serve customer demand and capitalize on market opportunities.
The acquisition will significantly bolster United Rentals’ equipment inventory, adding nearly 64,000 units to their rental fleet with an original cost exceeding $2.9 billion. The acquired fleet is relatively young, with an average age of under 41 months, ensuring a continued offering of modern and efficient equipment. Furthermore, the deal includes approximately $230 million of non-rental fleet assets, further strengthening the combined entity.
Beyond tangible assets, the cultural alignment between United Rentals and h & e services is a significant advantage. Both companies share core values, including a deep commitment to safety, a customer-centric approach to business, and a focus on best practices in talent development and employee retention. The experienced H&E workforce will bring valuable expertise to United Rentals, and importantly, they will benefit from enhanced career development opportunities within the larger, combined organization.
Financial Highlights and Synergies
The financial terms of the acquisition are structured to deliver strong returns and create substantial value. The purchase price of $4.8 billion represents a multiple of 6.9x adjusted EBITDA for the trailing 12 months ended September 30, 2024. This multiple reduces to an even more attractive 5.8x adjusted EBITDA when factoring in $130 million of targeted cost synergies and the net present value of tax attributes, estimated at approximately $54 million.
United Rentals anticipates realizing approximately $130 million in annualized cost synergies within 24 months of closing. These savings will primarily be derived from streamlining corporate overhead and operational efficiencies. In addition, United Rentals expects to leverage its scale to achieve procurement savings of approximately 5% compared to historical H&E pricing.
Revenue synergies are also a key component of the deal’s financial rationale. United Rentals projects approximately $120 million in annual revenue cross-sell synergies by year three. This will be driven by offering United Rentals’ specialty rental services to legacy h & e services customers, expanding the service offerings available to this customer base and driving incremental revenue growth.
The acquisition is expected to be accretive to United Rentals’ adjusted earnings per share and free cash flow generation within the first year post-close, demonstrating the immediate financial benefits of the transaction. Return on invested capital (ROIC) is projected 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 various macroeconomic scenarios, underscoring the long-term value creation potential of the acquisition.
The transaction is structured to maintain a strong financial position for United Rentals. The pro forma net leverage ratio at closing is projected to be approximately 2.3x, well within the company’s target range of 1.5-2.5x. United Rentals is committed to deleveraging post-acquisition, aiming to reach a net-debt to EBITDA ratio of approximately 2.0x within 12 months after closing. To support this deleveraging goal, the company has temporarily paused its share repurchase plan. Significantly, the acquisition will not impact United Rentals’ current dividend program, reaffirming their commitment to shareholder returns.
The integration of h & e services into United Rentals’ operations is expected to unlock further efficiencies and drive business development. By implementing United Rentals’ operational excellence framework, including their technology offerings, the combined entity will be positioned to enhance productivity, streamline processes, and pursue new business opportunities more effectively. The transaction is not contingent upon financing, as United Rentals has secured bridge commitments to ensure a swift closing. The company intends to fund the acquisition and related expenses through a combination of newly issued debt, borrowings, and existing capacity under its ABL facility.
Leadership Perspectives on the Merger
Matthew Flannery, chief executive officer of United Rentals, expressed his enthusiasm about the acquisition: “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 further emphasized the strategic rationale: “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, also commented on the merger: “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 Timeline and Details
The boards of directors of both United Rentals and H&E have unanimously approved the transaction. The acquisition is subject to customary closing conditions, including the tender of a majority of outstanding H&E common shares and expiration of the Hart-Scott-Rodino Antitrust Improvements Act waiting period. United Rentals plans to commence a tender offer by January 28, 2025, to acquire all outstanding shares of H&E common stock at $92 per share in cash. Following the tender offer, any remaining shares will be acquired through a second-step merger at the same price. The transaction is anticipated to close in the first quarter of 2025, and United Rentals will update its 2025 financial outlook to incorporate the combined operations post-closing.
The merger agreement includes a 35-day “go-shop” period, ending February 17, 2025, during which H&E, advised by BofA Securities, will actively solicit and evaluate alternative proposals. H&E retains the right to terminate the merger agreement to accept a superior proposal, subject to the terms outlined in the merger agreement, which will be filed with a Current Report on Form 8-K. However, there is no guarantee that this “go-shop” period will result in a superior proposal, and H&E does not intend to publicly disclose updates on the solicitation process unless required by its board of directors.
Sullivan & Cromwell served as legal counsel to United Rentals, with Morgan Stanley Senior Funding, Inc. and Wells Fargo providing committed bridge financing. BofA Securities acted as financial advisor to H&E, and Milbank LLP served as H&E’s legal advisor.
This acquisition of h & e services by United Rentals represents a significant development in the equipment rental industry, promising expanded services, increased capacity, and enhanced value for customers and shareholders alike.
