United Rentals to acquire H&E in $4.8bn deal

Photo: United Rentals

United Rentals has entered into an agreement to acquire H&E Equipment Services, one of its major competitors, in a deal worth $4.8 billion, including $1.4 billion in net debt.

The acquisition will create a rental business with total 2023 revenues of $15.7 billion, combining the largest and the sixth largest rental businesses in North America.

United Rentals generated $14.3 billion in revenues in 2023 and ranked top of the global IRN100 rental company list, while H&E’s revenues were $1.4 billion and it was 11th in the IRN100.

The deal could increase United Rentals’ North American market share from around 15% to closer to %16.5-17%.

The board of directors of both companies have unanimously approved the transaction, although the agreement includes a 35-day “go-shop” period to 17 February, during which H&E can consider alternative offers.

If concluded, it will give United Rentals more than 160 branches, around 2,765 employees and a 64,000 unit fleet with an original cost of over $2.9 billion. It will also include a non-rental fleet with an original cost of roughly $230 million.

United said the planned merger, which could close in the first quarter of 2025, is consistent with its “grow the core” strategy and will increase its capacity in key US geographies. 

It said H&E customers will benefit from “one-stop access” to its specialty rental offering, including fluid solutions, matting solutions, onsite services, portable storage & modular space, power and HVAC, tool solutions, and trench safety.

It expects to save approximately $130 million each year in cost synergies within 24 months of closing, primarily in the areas of corporate overhead and operations. Additionally, United Rentals expects to see procurement savings of approximately 5% compared to historical H&E pricing.

United said that by year three it could generate an additional $120 million revenues through cross-selling synergies.

What they said

Matthew Flannery, chief executive officer of United Rentals, said it is acquiring a well-run operation that’s primed to benefit from its technology, operations and broad value proposition.

He said, “Most importantly, we’re gaining a great team that shares our intense focus on safety and customer service. We’ll be working side-by-side throughout the integration to capitalize on best-in-class expertise from both sides.

“We will use our well-honed integration playbook as we prepare the acquired branches to take full advantage of our systems and operational capabilities, and gain from our employee and customer-centric culture. I look forward to welcoming our new team members upon the closing of the acquisition.”

Flannery continued, “This purchase of H&E supports our strategy to deploy capital to grow the core business and drive shareholder value. This acquisition allows us to better serve our customers with expanded capacity in key markets while also providing the opportunity to further drive revenue through our proven cross-selling strategy.

“Not only does the agreement satisfy the rigorous strategic, financial and cultural standards we set for acquisitions, but it also drives attractive returns for our shareholders.”

Bradley W. Barber, chief executive officer of H&E, added, “I’m extremely proud of what we’ve built at H&E over the last 60 years and am confident that our combination with United Rentals will take the business to new heights going forward.”

John M. Engquist, executive chairman of H&E, said, “I couldn’t be more pleased with this win-win outcome for both organisations, our customers and our shareholders. Importantly, I want to thank our employees for driving the results that made this transaction possible. I am confident that we’ve found an excellent landing spot for them and I am excited for the new opportunities they will have as part of United Rentals.”

United Rentals said it would make a tender offer by January 28, 2025 to acquire all of the outstanding shares of H&E common stock for $92 per share in cash.

Following completion of the tender offer, United Rentals will acquire all remaining shares not tendered in the offer through a second-step merger at the same price as in the tender offer.

A good match?

Beyond the question of whether the deal makes financial sense - the price equates to an EBITDA multiple of 6.9, which does not seem unduly high - there is the question of the operational fit, in terms of customers, fleet and locations.

It’s worth remembering that H&E only became a pure-play equipment rental business very recently. In late 2022 is sold the last of its construction equipment dealerships, having previously exited the business of selling and renting cranes.

That means only two years focusing on rental, so it is a far less mature rental business than United, with less focus on specialty rentals, for example.

Specialty now makes up just under 30% of United total business, while for H&E it is negligible: that is one of the benefits of the deal, with United able to cross-sell its numerous specialty rental services to H&E’s customers and through H&E’s depots.

Indeed, United says it hopes to add US$120 million in revenue annually by the third year of ownership through cross-selling, with specialty a part of that.

The same customers and fleet?

In terms of customers, there is a significant difference between the two companies. H&E is much more reliant on the non-residential customer segment than is United. That sector represents 69% of H&E’s business compared to 46% at United.

Another big difference here is United’s exposure to industrial markets, including oil and gas, which at 49% is much higher than the 13% at H&E.

The additional fleet that H&E brings will be a significant benefit. H&E’s fleet, with a $2.9 billion value at original cost, is younger than United’s, at 40.8 months average age compared to 52.4 months. That will reduce the average age of United’s $20.6 billion fleet.

H&E’s aerial platform fleet is 51.6 months old on average, which is close to United’s total fleet average, but in the case of earthmoving equipment, H&E has a very young fleet, averaging just 29.5 months.

The fleet mix is slightly different, of course, with H&E heavily reliant on AWPs (33%), material handling (30%) and earthmoving (25%). In contrast, AWPs make up 25% of United’s fleet, with around 20% in material handling and less than 15% in the segment that would include earthmoving. United, of course, has a much larger proportion of tools and specialist equipment.

Overlap in depot network?

What about the locations that H&E brings, around 160 depots. H&E was investing heavily in new opens and had established itself nationally in the US over the past few years.

However, it is strong in key markets, with 46 branches in the Gulf Coast, 31 in the Southeast, 20 on the West Coast, and 18 in the intermountain region (between the Rocky Mountains on the east and the Cascade Range and Sierra Nevada on the west.)

A key part of H&E’s strategy in recent years was to target mega-projects, and it said in late 2023 that 85% of such projects - defined as larger than $500 million in value - being bid for in 2023 and 2024 were covered by its network.

Of course, H&E’s 160 locations is dwarfed by United’s 1571 depots in North America, but it will strengthen its network in important industrial states.

Market shares, and wider impact?

Despite the scale of the United Rentals business, the addition of H&E will not transform its market share.

United reported in October last year that its overall North American market share in 2023 was 15%, based on the ARA’s annual estimate for the market. The addition of H&E’s approximate $1.5 billion in annual revenue will increase that to closer to 16.5%.

That strengthen’s its position as market leader in North America, with Sunbelt Rentals’ share being closer to 11%, followed by Herc Rentals at 4%.

Among other things, this illustrates the still-fragmented structure of North America’s rental market. For United, H&E was one of the few deals open to it to shift the dial on its share.

The deal will be concentrating minds at the other big rental players in the US, with the focus likely to be on how Sunbelt will respond.

And of course, the United-H&E deal is not yet concluded, with the agreement allowing H&E to solicit other buyers and perhaps further increase the $92 dollar per share offer agreed with United.

When the transaction is completed, we hope to bring readers more analysis of the financial aspects of the deal.