United Rentals to acquire Ahern Rentals for $2 billion
United Rentals, Inc. has entered into a definitive agreement to acquire the assets of family-owned Ahern Rentals, Inc. for approximately $2.0 billion in cash. The board of directors of United Rentals unanimously approved the agreement. The transaction is expected to close prior to year-end 2022, subject to customary conditions.
Founded in 1953, Ahern Rentals is the eighth-largest equipment rental company in North America, with approximately 2,100 employees and 106 locations in 30 states serving approximately 44,000 contractors in the construction and industrial sectors. For the trailing 12 months ended September 30, 2022, Ahern Rentals generated $310 million of adjusted EBITDA on $887 million of total revenue.
Consistent with United Rentals' "grow the core" strategy, users of both companies will be better served by the combined scale, and legacy users of Ahern Rentals will benefit from one-stop access to United Rentals' specialty rental offerings.
Ahern Rentals' branch locations, fleets, and experienced employees are complementary with United Rentals' existing network. The combination will increase capacity for United Rentals in key geographies, with concentrations on both U.S. coasts and in the Gulf region.
The combination will expand the fleet available to United Rentals customers by over 60,000 rental assets with an original cost of $1.85 billion, as well as approximately $145 million of non-rental fleet. Notably, over 75 percent of Ahern Rentals' rental fleet is comprised of high-demand aerial and material-handling equipment.
The integration of the acquired branch and sales operations represents significant opportunities to improve efficiency, productivity, and new business development with the adoption of United Rentals technology and field management processes. Ahern Rentals and United Rentals use a number of the same technology platforms, including the RentalMan ERP system.
The purchase price of approximately $2.0 billion represents a multiple of 6.5x adjusted EBITDA for the trailing 12 months ended September 30, 2022, or 4.5x adjusted EBITDA net of cost synergies and the net present value of tax attributes estimated at $426 million.
The acquisition is expected to be accretive to United Rentals' adjusted earnings per share and free cash flow generation in its first-year post-close.
The transaction is projected to result in a net leverage ratio at year-end 2022 at the low end of the company's target range: 2.1x adjusted EBITDA as reported, and 2.0x on a pro forma basis.
Return on invested capital (ROIC) is expected to exceed the cost of capital within 24 months of closing on a run-rate basis, with an attractive IRR and NPV. Importantly, the return profile of the transaction is compelling across a range of macro scenarios.
The combination is expected to generate approximately $40 million of annualized cost synergies within the first 12 to 18 months of closing, primarily in the areas of corporate overhead, operations, and cost of rentals due to efficiencies of scale. Additionally, United Rentals expects to realize procurement savings based on the combined spending of both companies.
United Rentals expects to realize approximately $60 million of annual revenue synergies by year three, led by the cross-selling of its specialty rental offerings to an expanded user base.
The transaction is not conditioned on financing. United Rentals expects to use a combination of newly issued debt and existing capacity under its ABL facility to fund the transaction and related expenses.
The company currently plans to pause its $1.25 billion share repurchase program through the initial phase of the integration, consistent with its approach during the integrations of similarly sized general rental transactions.