8-K: 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 acquire H&E Equipment Services, challenging H&E's previously announced merger agreement with United Rentals.
• H&E's Board of Directors has determined that Herc's cash and stock merger is superior to the $92.00 per share cash sale to United Rentals.
• United Rentals has waived its right to submit a revised proposal.
• Under the terms of Herc's proposal, H&E shareholders would 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 close of the transaction, H&E's shareholders would own approximately 14.1% of the combined company.
• Herc's proposal represents a 14.0% premium to United Rentals' $92.00 per share cash consideration.
• The combination is expected to generate approximately $300 million of annual EBITDA synergies by the end of year three following the close.
• The combined company is projected to have revenue and EBITDA of approximately $5.2 billion and $2.5 billion, respectively.
• 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 have net leverage of 3.8x at close, prior to synergy realization, and projected to be below 3.0x within 24 months of closing.
• 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 conditions and regulatory approvals.
• The proposed transaction is not subject to a financing condition.

Sentiment

Score: 8

Explanation: The sentiment is positive due to the strategic benefits of the acquisition, the expected synergies, and the potential for increased shareholder value. The offer is considered superior to the existing agreement with United Rentals, and the combined company is expected to have a stronger competitive position in the equipment rental industry.

Positives

• Herc's offer provides H&E shareholders with an immediate and significant premium over the United Rentals offer.
• H&E shareholders will have the opportunity to participate in the upside potential of the combined company.
• The combination is expected to generate substantial synergies, leading to increased profitability.
• The combined company will have a stronger competitive position in the equipment rental industry.
• The transaction is expected to be accretive to Herc's earnings per share.
• The combined company will be prudently capitalized.
• Herc has a proven track record of successfully integrating acquisitions.
• The transaction is not subject to a financing condition.

Negatives

• The transaction is subject to customary regulatory approvals and closing conditions, which could delay or prevent the completion of the deal.
• There is a risk that the expected synergies may not be fully realized.
• Integrating the businesses of Herc and H&E could present challenges.
• The transaction could involve unexpected costs or liabilities.
• The announcement of the proposed transaction could have negative effects on the market price of Herc's common stock.
• Herc may not achieve its valuation or re-rating opportunities.

Risks

• The possibility that a sufficient number of H&E's shares are not validly tendered into the tender offer.
• Herc's ability to implement its plans and realize expected synergies with respect to H&E's business.
• The risk that regulatory approvals may not be obtained or may require conditions that reduce the anticipated benefits of the transaction.
• Potential problems in successfully integrating the businesses of Herc and H&E, including the loss of key employees, customers, or suppliers.
• Unexpected costs or liabilities arising from the transaction.
• The risk that United Rentals may make a superior offer.
• Herc may not achieve its valuation or re-rating opportunities.
• 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.

Future Outlook

The combined company expects continued revenue growth in excess of the market and improved adjusted EBITDA margins. 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.

Management Comments

• Larry Silber, Herc's president and chief executive officer, stated that the proposed combination with H&E is viewed as a path to accelerate Herc's strategy and growth trajectory.
• Silber also noted Herc's respect for H&E and the high quality of their platform and customer-centric culture.
• Silber continued, Herc's cash and stock merger consideration provides H&E shareholders with an immediate and significant premium.
• Silber continued, As our track record shows, we are a disciplined and experienced acquiror, and this transaction meets all of our value creation M&A criteria.

Industry Context

This announcement highlights the ongoing consolidation in the equipment rental industry, with Herc Holdings attempting to disrupt United Rentals' existing agreement with H&E Equipment Services. The acquisition would strengthen Herc's position as the 3rd largest rental company in North America.

Comparison to Industry Standards

• The document mentions that Herc believes the combined company should trade at a higher multiple that is more consistent with comparable company valuation multiples in the sector.
• Comparables mentioned are Ashtead, URI (United Rentals), WSC, and MGRC.
• The document provides EV/NTM EBITDA multiples for these companies as of February 14, 2025, with Herc at 10.1x, Ashtead at 10.2x, URI at 8.0x, WSC at 6.0x, and MGRC at 7.3x.

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 increased scale, synergies, and growth potential of the combined company.
• Customers are expected to benefit from the enhanced customer offering and expanded fleet of the combined company.
• Employees of both companies may be affected by the integration of the businesses, including potential job losses or changes in roles.
• Suppliers may be affected by the combined company's increased purchasing power.

Next Steps

• Termination of United Rentals agreement and entry of definitive agreement with H&E.
• Commencement of a tender offer to acquire all of the outstanding shares of H&E common stock.
• Receipt of customary regulatory approvals and closing conditions.
• Expected closing of the transaction mid-year 2025.

Key Dates