Herc Rentals outbid fellow rental house giant United Rentals to purchase H&E Equipment Services in a cash and stock deal valued at nearly $5.3 billion.
Following record revenue last year, Herc made a bid for H&E to grow its position as the third-largest North American rental house behind United and Sunbelt Rentals, Herc President and Chief Executive Larry Silber said in a release today.
“Investments in our general rental and specialty equipment solutions offering as well as technology, innovation and people, have enhanced the customer experience and made Herc a partner of choice for local and national accounts across North America,” he said. “We are pursuing the proposed combination with H&E from a position of strength and view it as a path to accelerate Herc’s strategy and growth trajectory.”
Merger upside
The acquisition provides upside for shareholders of both companies, Silber said.
“Herc’s cash and stock merger consideration provides H&E shareholders with an immediate and significant premium,” he said. “As our track record shows, we are a disciplined and experienced acquirer, and this transaction meets all of our value creation M&A criteria.”
H&E shareholders will receive $78.75 in cash and 0.1287 shares of Herc stock per H&E share, valuing the deal at $104.89 per share, or $5.3 billion according to Herc’s release. H&E shareholders will own about 14.1% of the combined company. Herc will also assume $1.4 billion H&E debt. The deal is scheduled to close mid-year 2025.
Shares of Bonita Springs, Fla.-based Herc Holdings (NYSE: HRI) were down 7.33% or $14.67 from market open to $185.37 as of market close today. Herc Rentals has a market capitalization of $5.71 billion.
Lastly, shares of Baton Rouge, La.-based H&E Equipment Services, Inc. (Nasdaq: HEES) were up 15.22% or $13.28 from market open to $100.57 as of market close today. H&E has a market capitalization of $3.21 billion.
Herc Holdings’ deal offered a 14% premium over United Rentals’ offer and allows H&E shareholders to benefit from $300 million in expected EBITDA synergies within three years and a higher valuation multiple, according to the release.
Baton Rouge, La.-based H&E plans to terminate its agreement with United Rentals, which declined to sweeten its bid. United Rentals and H&E previously agreed to a deal valued at $4.8 billion, with a 35-day “go-shop” period back on Jan. 14.
Analyst outlook
There’s a significant opportunity for Herc following the acquisition, Steven Ramsey, senior equity analyst at Thompson Research Group, told Equipment Finance News, citing Herc’s larger number of general rental classes and its ability to put its specialty fleet into former H&E branches.
“For Herc, the opportunity is singular and adds multiple growth avenues for them while also allowing them to generate a lot of cash flow that can be used for debt reduction,” he said. “The abundance of cash flow comes from the younger fleet age of H&E versus Herc.”
The differences between the two rental businesses open the door for a strong and diversified union between the two rental houses, Ramsey said.
“Keep in mind, this will take time to build up as H&E employees get trained and learn to cross-sell all of this new fleet,” he said. “The real kicker is not only does H&E provide a large growth path for Herc, but Herc can reduce operating costs and generate a lot of cash flow over the next few years.”
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