Nesco entered into a definitive agreement to acquire Custom Truck One Source (CTOS) for a purchase price of $1.475 billion. Nesco and CTOS are providers of specialized truck and heavy equipment solutions, including rental, sales and aftermarket parts and service.
The combination will create a provider of specialty rental equipment serving infrastructure end-markets, including transmission and distribution (T&D), the 5G build-out as well as rail and other national infrastructure initiatives. The transaction has been unanimously approved by the Nesco board of directors and is expected to close in Q1/21, subject to shareholder approval and other customary conditions. Bank of America is leading debt financing in support of the transaction.
In connection with the transaction, an affiliate of Platinum Equity committed to invest more than $850 million into Nesco in exchange for newly issued common stock at a price of $5.00 per share. In addition, existing CTOS shareholders, including certain funds managed by The Blackstone Group, in its capacity as the current majority owner of CTOS, and certain members of the CTOS management team are expected to invest approximately $100 million into Nesco in exchange for newly issued common stock at the same price as Platinum. Energy Capital Partners (ECP) and Capitol Investment (Capitol), who together currently own roughly 70% of Nesco’s outstanding common stock, will retain their entire ownership positions in Nesco and have entered into voting agreements in support of the transaction. Subject to closing mechanics and an additional equity investment of up to $200 million, upon closing, Platinum is expected to own approximately 57% of Nesco’s common stock, with existing CTOS shareholders owning approximately 7%, ECP owning approximately 10% and Capitol owning approximately 3%. The additional equity investment of up to $200 million is targeted to be raised between signing and closing with a Platinum backstop for $100 million.
There will be approximately 259 million shares outstanding at closing, assuming the full $200 million of additional equity is raised. The transaction is anticipated to also be financed with a new $750 million ABL, of which approximately $400 million will be drawn at closing, and $900 million of high yield notes. Pro forma net debt at closing is projected to be approximately $1.3 billion.
“Since Capitol’s investment in Nesco last year, our No. 1 strategic priority has been to find a way to bring these two companies together given the significant value inherent in the combination. 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,” Mark Ein, chairman and CEO of Capitol and vice chairman of Nesco, said. “We are very pleased to partner with Platinum given its deep knowledge and strong track record in the equipment rental industry as well as the existing CTOS shareholders led by Blackstone. Together with Platinum and our other co-investors and the combined company’s board and management team, we look forward to capturing the meaningful upside opportunities that lie ahead.”
Platinum Equity was previously the majority owner of Nesco from 2011 to 2014, and has been an investor in a range of specialty rental businesses.
“This is a powerful team of investors coming together to create value,” Tom Gores, chairman and CEO of Platinum Equity, said. “We will deploy our industry knowledge and global operating expertise to maximize the potential of this investment.”
“We know these companies and the industry extremely well, and we have a well-defined playbook for creating value in this space,” Louis Samson, partner at Platinum Equity, said. “We also have a deep bench of operations professionals specialized in merger integration and business transformation who will help bring Nesco and CTOS together, building on the best attributes of each. We expect the combination will create a compelling industrial growth company with strong fundamentals and multiple ways to drive EBITDA organically or through additional M&A.”
“We are excited to bring together our complementary companies to provide a full range of solutions to our customers,” Fred Ross, CEO of CTOS, said. “I want to thank our dedicated employees for all that they do each day. Looking ahead, as a combined company, we will be very well positioned to capitalize on a broad range of growth opportunities and better serve our customers’ specialty rental equipment needs on a national basis. We look forward to working together with the Nesco team to realize substantial synergies that will create meaningful value for all our stakeholders.”
“We at Blackstone are proud to have played a role in the establishment of CTOS, in partnership with Fred Ross and other CTOS shareholders, and have seen the company more than double in size during our ownership,” John-Paul (JP) Munfa, managing director at Blackstone, said. “We believe the additional scale and public market access provided by the transaction are the next logical step in the company’s evolution, and we are pleased to invest in a transaction carrying significant commercial benefits for the company’s customers, in partnership with Platinum, Capitol, ECP and Nesco’s existing shareholders.”
“This combination will create new opportunities for our company, our employees and the customers we serve,” Lee Jacobson, CEO of Nesco, said. “Nesco and CTOS are a perfect fit and together will be well positioned to pursue numerous opportunities in the rapidly growing specialty rental segment. We couldn’t have reached this milestone without the hard work of our team, and we look forward to working together with CTOS to ensure a seamless transition.”
ECP and Capitol have entered into voting agreements in support of the transaction. At closing, the Nesco board of directors will be reconstituted such that Blackstone, ECP and Capitol each retain one board seat and Platinum holds majority voting power of the board. Ross is expected to serve as CEO of the combined business.
J.P. Morgan Securities is serving as financial advisor to Nesco and Latham & Watkins is serving as legal counsel. Citi is serving as financial advisor to CTOS and Kirkland & Ellis is serving as legal counsel. Hughes Hubbard & Reed is serving as legal counsel to Platinum.