Vesta transaction strategically accelerates
McGrath’s focus on its core Mobile Modular business
Non-core Adler Tank business is divested, while
the modular business is scaled through accretive acquisition
The acquired Vesta business will expand
McGrath’s modular business geographic coverage and density,
facilitate its reach to new customers, and increase its proportion
of long-term contracts
Vesta portfolio presents potential for
significant synergy realization and opportunities to accelerate
growth
Transactions are accretive to key profitability
and return metrics and allows McGrath to maintain significant
financial flexibility through conservative leverage
McGrath RentCorp (Nasdaq: MGRC):
TRANSACTION HIGHLIGHTS:
- Accelerates McGrath’s strategic growth priorities by increasing
exposure to the modular business
- Creates a more competitive and larger scaled modular business
with increased geographic coverage and density to serve
customers
- Improves longer-term financial profile, accelerating growth and
profitability in the core modular business
- Increases proportion of longer-term rental revenue
contracts
- Provides opportunities for cost and revenue synergies
- Retains conservative balance sheet with financial flexibility
for return of capital and tuck-in acquisitions
- Attractive transaction terms with Adler divested for $265
million at 7.1x EV / 2022 estimated Adjusted EBITDA and Vesta
acquired for $400 million at 7.7x EV / 2022 estimated EBITDA, net
of $8 million EBITDA synergies and net present value of tax
attributes estimated at $30 million
TRANSACTION OVERVIEW:
McGrath RentCorp (“McGrath” or the “Company”) (Nasdaq:
MGRC), a leading business-to-business rental company in North
America, today announced that it has signed and closed a definitive
agreement under which it acquired Vesta Modular (“Vesta”) a
portfolio company of Kinderhook Industries (“Kinderhook”), for a
cash purchase price of $400 million, subject to certain
adjustments, and sold Adler Tank Rentals (“Adler”) to Ironclad
Environmental Solutions (“Ironclad”), a Kinderhook portfolio
company, for a cash sale price of $265 million, subject to certain
adjustments. Both transactions were completed simultaneously on
February 1, 2023.
Founded in 2014 and headquartered in Southfield, MI, Vesta is a
leading provider of temporary and permanent modular space
solutions. The company operates two divisions – (i) Modular Space
Leasing whereby it leases units from its owned fleet of
approximately 6,000 units to customers across a diverse range of
end markets and applications, and (ii) Modular Construction
Services whereby it facilitates the design, manufacturing,
logistics, and installation of modular buildings. Vesta’s core end
markets include education, industrial, construction, government,
municipalities, and retail sectors. Vesta serves over 900
customers. In addition to its Southfield, MI headquarters, it
operates strategically-located branches in a number of the nation’s
fastest growing markets, such as Atlanta, Houston, and Miami.
As of December 31, 2022 estimated, on a trailing 12-month basis,
Vesta generated $40 million of EBITDA on $129 million of total
revenue. As of December 31, 2022, Vesta’s rental fleet consisted of
approximately 6,000 units at an original cost of approximately $220
million. The transaction implies a multiple of 7.7x FY2022 EBITDA,
including run-rate synergies and the present value of tax benefits
expected from past net operating losses. McGrath anticipates
realizing $8 million of annual run-rate synergies by 2024 and $30
million of value from net operating losses. The final purchase
price is subject to customary adjustments.
“Growing Mobile Modular is the strategic focus area for our
Company, and the addition of Vesta’s portfolio accelerates our
expansion of the business.” said Joe Hanna, President and CEO of
McGrath. “We are now able to offer our customers access to an
expanded product line across more geographies than ever before. We
are confident we will be able to leverage our combined sales and
operational resources by seamlessly integrating Vesta in order to
grow the new, larger scaled McGrath modular business together. In
addition, Vesta has a dedicated and experienced team and we are
excited to welcome these new team members into the McGrath
family.”
“We are grateful for the successful partnership we forged with
Kinderhook over the past two years and are proud of what we have
accomplished during that period,” said Dan McMurtrie, Co-Founder
and Chief Executive Officer of Vesta. “McGrath is a
highly-respected leader in our sector with a tremendous culture and
core values that align with those of Vesta. We believe that our
employees will thrive under their leadership.”
Founded in 1998 in Newark, NJ, Adler is a rental provider of
liquid and solid containment solutions for storage of hazardous and
non-hazardous liquids. Adler rents temporary storage tanks and
containers used in energy, environmental, industrial and
construction applications. Adler operates from branches that serve
27 states across the U.S. The sale price of $265 million implies a
multiple of 7.1x FY2022 estimated Adjusted EBITDA. The final sale
price is subject to customary adjustments.
As a result of the two transactions, McGrath expects a net cash
outflow of approximately $165 million, inclusive of estimated $30
million of reimbursable rental equipment capital expenditures.
Joe Hanna also commented, “Regarding the sale of Adler, I cannot
say enough good things about the team and I know being part of
Ironclad will open up additional opportunities for growth. The team
has done a marvelous job running the business over the years and I
want to extend a thank you to Stuart Porter and the entire Adler
team for their exceptional work and dedication as a part of
McGrath. We expect nothing but success for them under their new
ownership structure.”
STRATEGIC BENEFITS FROM THE
TRANSACTION:
- Strengthens McGrath’s core modular
portfolio: The transaction significantly increases McGrath’s
modular revenue mix from 66% to 80%. Mobile Modular’s high margins,
recurring revenue, and favorable demand make it a highly attractive
business, and one the Company will remain highly focused on
continuing to grow.
- Increases geographic coverage and density
to serve customers: The transaction will increase geographic
coverage to support new customers, as well as improve density to
better serve existing customers.
