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Home›Net present value›United Rentals (URI) to acquire General Finance (GFN) for $ 19 / share in $ 996 million deal

United Rentals (URI) to acquire General Finance (GFN) for $ 19 / share in $ 996 million deal

By Terrie Graves
April 16, 2021
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United Rentals, Inc. (NYSE: URI) (“United Rentals” or “the Company”) and General Finance Corporation (NASDAQ: GFN) (“General Finance”) announced today that they have entered into a definitive agreement under from which United Rentals will acquire General Finance for $ 19 per share in cash, for a total enterprise value of approximately $ 996 million, including the assumption of $ 400 million in net debt. The transaction is expected to be accretive to EPS and free cash flow at closing.

General Finance, which operates as Pac-Van and Container King in the United States and Canada, and as Royal Wolf in Australia and New Zealand, is a leading provider of mobile storage and d ‘modular office spaces. Its network of 106 branches and over 900 employees serves a variety of end markets including construction, commerce, industry, retail, transportation, petrochemicals, consumer, natural resources, government and education. .

As of December 31, 2020, on a 12-month basis, General Finance generated $ 94 million of Adjusted EBITDA out of $ 346 million of total revenue, resulting in an Adjusted EBITDA margin of 27.2%. As of March 31, 2021, General Finance’s rental fleet consisted of approximately 100,000 units at an initial cost of approximately $ 639 million.

The boards of directors of United Rentals and General Finance have unanimously approved the transaction, which is subject to customary closing conditions, including the expiration or early termination of the waiting period under the Hart- Scott-Rodino Antitrust Improvements Act of 1976 and other regulatory approvals. United Rentals intends to launch a takeover bid by April 26, 2021 to acquire all of the outstanding shares of GFN common stock for $ 19 per share in cash. Upon completion of the takeover bid, a wholly owned subsidiary of United Rentals will merge with and into General Finance and the common shares of General Finance which were not tendered and purchased under the public offer. purchase will be converted into entitlement to receive $ 19 per share in cash. The transaction is expected to close in the second quarter of 2021. The company plans to update its financial outlook for 2021 to reflect the combined operations after the transaction is completed.

A solid strategic rationale

  • General Finance’s positioning as a leader in the North American mobile and office storage solutions industry strongly complements United Rentals’ leadership positions in general construction and industrial leasing and specialty leasing. This will further differentiate the business through its ability to deliver value as a one-stop-shop for customers.
  • General Finance operates in 52 of the top 100 MSAs in North America served by United Rentals locations, which will create immediate cross-sell opportunities. It is important to note that United Rentals will have the opportunity to introduce mobile storage and modular office solutions in its MSAs currently not serviced by General Finance.
  • General Finance’s mobile and desktop storage activities in Australia and New Zealand will allow United Rentals to enter these geographies with an established platform managed by a seasoned management team and with a strong growth strategy already. in place.
  • General Finance shares many cultural similarities with United Rentals, including a customer-centric business philosophy, long-term customer relationships in various end markets, and a strong focus on security.
  • Approximately 900 General Finance employees will bring a wealth of experience to United Rentals as part of this combination. They will benefit from cutting-edge technology, cutting-edge training and safety programs and other resources, and have greater opportunities for career development within the larger company.

Solid financial factors

  • United Rentals sees significant potential for profitability from the transaction over the next several years, thanks to synergies within the combined operations, complementary services, efficiency of scale and an aggressive growth strategy. The company is targeting $ 65 million in total revenue synergies in the first three years following closing.
  • The company expects to realize a benefit of $ 17 million on Adjusted EBITDA by the end of the second year from cost synergies realized through the integration, including operational efficiencies and reduction overhead of the business. This equates to 4.9% of the total revenue of General Finance over the past 12 months and 10.4% of the combined cost of leasing operations and selling and general expenses over the same period.
  • The company expects to realize approximately $ 19 million in net present value of the tax benefits included in the purchase price of $ 996 million.
  • Net of synergies, the purchase price represents a multiple of 9.0 times the adjusted EBITDA of the last 12 months and an adjusted purchase multiple of 8.8 times, including the present value net of the tax benefits acquired.
  • Return on invested capital is expected to exceed cost of capital within 18 months of closing on a going rate basis, with attractive IRR and NPV.
  • The Company expects to maintain a reported leverage ratio of less than 2.5 times net debt to EBITDA at closing and a pro forma leverage ratio of less than 2.4 times at closing.
  • The transaction is not conditional on financing. United Rentals plans to use a combination of cash and existing capacity under its ABL facility to fund the transaction and related expenses.

CEO comments

Matthew Flannery, President and CEO of United Rentals, said: “Our acquisition of General Finance will be an important opportunity for us to further differentiate our value in the eyes of our clients, while delivering attractive, long-term returns. for our shareholders. . We see strong growth potential from this combination, including our ability to sell mobile and desktop storage solutions to our customers. Our expansion into this space comfortably checks all three boxes of our M&A criteria – strategic rationale, financial impact, and cultural fit. “

Flannery continued, “We are convinced that the time has come to re-engage in M&A with this highly strategic combination, as our end markets recover from the challenges of 2020. General Finance is a client-focused organization with d ‘excellent field operators and specialized expertise that complements our own. We look forward to welcoming our new employees and customers as an important part of our future. “

Jody Miller, CEO of General Finance, said: “Our association with United Rentals – the industry leader in equipment rental – is a solid result for everyone involved. Our customers will benefit from United’s extensive solutions and geographic footprint, and our employees will have new opportunities within the world’s largest rental team. “

Key statistics on acquisitions and transactions
Financial information in millions of dollars

Purchase price

$

996

Present value of tax assets acquired

$

19

Total income (annual calendar 2020)

$

346

Adjusted EBITDA (calendar year 2020)

$

94

Estimated annualized cost synergies realized at the end of the second year

$

17

Estimated annualized cross-selling benefits achieved at the end of the third year

$

65

Original equipment cost of the fleet

$

639

Number of rental units

~ 100,000

Employees

~ 930

Rental agencies

106

Customers

~ 50,000

Sullivan & Cromwell LLP acted as legal counsel to United Rentals in the transaction, and Morrison and Foerster LLP acted as legal counsel to General Finance.

Conference call

United Rentals will host a conference call tomorrow, April 16, 2021 at 8:30 a.m. Eastern Time. The conference call number is (855) 458-4217 (international: (574) 990-3618). The replay of the call can be accessed at (404) 537-3406, code 7279967.

Non-GAAP measures

General Finance Adjusted EBITDA is a non-GAAP financial measure as defined in the rules of the Securities and Exchange Commission. United Rentals believes that this non-GAAP financial measure provides useful information about the proposed transaction; however, it should not be viewed as an alternative to GAAP net income. A reconciliation between Adjusted EBITDA and General Finance GAAP net income, along with other financial data, is provided in the Investor Presentation available on the Company’s website.

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