United Rentals, Inc. (URI - Free Report) has agreed to acquire BakerCorp. International Holdings Inc. for $715 million. The all-cash deal, slated to close in third-quarter 2018, will give a significant boost to United Rentals’ specialty rental business in North America as well as enable it to foray into some European markets.
United Rentals’ shares closed Monday at $144.75, down nearly 2% from Friday’s closing price.
BakerCorp, which has been in business for more than 75 years, is a leading provider of tank, pump, filtration, and trench shoring rental equipment for industrial and construction applications. It has more than 4,800 customers in North America and Europe. The company’s rental fleet consists of more than 24,000 units, including steel and polyethylene tanks, roll-off boxes, pumps, pipes, hoses and fittings, filtration units, tank trailers, berms, and trench shoring equipment.
United Rentals, the world’s largest equipment rental company with 1,002 rental locations in 49 states and Canada, expects the deal to create major opportunities for revenue growth, and customer service through cross-selling, re-rent conversion and scale. BakerCorp generated $79 million of adjusted EBITDA on $295 million of revenues for the 12 months ended May 31.
BakerCorp primarily operates in the United States and Canada, where it has 46 locations. Additionally, it has 11 locations in France, Germany, the U.K. and the Netherlands. BakerCorp’s international operations, accounting for approximately 15% of total revenues for the fiscal ended Jan 31, 2018, will provide United Rentals an opportunity to enter into select European markets for the rental of fluid solutions.
Meanwhile, the combined entity is also expected to create about $19 million in direct cost synergies across corporate overhead and shared services.
United Rentals anticipates the integration to be accretive to adjusted earnings per share with an attractive internal rate of return and run-rate ROIC exceeding cost of capital within 36 months after closing. The company expects its net leverage ratio to be about 2.5x at 2018-end. Meanwhile, it remains focused on its recently announced $1.25 billion share repurchase authorization.
United Rentals’ Systematic Inorganic Efforts Bode Well
United Rentals follows a robust expansion strategy via acquisitions and joint ventures. In March 2018, United Rentals acquired the assets of Industrial Rental Services — a leading U.S. provider of two-way radio solutions and industrial blinds, primarily in the Gulf and West Coast regions. The acquisition expands United Rentals’ Tool Solutions specialty rental fleet by more than 35,000 isolation blinds, flanges and racking systems for industrial applications, as well as approximately 16,000 radios, repeaters and accessories for plant maintenance, and construction personnel.
Again, the two most important acquisitions made in 2017 were of Neff Corporation and NES Rentals. Neff enhanced the company’s earthmoving equipment and efficiencies of scale in the key market areas. On the other hand, the acquisition of NES Rentals expanded United Rentals’ geographic footprint in key markets like East Coast, Gulf States and Midwest, and further established the company as an aerial supplier.
Price Performance and Zacks Rank
United Rentals’ shares have declined 16.7% in the past three months, comparing unfavorably with the industry’s 0.6% growth. Declining rental rates are marring its prospects. However, the company’s foremost strategy to improve profitability of the core equipment rental business through revenue growth, margin expansion and operational efficiencies will eventually reflect in its share price performance in the near term. The Zacks Consensus Estimate for the company’s current-year earnings per share is expected to increase 45.9% year over year.
United Rentals currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the same space are Advanced Drainage Systems, Inc. (WMS - Free Report) , Aegion Corporation (AEGN - Free Report) and Armstrong World Industries, Inc. (AWI - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Advanced Drainage Systems’ current-quarter earnings are expected to increase 44.4%.
Aegion and Armstrong World Industries’ full-year earnings are likely to increase 34% and 22.9%, respectively.
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