Nesco Holdings Inc. has entered into a definitive agreement to acquire Custom Truck One Source (CTOS) for a purchase price of $1.475 billion.
Nesco and CTOS are leading providers of specialized truck and heavy equipment solutions including rental, sales, and aftermarket parts and services — creating a leading, one-stop-shop provider of specialty rental equipment. It will serve the growing infrastructure end-markets, including transmission and distribution, the 5G revolution build-out, and critical rail and other national infrastructure initiatives.
The transaction has been unanimously approved by the Nesco board of directors and is expected to close in the first quarter of 2021, subject to shareholder approval and other customary conditions. Additional details, including plans for integrating the respective brands, will be addressed by a transition team comprising representatives from each of the companies.
With complementary business lines, customer bases, and capabilities, the combination is expected to yield significant benefits from increased scale, breadth of product and service offerings, and expanded geographic coverage. This will allow them to address anticipated demand in the large and growing market.
In connection with the transaction, an affiliate of Platinum Equity, LLC (Platinum) has committed to invest over $850 million into Nesco, while existing CTOS shareholders are expected to invest approximately $100 million in exchange for newly issued common stock. The transaction is anticipated to also be financed with a new $750 million, which will help maximize borrowing capacity.
"Since Capitol's investment in Nesco last year, our number one strategic priority has been to find a way to bring these two companies together, given the significant value inherent in the combination,” said Mark Ein, chairman and chief operating officer of Capitol and vice chairman of Nesco. “With enhanced scale, a broader set of capabilities and vastly improved financial flexibility, we believe the new company will be distinctively well-positioned to take advantage of the anticipated growth in critical U.S. infrastructure efforts in energy, telecom and rail over the near term and beyond.
Nesco anticipates the purchase of CTOS, in combination with the support of investors will create new opportunities for the company, its employees and its customers by pursuing numerous opportunities in the rapidly growing specialty rental segment. Together, the combined company will operate on a national scale with over 1,800 employees, 46 company-operated locations, and a rental fleet with almost 9,000 units and more than $1.3 billion in combined original equipment cost (OEC).
Strategic Combination Creates a Compelling Industrial Growth Company
Nesco and CTOS's combination will provide:
- Enhanced value proposition to customers through "one-stop-shop" national platform — offering full-suite solutions across the specialty rental equipment value chain, including equipment rental, new sales, used sales, aftermarket parts and service and retail parts, tools and accessories.
- Favorable exposure to highly attractive end-markets with strong fundamentals: The combined company's core end-markets will include T&D, telecom, rail and infrastructure, and will increase scale and national presence — providing significant opportunities to further penetrate new and existing customers across geographies and end-markets.
- Integrated platform with scale and differentiated offerings: With a substantially increased rental fleet, scale-enabled purchasing benefits, maximum production and customization flexibility and a well-established new and used sales business, the new company will be better positioned to serve customers and win business.
- Significant anticipated cost synergies with additional revenue upside opportunities: Nesco and CTOS expect to achieve approximately $50 million in run-rate annual cost synergies within two years of closing through back office consolidation, procurement, as well as SG&A efficiencies and service and production optimization.
- Compelling financial profile with strong momentum and ample flexibility: At closing, the combined company expects to benefit from more than $300 million in liquidity and a reduction in net leverage from 6.3 to 3.9 times the amount — based on last 12 months.