United Rentals to acquire National Pump
By United Rentals Inc.
March 13, 2014 - United Rentals has announced that it has entered into a definitive asset purchase agreement to acquire National Pump. Under the terms of the agreement, United Rentals will also acquire GulfCo, a two branch general rental business also based in Texas. The combined purchase price for the assets is approximately $780 million. The Board of Directors of United Rentals and the partners of National Pump unanimously approved the proposed transaction.
By United Rentals Inc.
March 13, 2014 – United Rentals has announced that it has entered
into a definitive asset purchase agreement to acquire National Pump. Under
the terms of the agreement, United Rentals will also acquire GulfCo, a
two branch general rental business also based in Texas. The combined purchase price for the assets is approximately $780
million. The Board of Directors of United Rentals and the partners of
National Pump unanimously approved the proposed transaction.
With National Pump, United Rentals enters the pump rental segment,
one of the largest and highest growth specialty markets. The company
has been executing its strategy of expanding its specialty businesses,
and this acquisition provides another significant product line with
attractive margins and returns. In addition, National Pump will offer
significant cross-selling opportunities with both United Rentals’ and
National Pump’s customer bases.
Michael Kneeland, President and Chief Executive Officer of United
Rentals, said, “This transaction is an important step in our strategy to
create a company that delivers strong financial returns through the
cycle. We have been executing against a plan to strengthen and
diversify our business, as demonstrated by our 18 specialty cold starts
in 2013 and 13 planned for 2014. National Pump provides an attractive
new specialty offering which increases our penetration in growing end
markets and advances over time our financial goals of delivering strong
free cash flow and improved returns.”
Kneeland continued, “Loddie Naymola and his team have done an
outstanding job of building National Pump into the number two pump
rental player and the leading provider to the oil and gas end market. We
are pleased that key members of the senior management team are joining
United Rentals and remain committed to growing the business. We see
tremendous opportunities for National Pump and are eager to apply our
standards for operational excellence, financial resources, and scale
advantages to help National Pump realize its full potential.”
National Pump was founded in 2007 and has grown at over 50% annually,
from 2010 through 2013. The acquired assets recorded LTM revenue of
$211 million and adjusted EBITDA of $103 million, representing an
adjusted EBITDA margin of 49% on a fleet with an original equipment cost
of $215 million. More than three quarters of National Pump’s fleet is
made up of pumps used in high value applications across a broad set of
end markets. National Pump is a leading supplier of pumps for energy and
petrochemical customers, with upstream oil and gas customers
representing about 50% of its revenue. National Pump has grown revenue
through a combination of new locations and a differentiated customer
service offering, including customized pump configurations,
best-in-class customer support, specialized training, and a strong
safety record. National Pump has a total of 35 branches, including four
branches in western Canada.
National Pump will become part of the United Rentals Specialty
Division under the leadership of Paul McDonnell, Senior Vice President
of Specialty Rentals.
McDonnell said, “The addition of pumps gives customers another
compelling reason to turn to United Rentals for their equipment needs.
We have worked with National Pump management to develop a plan to double
the size of our new pump business within five years, and we are ready
to implement it.”
Under the terms of the asset purchase agreement, United Rentals will
acquire National Pump for a purchase price of $780 million comprised of
$765 million in cash and $15 million in stock. The transaction structure
also provides for additional cash consideration based on achievement of
certain financial targets. The maximum payouts for these periods is
$75 million if LTM adjusted EBITDA reaches $134 million twelve months
post-closing and an additional $50 million if LTM adjusted EBITDA
reaches $161 million eighteen months post-closing.
United Rentals expects to receive a cash tax benefit with a net
present value of approximately $110 million as a result of the
acquisition. The purchase price represents a multiple of 7.6x LTM
adjusted EBITDA on a gross basis and 6.5x LTM adjusted EBITDA net of the
The deal is expected to be accretive to United Rentals’ free cash
flow and earnings per share in 2014. The ROIC of National Pump is
expected to exceed URI’s cost of capital within 18 months, and exceed
its 10% hurdle rate in 2016. The transaction will be funded by existing
cash and new debt.
The proposed transaction is subject to the expiration or termination
of the waiting period under the Hart-Scott-Rodino Antitrust Improvements
Act and other customary closing conditions. United Rentals expects the
transaction to close early in the second quarter of 2014.
Updated Financial Outlook
The transaction will modestly increase United Rentals’ leverage
(defined as net debt divided by LTM adjusted EBITDA) by about 0.2x.
However, leverage is anticipated to decline to about 2.9x by year end,
as compared to 3.0x at year end 2013.
United Rentals is updating its current guidance:
- 2014 revenue in the range of $5.45 billion to $5.65 billion
- 2014 adjusted EBITDA in the range of $2.55 billion to $2.65 billion
- Free cash flow in the range of $425 million to $475 million
- Gross capex of $1.7 billion, includes additional fleet purchases for the acquisition
The company said its current intention is to complete its $500 million authorized stock repurchase program by April 2015.
Centerview Partners and Morgan Stanley & Co. LLC acted as
financial advisors to United Rentals, and Sullivan & Cromwell LLP
acted as United Rentals’ legal advisor. Fulbright & Jaworski LLP
acted as National Pump’s legal advisors.
For more information