United Rentals Inc (URI.N), the world's largest equipment rental company, said on Sunday it had agreed to acquire privately held National Pump, the second-largest specialty pump rental company in North America, for $780 million.
The deal marks United Rentals' foray into the pump rental sector, which is benefiting from increased demand from energy and petrochemical companies tapping into the shale gas boom in the United States. Upstream oil and gas customers account for about half of National Pump's revenue.
National Pump, which was founded in 2007, will become part of United Rentals' specialty division. United Rentals, which also rents out forklifts, water pumps, diesel generators and earthmoving and trench safety equipment, said the deal offered significant cross-selling opportunities.
"This transaction is an important step in our strategy to create a company that delivers strong financial returns through the cycle," United Rentals Chief Executive Officer Michael Kneeland said in a statement.
In a revision to its financial outlook, United Rentals said it was expecting 2014 revenue in the range of $5.45 billion to $5.65 billion and adjusted 2014 earnings before interest, taxes, depreciation and amortization (EBITDA) of between $2.55 billion and $2.65 billion.
The company's previous guidance for revenue was in the range of $5.25 billion to $5.45 billion and for adjusted EBITDA, between $2.45 billion and $2.55 billion for 2014.
Stamford, Connecticut-based United Rentals added on Sunday that its intention was to complete its $500 million share-buyback program by April 2015.
Under the terms of the deal, United Rentals will pay $765 million in cash and $15 million in stock for National Pump, which consists of four separate companies.
An additional cash payout of $75 million is foreseen, should National Pump achieve adjusted EBITDA of $134 million in the 12 months after the deal closes. If adjusted 12-month EBITDA hits $161 million in the 18 months after the deal closes, United Rentals will make an additional $50 million payment.
National Pump generated $103 million in adjusted EBITDA in the last 12 months. Its acquisition by United Rentals, which has a market value of $8.25 billion, is expected to be completed early in the second quarter of 2014.
United Rentals also said it expected to receive a cash tax benefit with a net present value of about $110 million as a result of the acquisition.
Centerview Partners and Morgan Stanley & Co LLC (MS.N) acted as financial advisers to United Rentals, while Sullivan & Cromwell LLP acted as legal adviser. Fulbright & Jaworski LLP was National Pump's legal adviser.