Capitol Investment Corp. IV, a public investment vehicle, and Nesco Holdings l, Inc., a leading provider of specialty rental equipment to the electric utility, telecom and rail end markets, announced that they have entered into a definitive agreement in which Nesco will become a publicly listed company with an anticipated initial enterprise value of approximately $1.1 billion.
Nesco offers its specialized equipment to a diverse customer base for the maintenance, repair, upgrade and installation of critical infrastructure assets including electric lines, telecommunications networks and rail systems. With a nationwide rental fleet of approximately 4,000 units, Nesco provides its customers a vast and comprehensive product offering along with an unrelenting focus on service. As a one-stop shop, Nesco also offers its customers the parts, tools and accessories needed to fully equip their crews for activity in the field. Nesco has demonstrated strong financial performance with adjusted EBITDA having grown at a 24-percent CAGR over the past two years.
Capitol is the fourth public investment vehicle of Chairman and CEO Mark Ein and President and CFO Dyson Dryden, following three prior successful transactions.
"We work hard to set ourselves apart from other investment vehicles by scouring the world for outstanding companies where we, and our capital, can be a catalyst to accelerate growth and then we actively engage with the businesses post-merger to execute the business plan and create substantial long-term shareholder value,” said Mark Ein, chairman and CEO of Capitol. “Nesco perfectly fits our model as it is uniquely positioned to benefit from the increased demand for its equipment as the result of the significant, consistent growth in infrastructure spending in each of its core end markets — electric utility transmission and distribution, 5G deployment and rail development. With the substantial end market demand, attractive unit economics, capital from this transaction, a world class board and the best in class Nesco team all coming together, we believe the combined company will deliver superior returns for investors long into the future."
Joining the combined company's board of directors as Chairman is William Plummer who served as the chief financial officer of United Rentals Inc. from 2008 until he left the company in January 2019. Over a pivotal decade of substantial growth and shareholder value creation during his tenure, the company’s stock price increased more than 21 times as the market capitalization grew from $400 million to $11.4 billion.
Jeffrey Stoops will also join the combined company's board of directors. Stoops has served as the CEO of SBA Communications Corp. for the last seventeen years, overseeing transformational growth of the wireless tower infrastructure company leading to a market capitalization increase from $553 million to $22.6 billion and a 15-times increase in the stock price.
Nesco's current management team, led by CEO Lee Jacobson and CFO Bruce Heinemann, will continue to run the combined company post-transaction.
Mark Ein and Dyson Dryden, as well as Doug Kimmelman, the senior partner and founder of Energy Capital Partners LLC, which is Nesco's current private equity sponsor, Rahman D'Argenio, an ECP partner, and Lee Jacobson, CEO, will also serve as directors on the combined company's board of directors.
The annual investment spend in Nesco's end-markets exceeds $100 billion and grew at a 7.8-percent annual growth rate from 2001 to 2017 compared to a 3.9-percent annual growth rate in U.S. GDP over the same period. Nesco's end-markets have demonstrated limited correlation with GDP growth and resiliency throughout prior economic cycles.
Continued future growth is supported by multiple important, fundamental and transformative long-term trends across Nesco's end-markets:
The electric utility market, which has an annual infrastructure spend of over $60 billion, is in the early years of a secular investment upcycle expected to persist through the 2020s, driven by utilities' investment to replace or strengthen an aging electric grid, to integrate growing gas and renewable generation mandated by regulation and to meet the expanding demand from electric vehicles and electric heating with a growing focus on decarbonization.
The 5G upgrade cycle is driving a new wave of telecom infrastructure spending with 5G capex by the Big 4 wireless providers expected to total $240 billion over the next decade as deployment is expected to add 20 times more cells than the existing macro structure. Urban congestion and increased freight transportation needs have driven a nationwide investment in improving rail infrastructure with the U.S. Senate approving more than $16 billion of spending to support commuter rail and transit projects in 2019 alone.
Energy Capital Partners will remain the largest shareholder in the combined company upon completion of the transaction. "Nesco has built a terrific platform in highly attractive end-markets as demonstrated by its strong financial performance", said Doug Kimmelman, Senior Partner and Founder of ECP. "We are excited about the prospect of partnering with Capitol to continue Nesco's growth as a public company with access to new sources of capital."
"We are thrilled about our new partnership with Capitol and to continue our strong relationship with ECP as we shift into the next phase of Nesco's growth story," said CEO Lee Jacobson. "This transaction enables us to invest in our fleet to fulfill the increased demand that we have been unable to serve in recent years and that we expect to only increase as the result of the continued investment in our end-markets, all of which will drive significant and sustained growth for our business."
"We are excited to have two tremendous public market value creators in William Plummer and Jeffrey Stoops join us as active participants on the board and help the Nesco team as they continue to execute on the significant opportunities that the company's compelling and stable end-markets present," said Dyson Dryden, President and CFO of Capitol.
Nesco Rentals is No. 18 on the RER 100.