United Rentals Outbid: Herc Holdings Snaps Up H&E Equipment Services

United Rentals (NYSE: URI) has been outbid for H&E Equipment Services (NASDAQ: HEES) by Herc Holdings (NYSE: HRI), marking a significant shift in the equipment rental industry landscape. Herc's cash-and-stock bid valued H&E at nearly $5.3 billion, including debt, compared to United Rentals' $4.8 billion all-cash offer. This article explores the strategic advantages Herc offered, the impact on the competitive landscape, and the potential synergies and cost savings Herc expects to achieve through the acquisition.



Strategic Advantages of Herc's Bid

Herc Holdings offered several strategic advantages that led H&E Equipment Services to choose their bid over United Rentals'. Firstly, Herc's bid valued H&E at nearly $500 million more than United's all-cash offer, with a total value of $5.3 billion including $1.4 billion of net debt. This higher valuation was a significant factor in H&E's decision to accept Herc's bid. Additionally, Herc's proposal included a cash-and-stock component, with 75% paid in cash and the remainder in Herc stock, providing H&E shareholders with both immediate value and future upside potential. Furthermore, the combination of Herc and H&E would result in significant cost and revenue synergies, as the two companies have more complementary portfolios by fleet-mix, including earthmoving and general rental equipment. This would bolster Herc's status as United's leading competitor and create a formidable competitor in the equipment rental industry. Lastly, Herc's bid was seen as a more advantageous suitor for H&E's business acquisition, as it offered a higher valuation and a more complementary portfolio.



Impact on the Competitive Landscape

The acquisition of H&E by Herc Holdings will significantly reshape the competitive landscape of the equipment rental industry, particularly in relation to United Rentals. The combined entity of Herc and H&E will have a leading presence in 11 of the top 20 rental regions, making it the third-largest player in North America. This will increase competition with United Rentals, which is currently the largest player in the industry. The acquisition will result in significant cost and revenue synergies, with the combined company generating around $5.2 billion in revenue and $2.5 billion in EBITDA. This scale and efficiency will enable Herc to better compete with United Rentals, which generated $13 billion in revenues last year. The combined company will have a network of 160 branches across 30 states, with a rental fleet comprising 64,000 pieces of machinery and a workforce of 2,900 employees. This expanded footprint will allow Herc to serve a broader range of customers and potentially attract more business from United Rentals' customers. The complementary portfolios of Herc and H&E by fleet-mix, including earthmoving and general rental equipment, will lead to better fleet utilization and reduced idle time. This will enable Herc to offer more competitive pricing and better service to customers, further challenging United Rentals. The acquisition of H&E by Herc may also encourage other mid-sized equipment rental companies to seek strategic partnerships or acquisitions, further fragmenting the market and increasing competition for United Rentals.



Potential Synergies and Cost Savings

Based on the information provided, Herc Holdings expects to achieve significant synergies and cost savings through the acquisition of H&E Equipment Services. These synergies are projected to be around $300 million in annual EBITDA by year three, with a breakdown of $125 million in cost synergies and $175 million from revenue synergies. The cost synergies can be attributed to various operational efficiencies and overlaps between the two companies. By combining their networks and resources, Herc Holdings can expect to reduce duplicate expenses, optimize fleet utilization, and streamline operations. The revenue synergies are expected to come from expanded customer relationships and improved market presence. By combining their complementary portfolios, Herc Holdings will have a more diverse and robust fleet mix, allowing them to cater to a wider range of customer needs. This enhanced offering can lead to increased market share and higher revenue. Additionally, the combined entity will have a leading presence in 11 of the top 20 rental regions, further strengthening their market position.

In summary, the acquisition of H&E Equipment Services by Herc Holdings will create a formidable competitor to United Rentals, with a strong market presence, increased scale and efficiency, expanded customer relationships, improved fleet utilization, and the potential for further consolidation in the industry. This will likely lead to increased competition and potentially higher valuations for mid-sized equipment rental companies. The acquisition aligns with Herc Holdings' long-term growth strategy, focusing on leveraging their one-stop shop strategy, supported by world-class service and innovative solutions. By integrating H&E's operations and resources, Herc Holdings can expand its customer base, improve fleet utilization, and drive growth across safety, productivity, and sustainability.