425: Herc Holdings to Acquire H&E Equipment Services After H&E Terminates United Rentals Merger Agreement

Herc Holdings Inc. will acquire H&E Equipment Services after H&E terminated its prior merger agreement with United Rentals, Inc.

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, H&E shareholders will own approximately 14.1% of the combined company.
• The acquisition is expected to accelerate Herc's growth strategy and deliver shareholder value.
• The combined company is expected to achieve approximately $300 million of 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, increasing to over 20% as synergies are fully realized.
• The combination will create a company with approximately $5.2 billion in revenue and $2.5 billion in EBITDA.
• Net leverage is projected to be 3.8x at close and below 3.0x within 24 months.
• Herc intends to commence a tender offer for all outstanding shares of H&E common stock.
• The transaction is expected to close mid-year 2025, pending regulatory approvals and closing conditions.
• Herc has paid a termination fee of $63,523,892 to United Rentals on behalf of H&E.
• Herc's 2024 total revenues were approximately $3.6 billion.

Sentiment

Score: 8

Explanation: The document conveys a positive outlook due to the expected synergies, accretion, and strategic benefits of the merger. The management comments and financial projections contribute to the optimistic 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.
• The transaction is expected to generate ROIC in excess of Herc's cost of capital within three years of closing.
• The combined company is expected to have improved adjusted EBITDA margins.
• Herc's dividend will be maintained.

Risks

• The transaction is subject to regulatory approvals and customary closing conditions.
• The anticipated benefits of the proposed transaction may not be realized or may not be realized within the expected time period.
• There may be problems in successfully integrating the businesses of Herc and H&E, including potential loss of key employees, customers, and suppliers.
• The transaction may involve unexpected costs, including exposure to unrecorded liabilities or unidentified issues.
• Herc's business may suffer as a result of uncertainty surrounding the proposed transaction.

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 the acquisition is a unique opportunity to accelerate Herc's growth strategy and deliver shareholder value.
• John M. Engquist, executive chairman of H&E, believes the transaction provides immediate, premium value and the opportunity to participate in the upside value created through the combination.

Industry Context

The acquisition consolidates the equipment rental market, positioning Herc as a stronger competitor against industry leaders like United Rentals. The deal reflects a trend towards larger, more diversified rental companies with broader geographic reach and service offerings.

Comparison to Industry Standards

• United Rentals, as the industry leader, serves as a benchmark for revenue and market capitalization.
• The combined Herc and H&E will aim to achieve valuation multiples more consistent with comparable companies in the sector, reflecting its increased scale and liquidity.
• The projected synergies and accretion are key metrics used to evaluate the success of similar mergers in the equipment rental industry.

Stakeholder Impact

• Shareholders of H&E are expected to benefit from the premium value and participation in the combined company's upside.
• Employees of both companies may experience changes as a result of the integration.
• Customers are expected to benefit from a broader range of equipment and services.

Next Steps

• 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 regulatory approvals and closing conditions.

Key Dates