425: Herc Holdings to Acquire H&E Equipment Services in Definitive Merger Agreement

Herc Holdings will acquire H&E Equipment Services 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 after H&E terminated its prior merger agreement with United Rentals, Inc.
• H&E shareholders will receive $78.75 in cash and 0.1287 shares of Herc common stock for each share they own, totaling $104.89 per share based on Herc's 10-day VWAP as of February 14, 2025.
• Following the transaction close, H&E's shareholders will own approximately 14.1% of the combined company.
• The transaction is expected to close mid-year 2025, pending H&E shareholder tender, regulatory approvals, and closing conditions.
• Herc has secured committed financing for the cash portion of the acquisition.
• Herc paid a termination fee of $63,523,892 to United Rentals on behalf of H&E.

Sentiment

Score: 8

Explanation: The document presents a positive outlook on the merger, highlighting strategic and financial benefits, synergy opportunities, and management's confidence in the transaction. The tone is optimistic and forward-looking.

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.
• The combined company will have a larger, younger fleet, offering a variety of specialty equipment solutions and a broad range of general rental products.
• Approximately $300 million of annual EBITDA synergies are expected to be achieved 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.
• 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.
• The combined company has an expectation for continued revenue growth in excess of the market and improved adjusted EBITDA margins.
• The combined company has financial strength and flexibility with net leverage of 3.8x at close, prior to synergy realization, and projected to be below 3.0x and in Herc's targeted range within 24 months of closing.
• Herc's dividend will be maintained.

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 Company 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 the Company 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.

Management Comments

• Larry Silber, Herc's president and CEO, stated that the acquisition is a unique opportunity to accelerate Herc's strategy for industry-leading growth and superior shareholder value.
• John M. Engquist, executive chairman of H&E, added that the transaction provides immediate, premium value and the opportunity to participate in substantial upside value creation.

Industry Context

The acquisition will strengthen Herc's position as the 3rd largest rental company in North America and increase its presence in key rental regions.

Comparison to Industry Standards

• The transaction is expected to result in a valuation multiple re-rating for the combined company, making it more consistent with comparable company valuation multiples in the sector.
• The combined company's financial profile, with revenue and EBITDA of approximately $5.2 billion and $2.5 billion, respectively, is expected to be attractive compared to industry standards.

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.
• Herc's shareholders will benefit from the increased scale, synergy opportunities, and improved financial profile of the combined company.
• Employees of both companies will have the opportunity to work together to realize the substantial benefits that this transaction will create.
• Customers of both companies will benefit from a larger, younger fleet, offering a variety of specialty equipment solutions and a broad range of general rental products.

Next Steps

• Herc intends to commence a tender offer to acquire all 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