8-K: Herc Holdings to Acquire H&E Equipment Services in $5.2 Billion Deal, Terminating United Rentals Agreement

Herc Holdings will acquire H&E Equipment Services for $78.75 in cash and 0.1287 shares of Herc common stock per H&E share, totaling $5.2 billion, after H&E terminated its prior agreement with United Rentals.

Summary

• Herc Holdings Inc. and H&E Equipment Services Inc. have entered into a definitive merger agreement.
• Herc will acquire H&E for $78.75 in cash and 0.1287 shares of Herc common stock for each H&E share.
• The total transaction value is approximately $5.2 billion.
• H&E shareholders will own approximately 14.1% of the combined company after the deal closes.
• The transaction is expected to close mid-year 2025, pending regulatory approvals and other conditions.
• Herc has secured committed financing for the cash portion of the acquisition.
• H&E has terminated its prior merger agreement with United Rentals, with Herc paying a $63,523,892 termination fee on H&E's behalf.
• The combined company is expected to achieve approximately $300 million in annual EBITDA synergies by the end of year three, including $125 million in cost synergies and $175 million from revenue synergies.
• The transaction is expected to be high single digit accretive to Herc's cash earnings per share in 2026 and ramping to greater than 20% as synergies are fully realized.
• The combined company is projected to have revenue and EBITDA of approximately $5.2 billion and $2.5 billion, respectively.
• Net leverage is expected to be 3.8x at close, decreasing to below 3.0x within 24 months.
• Herc intends to maintain its dividend.

Sentiment

Score: 8

Explanation: The document presents a positive outlook on the acquisition, highlighting strategic and financial benefits, expected synergies, and accretion to earnings. The management comments are also optimistic, contributing to a positive sentiment.

Positives

• The acquisition strengthens Herc's position as the 3rd largest rental company in North America.
• The combined company will have a leading presence in 11 of the top 20 rental regions and increased urban density in 7 of the top 10 rental regions.
• The combined company will have a larger, younger fleet, offering a variety of specialty equipment solutions and a broad range of general rental products.
• The transaction is expected to generate ROIC in excess of Herc's cost of capital within three years of closing.
• The combination creates a company with revenue and EBITDA of approximately $5.2 billion and $2.5 billion, respectively, with an expectation for continued revenue growth in excess of the market and improved adjusted EBITDA margins.
• Valuation multiple re-rating warranted for combined company that is more consistent with comparable company valuation multiples in the sector given the powerful growth platform, increased liquidity, and greater investor interest that comes with a scaled company.

Risks

• The possibility that the sufficient number of H&E's shares are not validly tendered into the tender offer to meet the minimum condition.
• Herc's ability to implement its plans, forecasts and other expectations with respect to H&E's business after the completion of the proposed transaction and realized expected synergies.
• The ability to realize the anticipated benefits of the proposed transaction, including the possibility that the expected benefits from the proposed transaction will not be realized or will not be realized within the expected time period.
• Herc and H&E may be unable to obtain regulatory approvals required for the proposed transaction or may be required to accept conditions that could reduce the anticipated benefits of the proposed transaction as a condition to obtaining regulatory approvals.
• The length of time necessary to consummate the proposed transaction may be longer than anticipated.
• Problems may arise in successfully integrating the businesses of Herc and H&E, including, without limitation, problems associated with the potential loss of any key employees, customers, suppliers and other counterparties of H&E.
• The proposed transaction may involve unexpected costs, including, without limitation, the exposure to any unrecorded liabilities or unidentified issues during the due diligence investigation of H&E or that are not covered by insurance, as well as potential unfavorable accounting treatment and unexpected increases in taxes.
• Herc's business may suffer as a result of uncertainty surrounding the proposed transaction, any adverse effects on our ability to maintain relationships with customers, employees and suppliers.
• The occurrence of any event, change to other circumstances that could give rise to the termination of the merger agreement, the failure of the closing conditions included in the merger agreement to be satisfied, or any other failure to consummate the proposed transaction.
• Any negative effects of the announcement of the proposed transaction of the financing thereof on the market price of the Herc common stock or other securities.
• The industry may be subject to future risks including those set forth in the Risk Factors section in the Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and in the other filings with the SEC by each of Herc and H&E.
• Herc may not achieve its valuation or re-rating opportunities.

Future Outlook

The combined company expects continued revenue growth in excess of the market and improved adjusted EBITDA margins. Herc expects to achieve approximately $300 million of annual EBITDA synergies by the end of year three following the close of the transaction. The transaction is expected to be high single digit accretive to Herc's cash earnings per share in 2026 and ramping to greater than 20% as synergies are fully realized.

Management Comments

• Larry Silber, Herc's president and chief executive officer, stated that the acquisition is a unique opportunity to accelerate Herc's proven strategy for industry leading growth and delivering superior shareholder value.
• John M. Engquist, executive chairman of H&E, added that the transaction provides both immediate, premium value and the opportunity to participate in the substantial upside value that will be created through this combination.

Industry Context

The acquisition consolidates the equipment rental market, creating a stronger competitor to the top players. The combined company aims to leverage synergies and a broader geographic footprint to enhance its market position and financial performance.

Comparison to Industry Standards

• The combined company aims to achieve a valuation multiple re-rating more consistent with comparable companies in the sector.
• The transaction strengthens Herc's position as the 3rd largest rental company in North America, competing with industry leaders like United Rentals and Sunbelt Rentals.
• The projected synergies and accretion to earnings are expected to improve Herc's financial metrics, bringing them closer to industry benchmarks for profitability and return on capital.

Stakeholder Impact

• H&E shareholders will receive immediate, premium value and the opportunity to participate in the substantial upside value that will be created through this combination.
• H&E's talented employees will be welcomed to Herc, with the expectation of realizing substantial benefits for the employees of both companies.
• Customers of both companies are expected to benefit from a broader range of equipment and services.

Next Steps

• Herc intends to commence a tender offer to acquire all of the outstanding shares of H&E common stock.
• Herc will acquire all remaining shares not tendered in the offer through a second-step merger.
• The transaction is expected to close mid-year 2025, subject to customary conditions.

Key Dates

Keywords

merger, acquisition, equipment rental, Herc Holdings, H&E Equipment Services, synergies, EBITDA, tender offer, United Rentals, termination fee