Herc Holdings, an equipment rental suppliers in North America, has executed a binding acquisition proposal and merger agreement to the board of directors of H&E Equipment Services, pursuant to the “go-shop” provision as provided by H&E’s previously announced agreement with United Rentals.
H&E’s board of directors has determined that Herc’s cash and stock merger is superior to the $92 per share cash sale to United Rentals, and H&E has notified United Rentals that it intends to terminate its merger agreement and enter into a merger agreement with Herc. United Rentals notified H&E in writing that it does not intend to submit a revised proposal and has waived its four business day match period under the United Rentals merger agreement.
Under the terms of the Herc proposal, H&E shareholders would receive $78.75 in cash and 0.1287 shares of Herc common stock for each share they own, with a total value of $104.89 per share based on Herc’s 10-day VWAP as of market close 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-capped consideration. Herc’s proposal also enables H&E’s shareholders to share in the value created from the $300 million of EBITDA synergies expected to be generated by the end of year three following close, and an anticipated improved valuation multiple for the combined company.
H&E is a high quality rental business that has invested strategically in its fleet and branch network consistently over the last several years. Herc’s combination with H&E would accelerate Herc’s proven strategy to meaningfully outpace industry growth by providing a substantially expanded footprint, increased density in key regions with economies of scale, geographic and customer diversification, and a larger, younger fleet.
“Since becoming an independent, public company in 2016, Herc has achieved tremendous success,” Larry Silber, Herc’s president and chief executive officer, said. “Through greenfield development and strategic acquisitions, we have significantly increased our scale and expanded our geographic reach. Investments in our general rental and specialty equipment solutions offering as well as technology, innovation and people, have enhanced the customer experience and made Herc a partner of choice for local and national accounts across North America. These strategies combined with our operational excellence have fueled strong performance and growth faster than the industry. 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. Herc has tremendous respect for H&E and the high quality of the platform and customer centric culture of the organization. This combination would strengthen Herc’s position as a premier rental company in North America.”
Silber continued, “Herc’s cash and stock merger consideration provides H&E shareholders with an immediate and significant premium. In addition, by combining our companies, we would unlock substantial upside opportunity for both Herc and H&E shareholders. As our track record shows, we are a disciplined and experienced acquiror, and this transaction meets all of our value creation M&A criteria.”
Strategic and Financial Benefits
- Increased scale with complementary footprint and fleet mix: This transaction would accelerate both companies’ growth strategies and create a platform of scale that would enhance the combined company’s competitive differentiators in the equipment rental industry and enable it to serve more high-value projects from large national accounts. The acquisition would strengthen Herc’s position as the 3rd largest rental company in North America. The combined company would have a leading presence in 11 of the top 20 rental regions and increased urban density in 7 of the top 10 rental regions. In addition, it would have a larger, younger fleet, offering a variety of specialty equipment solutions and a broad range of general rental products. The combined company’s customer base will also have more diversity than either company on a standalone basis, positioning it for long-term, sustainable growth through market cycles. The combined company will have more than 600 locations with a fleet original equipment cost of approximately $10 billion at the time of closing.
- Stronger competitor with enhanced customer offering: Like for H&E, superior customer service and support is a key priority for Herc. By joining both H&E’s and Herc’s capabilities, the combined company can leverage Herc’s industry-leading customer facing technology and an expanded fleet to better capitalize on the accelerating secular shift towards rental.
- Substantial identified synergies: Based on detailed analysis, Herc is confident that it can achieve approximately $300 million of annual EBITDA synergies by the end of year three following the close of the transaction, including approximately $125 million of cost synergies and approximately $175 million EBITDA impact from revenue synergies. Identified synergies have high free cash flow conversion characteristics given lower capital required to achieve.
- Attractive financial profile: The combination creates a company with revenue and EBITDA of approximately $5.2 billion and $2.5 billion, respectively, with an expectation for 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. In addition, 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.
- Valuation multiple re-rating: As a leading equipment rental solutions provider with a powerful value creation platform that outpaces market growth, increased liquidity, and greater investor interest that comes with a scaled company, Herc believes that the combined company should trade at a higher multiple that is more consistent with comparable company valuation multiples in our sector.
Additional Transaction Details
Upon termination of H&E’s existing agreement with United Rentals and the execution of a definitive merger agreement between Herc and H&E, Herc intends to commence a tender offer to acquire all of the outstanding shares of H&E common stock for a per share value of $78.75 in cash and 0.1287 shares of Herc common stock.
The transaction is expected to close mid-year 2025, subject to the majority of H&E’s shares being tendered into the offer, the receipt of customary regulatory approvals and closing conditions.
The proposed transaction is not subject to a financing condition. Herc has received an executed debt commitment letter from Credit Agricole Corporate and Investment Bank with respect to the financing of the proposed transaction.
Herc Advisors
Guggenheim Securities, LLC is serving as lead financial advisor. Credit Agricole Securities (USA) Inc is serving as co-financial advisor, with Credit Agricole Corporate and Investment Bank serving as lead financing bank. Simpson Thacher & Bartlett LLP is serving as legal advisor. Joele Frank, Wilkinson Brimmer Katcher is serving as strategic communications advisor.
