United Rentals
United Rentals, Inc. and BlueLine Rental have entered into a definitive agreement under which United Rentals will acquire BlueLine from Platinum Equity for approximately $2.1 billion in cash.[*] The board of directors of United Rentals unanimously approved the agreement. The transaction is expected to close in the fourth quarter of 2018, subject to Hart-Scott-Rodino clearance and customary conditions.
BlueLine is one of the ten largest equipment rental companies in North America, serving over 50,000 customers in the construction and industrial sectors with a focus on mid-sized and local accounts. The company has 114 locations and over 1,700 employees based in 25 U.S. states, Canada and Puerto Rico. For the trailing 12 months ended August 31, 2018, BlueLine generated an estimated $313 million of adjusted EBITDA at a 39.8% margin on $786 million of total revenue.
Strong strategic rationale
BlueLine’s footprint will increase United Rentals’ capacity in many of the largest metropolitan areas in North America, including both U.S. coasts, the Gulf South and Ontario.
BlueLine has a well-diversified customer base that aligns well with United Rentals’ base, with a balanced mix of commercial construction and industrial accounts. The combination will add more mid-sized and local accounts to United Rentals’ base.
The combination will make a broader range of fleet and services available to BlueLine customers, creating opportunities to cross-sell specialty solutions.
The addition of BlueLine’s fleet will expand United Rentals’ fleet by over 46,000 rental assets with an original cost of approximately $1.5 billion.
BlueLine and United Rentals utilize many of the same technology systems, including RentalMan for field operations. The two companies have similar rental infrastructures, which will facilitate the integration and help with the onboarding of employees.
United Rentals and BlueLine share many cultural attributes, including robust safety programs, an intense focus on customer service and an emphasis on talent development and engagement.
Strong financial rationale
The purchase price of approximately $2.1 billion represents a multiple of 6.7x adjusted EBITDA for the trailing 12 months ended August 31, 2018; and a multiple of 5.4x adjusted EBITDA including cost synergies and the net present value of tax attributes estimated at $169 million.
The acquisition is expected to be immediately accretive to United Rentals’ adjusted earnings per share and free cash flow generation and result in a net leverage ratio of below 3.0x by year-end 2018 on an as-reported basis, with a strong path for deleveraging thereafter. On a pro forma basis, the company expects its net leverage to be below 2.8x by year-end.
Return on invested capital is expected to exceed the cost of capital within three years of closing, with an attractive IRR and NPV.
The combination is expected to generate approximately $45 million of cost synergies in the areas of corporate overhead, operations and third-party re-rent, and improve returns on BlueLine used equipment sales. Additionally, United Rentals expects to realize approximately $15 million of fleet and other procurement savings based on the combined spending.
The transaction is not conditioned on financing. United Rentals expects to use a combination of newly issued debt and bank borrowing to fund the transaction and related expenses.
CEO comments
Michael Kneeland, chief executive officer of United Rentals, said, “The acquisition of BlueLine meets all of our criteria for long-term, profitable growth at attractive returns. We’re executing our strategy of ‘growing the core’ in a strong demand environment to drive superior value for our customers and shareholders. Our company will be going to market with more talent, capacity and customer diversification than ever before.”
Kneeland continued, “There are some distinct advantages to the BlueLine integration, such as our common technology systems and strong safety cultures. BlueLine has a fleet mix that complements our own, and a well-diversified base of mid-sized and local customers, many of whom can use our specialty solutions. We expect to complete the acquisition in the fourth quarter, setting the stage for an exciting 2019. I look forward to welcoming our new colleagues very soon.”
Louis Samson, partner at Platinum Equity, said, “BlueLine has evolved into a strong industry leader and is in perfect position to take the next step as part of United Rentals. Following the initial carve out from Volvo four years ago, we deployed the full range of Platinum’s M&A&O® tool kit to completely transform the business. Substantial investments in systems, add-on acquisitions and other growth initiatives drove improvements in top-line and earnings performance. It is a natural fit with United Rentals, and both companies will benefit from the combination.”
United Rentals plans to update its 2018 financial outlook to reflect the combined operations upon completion of the transaction.
Repurchase program
United Rentals plans to pause its current $1.25 billion share repurchase program upon closing the BlueLine acquisition to integrate the operations and assess other potential uses of capital. This is consistent with the company’s approach during the integrations of NES Rentals and Neff Rental in 2017.
