Investment Firm Buys 15% of United Rentals

Feb. 1, 1999
GREENWICH, Conn.-United Rentals' sale of $300 million of preferred stock to affiliates of Apollo Management, L.P., a private investment firm based in

GREENWICH, Conn.-United Rentals' sale of $300 million of preferred stock to affiliates of Apollo Management, L.P., a private investment firm based in New York, was finalized last month. The transaction transfers about 15 percent of the ownership of the company to Apollo.

The deal, which was agreed upon in December, was greeted positively by a number of Wall Street analysts. "Combined with the $300 million raised [in a bond sale in December], the company will now have the ability to substantially increase its acquisition activity in 1999," said Alan Pavese of N.Y. Equity Research. "We are increasing our 1999 earnings-per-share estimate to $1.60 from $1.55 and view the shares as attractive in the $20s. We continue to rate the stock a market outperformer."

"This transaction will bring United's debt-to-capital ratio down to about 43 percent, the low end of its targeted 40 to 60 percent range," said an analyst for New York-based Goldman, Sachs & Co. "As a result, the company could now complete $700 million worth of acquisitions before getting back toward the middle of that range."

"The transaction with Apollo is private equity, but on very favorable terms," Bob Miner, United's vice president of strategic planning told RER. "We've been growing through internal growth and acquisitions, so we continually need to generate more capital. We could continue to borrow to do that, but we have a conservative philosophy not to get into debt more than half the total capitalization of the company."

Miner added that Apollo will be passive investors, and that approved Apollo partners Leon Black and Michael Gross will join United's board of directors, taking up two of 12 seats.

Apollo's Black said the investment "underscores our confidence in this management team and its business plan." Gross added that Apollo was attracted by the fact that United's management team holds a "tremendous amount of equity value in the company, so their incentives are closely aligned with anyone who is an investor here, whether it is us or the public."

United, which said that part of the capital will finance further acquisitions and part will expand inventory, also announced the acquisition of 12 more companies with a total of 23 branch locations and aggregate annual revenues of about $41 million.

The acquired companies include three California-based companies (Rosedale Equipment Rental, Bakersfield; United Equipment Rentals, Marysville; and Perburn Inc., Castro Valley); two New Jersey firms (Austino's Liftrucks Inc., Vineland; and Pump Rentals Inc., Hainesport); Frostberg Rentals, Frostberg, Md.; ACG Inc., South Bend, Ind.; JBK Inc., Cleveland; Lift Inc., Frederick, Md.; Mark Equipment Inc., Birmingham, Ala.; United Rentals Inc., Bothell, Wash.; and Phoenix-based Trench Safety Equipment Corp., which has branches in California, Colorado, Utah and Washington.

Last month, United filed a shelf registration with the SEC for up to $750 million in debt securities and common and preferred stock. Proceeds will be used to fund acquisitions and repay debt, according to the company.

Since its inception in 1990, Apollo and its affiliated funds have invested over $10 billion of capital into various business.

United stock, which ended the week before the Apollo agreement was originally announced at $21.56 per share, has risen considerably since the announcement and was trading at around $30 early last month.