In one of the largest acquisitions in equipment rental industry history, United Rentals has entered into a definitive agreement to acquire NES Rentals Holdings for about $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, which is expected to close early in the second quarter of 2017, subject to regulatory approval and customary closing conditions.
NES is one of the largest equipment rental companies in the United States, ranked No. 11 on the RER 100. Specializing in aerial equipment, NES has approximately 18,000 customers in the industrial and non-residential construction sectors. Based in Chicago, NES has 73 branches and about 1,100 employees, primarily concentrating on the eastern half of the U.S. In 2016, NES generated an estimated $155 million of EBITDA at a 42.1-percent margin on $369 million in total revenue. NES reported $350 million in rental revenue in 2015 with about $380 in total revenue.
As of Dec. 31, 2016, NES had approximately $900 million of fleet at original equipment cost.
United Rentals, which announced its 2016 results today, said it plans to update its 2017 financial outlook to reflect the combined operations upon completion of the transaction.
The addition of NES’ 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, enhancing cross-selling opportunities and driving 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.
The purchase price, net of synergies, represents a multiple of 4.9 times EBITDA for 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.
NES was founded in 1996 by a private equity group, with Kevin Rodgers as its first CEO. Rodgers was later replaced by Andrew Studdert, a former United Airlines executive who led the company’s transformation to become primarily an aerial rental specialist with a strong aerial safety emphasis.
“The NES agreement satisfies the rigorous strategic, financial and cultural standards we set for acquisitions,” said Michael Kneeland, president and CEO of United Rentals. “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. 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.”
Centerview Partners and Morgan Stanley acted as financial advisors to United Rentals, and Sullivan & Cromwell acted as legal advisor. Catalyst Strategic Advisors and Deutsche Bank acted as financial advisors to NES, and Jenner & Block acted as legal advisor.