425: Herc Holdings Launches Bid to Acquire H&E Equipment Services, Challenging United Rentals Deal

Herc Holdings has made a definitive acquisition proposal to acquire H&E Equipment Services, potentially disrupting H&E's existing merger agreement with United Rentals.

Summary

• Herc Holdings Inc. has submitted a definitive acquisition proposal to the board of directors of H&E Equipment Services, Inc. to acquire H&E.
• Herc's proposal is a cash and stock merger valued at $104.89 per share, based on Herc's 10-day VWAP as of February 14, 2025.
• H&E's board has deemed Herc's proposal superior to United Rentals' $92.00 per share cash offer.
• United Rentals has waived its right to submit a revised proposal.
• H&E shareholders would receive $78.75 in cash and 0.1287 shares of Herc common stock for each share they own.
• Following the transaction, H&E shareholders would own approximately 14.1% of the combined company.
• Herc expects to achieve approximately $300 million in annual EBITDA synergies by the end of year three following the close of the transaction.
• The combined company is projected to have approximately $5.2 billion in revenue and $2.5 billion in EBITDA.
• 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.
• Herc intends to commence a tender offer to acquire all outstanding shares of H&E common stock.
• The transaction is expected to close mid-year 2025, subject to customary approvals and conditions.
• Herc has secured a debt commitment letter from Credit Agricole Corporate and Investment Bank for financing the transaction.
• Herc's 2024 total revenues were approximately $3.6 billion.

Sentiment

Score: 7

Explanation: The document conveys a positive outlook regarding the proposed acquisition, highlighting potential synergies, accretion, and value creation. However, it also includes cautionary statements about risks and uncertainties, tempering the overall sentiment.

Positives

• Herc's proposal offers a 14.0% premium to United Rentals' offer.
• H&E shareholders will have the opportunity to participate in the upside value creation from $300 million of EBITDA synergies.
• The combined company is expected to have a stronger competitive position with an enhanced customer offering.
• 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 combined company will be prudently capitalized, 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.

Negatives

• The transaction is subject to the termination of H&E's existing agreement with United Rentals.
• The transaction is subject to the tender of a majority of H&E's outstanding shares.
• The transaction is subject to customary regulatory approvals and closing conditions.
• There is a risk that the anticipated benefits of the proposed transaction will not be realized or will not be realized within the expected time period.
• Problems may arise in successfully integrating the businesses of the Company 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 Companys 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.

Risks

• The possibility that a sufficient number of H&E's shares are not validly tendered into the tender offer to meet the minimum condition.
• The Company'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.
• The Company 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 the Company 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.
• The Company'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.
• United Rentals, Inc. may make a superior offer.
• 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 believes that the combined company should trade at a higher multiple that is more consistent with comparable company valuation multiples in our sector.

Management Comments

• Larry Silber, Herc's president and chief executive officer, said, 'We are pursuing the proposed combination with H&E from a position of strength and view it as a path to accelerate Herc's strategy and growth trajectory.'
• Larry Silber stated that Herc has tremendous respect for H&E and the high quality of the platform and customer centric culture of the organization.
• Larry Silber stated that Herc's cash and stock merger consideration provides H&E shareholders with an immediate and significant premium.
• Larry Silber stated that by combining our companies, we would unlock substantial upside opportunity for both Herc and H&E shareholders.

Industry Context

This announcement reflects ongoing consolidation trends in the equipment rental industry, with major players like Herc Holdings and United Rentals vying for market share through strategic acquisitions. The outcome of this bidding war will likely reshape the competitive landscape.

Comparison to Industry Standards

• The document mentions comparable company valuation multiples in the sector, suggesting that Herc believes the combined entity will be valued similarly to companies like Ashtead Group (ASHTY), United Rentals (URI), WillScot Mobile Mini Holdings Corp (WSC), and McGrath RentCorp (MGRC).
• The expectation of $300 million in EBITDA synergies is a significant target, and its achievement would be a key indicator of the success of the integration, comparable to synergy targets in other large mergers in the industrial sector.
• The projected net leverage of below 3.0x within 24 months of closing is a common target for companies seeking to maintain a strong balance sheet and financial flexibility after a major acquisition.

Stakeholder Impact

• H&E shareholders are expected to receive a premium for their shares and participate in the upside of the combined company.
• Herc shareholders are expected to benefit from the synergies and value creation resulting from the acquisition.
• Customers are expected to benefit from an enhanced product and service offering.
• Employees of both companies may experience changes as a result of the integration, including potential job losses or new opportunities.
• Suppliers may be affected by changes in procurement practices and supply chain optimization.

Next Steps

• Termination of H&E's existing agreement with United Rentals.
• Execution of a definitive merger agreement between Herc and H&E.
• Commencement of a tender offer by Herc to acquire all outstanding shares of H&E common stock.
• Receipt of customary regulatory approvals and satisfaction of closing conditions.
• Closing of the transaction, expected mid-year 2025.

Key Dates

Keywords

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