United Rentals, Inc. and Neff Corporation, operating as Neff Rental announced that they have entered into a definitive agreement under which United Rentals will acquire Neff for $25 per share in cash, representing a total purchase price of approximately $1.3 billion. The transaction is expected to be immediately accretive to cash EPS and free cash flow.
Neff is one of the 10 largest U.S. equipment rental companies, with a presence in 14 states and a concentration in southern geographies. Based in Miami, Fla., Neff offers earthmoving, material handling, aerial and other equipment rental solutions to its more than 15,500 construction and industrial customers. Approximately 1,200 Neff employees and 69 branches serve end markets in the infrastructure, nonresidential, energy, municipal and residential construction sectors.
For the full year 2017, Neff is expected to generate $207 million of adjusted EBITDA at a 49.5% margin on $419 million of total revenue. As of June 30, 2017, Neff had approximately $867 million of fleet based on original equipment cost.
The boards of directors of United Rentals and Neff unanimously approved the agreement. Private investment funds managed by Wayzata Investment Partners LLC, which hold approximately 62.7% of the outstanding common shares of Neff, have executed a written consent to approve the transaction, thereby providing the required stockholder approval. The transaction is expected to close in the fourth quarter of 2017, subject to Hart-Scott-Rodino clearance and customary conditions.
Immediately prior to entering into the definitive merger agreement with United Rentals, Neff terminated its previously announced merger agreement with H&E Equipment Services, Inc. In connection with this termination, United Rentals has paid H&E a termination fee of approximately $13.2 million on behalf of Neff.
The company plans to update its 2017 financial outlook to reflect the combined operations upon completion of the transaction.
Strong Strategic Rationale
- Neff’s branch footprint and complementary fleet mix will add efficiencies of scale in key market areas, particularly fast-growing southern geographies.
- Neff’s established presence in the infrastructure sector dovetails with the company’s Project XL vertical growth initiatives and is expected to lead to attractive revenue synergies through the cross-selling of United Rentals’ broader fleet, including its specialty offerings.
- The combined operations will benefit from the expansion of earth moving as a component of United Rentals’ fleet mix, as well as Neff’s best-in-class expertise in managing large earth moving categories.
- Neff shares many cultural similarities with United Rentals, including a customer-first business philosophy and a strong focus on safety.
- As part of the United Rentals family, Neff employees will bring a wealth of experience to the combined organization. They will benefit from industry-leading technology, training, safety programs and other resources, and have greater opportunities for career development within the larger company.
Robust Financial Drivers
- The company expects to realize significant cost synergies in operational efficiencies and corporate overhead, with a targeted adjusted EBITDA impact of approximately $35 million by the end of year two.
- The company expects to realize approximately $220 million in net present value of tax benefits included in the $1.3 billion purchase price.
- Net of synergies, the purchase price represents a multiple of 5.4 times adjusted EBITDA for the year ended December 31, 2017, and an adjusted purchase multiple of 4.5 times, including the net present value of acquired tax benefits.
- The acquisition is expected to be immediately accretive to cash earnings per share and to free cash flow generation.
- Return on invested capital is expected to exceed the cost of capital within 18 months of closing, with an attractive IRR and NPV.
- The company expects to maintain a pro forma leverage ratio of under 3 times, with a strong deleveraging path post-close.
- The transaction is not conditioned on financing. United Rentals expects to use a combination of cash, existing capacity under its ABL facility, and newly issued debt to fund the transaction and related expenses.
CEO Comments
Michael Kneeland, president and chief executive officer of United Rentals, said, “The acquisition of Neff is a significant opportunity for us to augment long-term returns for our investors, and build value for our customers and employees. We expect this transaction to be accretive to both our financial performance and customer-facing operations, with an important cross-selling component. The strategic rationale passed every litmus test with flying colors.”
Kneeland continued, “With the successful integration of NES largely behind us, we’re prepared to move forward with another smooth transition in our landmark 20th year. We’re excited to realize the opportunities of this combination and leverage the many areas where we’re stronger together. Neff has a customer-focused team with seasoned field operators, a rigorous commitment to safety, and specialized expertise. We look forward to welcoming them as an important part of our future.”
Graham Hood, chief executive officer of Neff, commented, “United Rentals is an industry leader in equipment rentals, and as a result of this transaction, our employees and customers will benefit from the combined company’s expanded geographic footprint and diversified offering. We look forward to working with the United Rentals management team as we bring these companies together and leverage the compatible strengths of both businesses.”
Morgan Stanley & Co. LLC and Centerview Partners acted as financial advisors to United Rentals, and Sullivan & Cromwell LLP acted as the company’s legal advisor. Deutsche Bank acted as financial advisor to Neff Corporation, and Akin Gump Strauss Hauer & Feld LLP acted as Neff’s legal advisor.