- Improves longer-term financial profile,
accelerating growth and profitability: The transaction is
expected to be accretive in 2024 with ROIC exceeding cost of
capital beyond 2024.
- Provides opportunities through synergy
realization: Revenue synergies are expected to be realized
through improved utilization, expanded geographic coverage and
enhanced products and services offerings (including increase in
container and Mobile Modular Plus revenue). Cost synergies are
expected to be realized through real estate consolidation and
SG&A efficiencies.
- Retains conservative balance sheet with
financial flexibility for return of capital and tuck-in
acquisitions: Leverage at a modest level of 2.1x 2022
estimated Adjusted EBITDA at closing of the transaction, allowing
McGrath to retain financial flexibility for shareholder return and
tuck-in acquisitions.
TRANSACTION FINANCING
The transaction was funded through the Company’s existing
revolving credit facility.
ADVISORS:
Goldman Sachs & Co. LLC acted as McGrath RentCorp’s
exclusive financial advisor and Morrison & Foerster LLP acted
as McGrath RentCorp’s legal advisor in the transactions.
Oppenheimer & Co. acted as Vesta and Ironclad’s exclusive
financial advisor. Kirkland & Ellis acted as Vesta and
Ironclad’s legal advisor in the transactions.
Conference Call Note:
McGrath RentCorp will host a conference call tomorrow, February
2, 2023 at 8:00 a.m. Eastern Time (5:00 a.m. Pacific Time) to
discuss the transaction. To participate in the teleconference, dial
1-800-267-6316 (in the U.S.), or 1-203-518-9783 (outside the U.S.),
or to listen only, access the simultaneous webcast at the investor
relations section of the Company’s website at
https://investors.mgrc.com/. A replay will be available for 7 days
following the call by dialing 1-888-269-5331 (in the U.S.), or
1-402-220-7327 (outside the U.S.). In addition, a live audio
webcast and replay of the call may be found in the investor
relations section of the Company’s website at
https://investors.mgrc.com/events-and-presentations.
In connection with its call, the Company has provided
information pertaining to the transactions in presentation format
on its website, Events and Presentations | McGrath (mgrc.com).
ABOUT MCGRATH:
McGrath RentCorp (Nasdaq: MGRC) is a leading
business-to-business rental company in North America with a strong
record of profitable business growth. Founded in 1979, McGrath’s
operations are centered on modular solutions through its Mobile
Modular and Mobile Modular Portable Storage businesses.
In addition, its TRS-RenTelco business offers electronic
test equipment rental solutions. The Company’s rental product
offerings and services are part of the circular supply economy,
helping customers work more efficiently, and sustainably manage
their environmental footprint. With over 40 years of experience,
McGrath’s success is driven by a focus on exceptional customer
experiences. This focus has underpinned the Company’s long-term
financial success and supported over 30 consecutive years of annual
dividend increases to shareholders, a rare distinction among
publicly listed companies.
Headquartered in Livermore, California. Additional information
about McGrath and its businesses is available at mgrc.com and
investors.mgrc.com.
ABOUT VESTA:
Vesta Modular – https://vestamodular.com/
SAFE HARBOR
This statement contains forward-looking statements within the
meaning of Section 27A of the Securities Act, Section 21E of the
Securities Exchange Act of 1934, as amended, and the Private
Securities Litigation Reform Act of 1995. These forward-looking
statements include: (1) the Vesta acquisition accelerating growth
and profitability in the core modular business, including expanding
geographic coverage and density, facilitating reach to new
customers, and increasing proportion of long-term contracts, (2)
statements under the section titled “Strategic Benefits from the
Transaction”, including anticipated accretion from both
transactions in 2024 with ROIC exceeding cost of capital beyond
2024, and run-rate synergies of $8 million per year, (3)
anticipated $30 million of value from Vesta’s net operating losses,
(4) transaction multiples based on 2022 estimated EBITDA of Vesta
and Adler, and (5) McGrath retaining financial flexibility for
shareholder return and tuck-in acquisitions. These forward-looking
statements also can be identified by terminology such as
“anticipates,” “believes,” “continues,” “could,” “estimates,”
“expects,” “intends,” “may,” “plan,” “predict,” “project,” or
“will,” or the negative of these terms.
These forward-looking statements are not guarantees of future
performance and are subject to significant risks and uncertainties
that could cause our actual results to differ materially from those
projected, including (a) problems arising to forestall the
successful integration of the Vesta business, including the
potential loss of any key employees of Vesta; (b) incurrence of
unexpected costs, including exposure to any unrecorded liabilities
or unidentified issues that the Company failed to discover during
due diligence or that are not covered by insurance and (c)
potential unfavorable accounting treatment and unexpected increases
in taxes associated with the transactions. Other important factors
that could cause actual results to differ materially from the
Company’s expectations are disclosed under “Risk Factors” in the
Company’s Form 10-K for 2021 and other SEC filings.
These forward-looking statements speak only as of the date
hereof. Except as otherwise required by law, we are under no duty
to update or revise any of the forward-looking statements after the
date of this presentation, whether as a result of new information,
future events or otherwise.
This press release is not intended to be a recommendation to
buy, sell or hold securities and does not constitute an offer for
the sale of, or the solicitation of an offer to buy securities in
any jurisdiction. Any such offer will only be made by means of a
prospectus or offering memorandum, and in compliance with
applicable securities laws.
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version on businesswire.com: https://www.businesswire.com/news/home/20230131005917/en/
Keith E. Pratt EVP & Chief Financial Officer
925-606-9200
McGrath RentCorp (NASDAQ:MGRC)
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