Equipment rental company H&E doubles on announcement of its acquisition by rival
Shares of H&E Equipment Services, a small-cap industrial equipment rental company, more than doubled on Tuesday, January 14, hitting a record high. The trigger was an announcement that the company would be acquired at a premium by its largest competitor, United Rentals. Analysts say this is an opportune time for such a deal.
Details
H&E shares surged over 105% on the Nasdaq on Tuesday to close at $90.29 apiece — a record one-day gain and an all-time high for the share price. Quotes thus exceeded even the most optimistic target prices of five coverage analysts, who value H&E at an average of $64.50 per share, according to MarketWatch. Three of the analysts rate the stock a “buy,” while two have “hold” calls.
H&E announced on Tuesday that it would be acquired for $4.8 billion by United Rentals, the largest player in the industry with a market capitalization of nearly $48.0 billion. For context, following the Tuesday rally, H&E has a market capitalization of $3.31 billion.
United Rentals shares also gained on the news, rising nearly 6% to $730 per share.
About the deal and the companies
Both H&E and United Rentals rent out industrial equipment, including aerial work platforms and earthmoving machinery. H&E operates exclusively in the U.S., while United Rentals touts itself as the world’s largest equipment rental company, with locations in the U.S., Canada, European countries, Australia, and New Zealand.
Under the terms of the deal, United Rentals will purchase H&E shares at $92 apiece. As mentioned above, this represents a 2% premium to the market price even after the dramatic Tuesday rally. H&E is valued at 6.9 times adjusted EBITDA for the 12 months ending September 30, 2024, according to the statement put out by United Rentals. United Rentals plans to launch a tender offer on January 28 and aims to complete the acquisition in the first quarter of 2025.
“The timing of the acquisition appears particularly strategic, as United Rentals aims to capitalize on the continued momentum in U.S. reshoring efforts and infrastructure-related construction projected for 2025,” Noble Capital Markets wrote in a note to investors.
The merger agreement includes a “go-shop” period, United Rentals noted. This allows H&E a 35-day window to “solicit, evaluate and potentially enter into negotiations with, and provide due diligence access to, parties that submit alternative proposals.” H&E also retains the right to terminate the agreement if it receives a more favorable offer.
“[This acquisition is] marking a significant consolidation in the equipment rental industry amid strong demand for construction and industrial machinery,” Noble commented.
United Rentals anticipates an additional $120 million in annual revenue by the third year following the merger. For the ten months ending October 2024, it reported a 6% year-over-year increase in revenue to $11.25 billion. However, the acquisition will necessitate a pause in United Rentals’ share buyback program. The company has $375 million left on the $1.5 billion program, according to Investing.com. Finally, United Rentals stated that its dividend policy would remain unaffected by the deal.
