8-K: 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 merger 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 agreement with United Rentals.
• H&E shareholders will receive $78.75 in cash and 0.1287 shares of Herc common stock for each share, 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 transaction is expected to close mid-year 2025, pending regulatory approvals and other 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.
• The combined company is expected to have approximately $5.2 billion in revenue and $2.5 billion in EBITDA.
• Herc's dividend will be maintained after the merger.

Sentiment

Score: 8

Explanation: The document conveys a positive outlook due to the expected synergies, accretion to earnings, and strengthened market position resulting from the acquisition. The management comments are also optimistic.

Positives

• The acquisition is expected to strengthen 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.
• A larger, younger fleet will offer a variety of specialty equipment solutions.
• Approximately $300 million of annual EBITDA synergies are expected within three years.
• The transaction is expected to be high single digit accretive to Herc's cash earnings per share in 2026.
• 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.
• Net leverage is projected to be below 3.0x within 24 months of closing.
• Herc's dividend will be maintained.

Negatives

• The transaction is subject to regulatory approvals and other closing conditions, which could delay or prevent the acquisition.
• Integrating the two companies could present challenges and potential loss of key employees, customers, or suppliers.
• Unexpected costs or liabilities could arise during the integration process.
• The industry may be subject to future risks that could impact the combined company's performance.

Risks

• The deal is contingent on a majority of H&E's shares being tendered.
• Regulatory approvals may require conditions that reduce the anticipated benefits.
• Integrating the businesses could lead to loss of key personnel or disruptions in customer and supplier relationships.
• Unexpected costs or liabilities could emerge during the due diligence process.
• Uncertainty surrounding the transaction could negatively affect relationships with customers, employees, and suppliers.
• The industry is subject to risks outlined in the companies' SEC filings.
• 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. 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 strategy for industry leading growth and delivering superior shareholder value.
• John M. Engquist, executive chairman of H&E, said that the transaction provides both immediate, premium value and the opportunity to participate in the substantial upside value created through the combination.

Industry Context

This 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, the industry leader, has been actively pursuing acquisitions to expand its market share.
• The merger aims to create a company with a valuation multiple more consistent with comparable companies in the sector.
• The combined company's financial profile will be more competitive with industry benchmarks for revenue, EBITDA, and leverage.

Stakeholder Impact

• Shareholders of H&E will receive cash and stock in Herc Holdings.
• Employees of both companies may experience changes as the businesses integrate.
• Customers are expected to benefit from a broader range of equipment and services.
• Suppliers may see changes in procurement as the combined company streamlines operations.
• Creditors will see a company with a strong financial profile and deleveraging potential.

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 companies will seek customary regulatory approvals.
• The transaction is expected to close mid-year 2025.

Key Dates

Keywords

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