Acquisitions and Dispositions

9 Months Ended

Sep. 30, 2024

Acquisitions and Dispositions [Abstract]

(3) Acquisitions and Dispositions

2024 Acquisitions

Lewistown Rentals

Effective May 1, 2024, we completed the acquisition of Lewistown Rentals (“Lewistown”), a Lewistown, Montana-based equipment rental business and three of its affiliated rental operations in Havre, Glasgow and Great Falls, Montana. The acquisition expands our presence in the Montana market.

The aggregate cash consideration paid was approximately $33.8 million. The acquisition and related fees and expenses were funded from available cash and borrowings. The following table summarizes the fair value of the assets acquired and liabilities assumed as of the acquisition date. Customary closing adjustments were finalized during the third quarter of 2024.


	$’s in thousands
Accounts receivable	$	953
Prepaid expenses and other assets		1
Rental equipment		19,047
Property and equipment		1,177
Customer relationships intangible asset (1)		3,800
Total identifiable assets acquired		24,978
Accounts payable		(79	)
Accrued expenses payable and other liabilities		(28	)
Total liabilities assumed		(107	)
Net identifiable assets acquired		24,871
Goodwill (2)		8,927
Net assets acquired	$	33,798

(1)

The following table reflects the fair values and useful lives of the acquired intangible assets:


	Fair Value (amounts in thousands)		Life (years)
Customer relationships	$	3,800		10

(2)

The acquired goodwill has been allocated to the equipment rentals reporting unit.

The level of goodwill that resulted from the Lewistown acquisition is primarily reflective of Lewistown’s going-concern value, the value of assembled workforce, new customer relationships expected to arise from the acquisition and expected synergies from combining operations. We currently expect the goodwill recognized to be 100% deductible for income tax purposes.

Acquisition costs for the nine months ended September 30, 2024 were $0.4 million included within selling, general and administrative (“SG&A”) expenses on the condensed consolidated statement of income. Since our acquisition of Lewistown on May 1, 2024, significant amounts of equipment rental fleet have been moved between H&E locations and the acquired locations, and it is impractical to reasonably estimate the amount of Lewistown revenues and earnings since the acquisition date.

The assets and liabilities were recorded as of May 1, 2024 and the results of operations are included in the Company's consolidated results as of that date.

Precision Rentals

Effective January 1, 2024, we completed the acquisition of Precision Rentals (“Precision”), an equipment rental company with a branch located in each of Arizona and Colorado. The acquisition expands our presence in both geographic markets.

The aggregate cumulative cash consideration paid was approximately $124.0 million, which includes $3.5 million of fair value allocated to a noncompete agreement which is accounted for as a separate transaction from the net assets acquired in the business combination. The acquisition and related fees and expenses were funded from available cash and borrowings. Customary closing adjustments were finalized during the second quarter of 2024. The following table summarizes the fair value of the assets acquired and liabilities assumed as of the acquisition date.


	$’s in thousands
Accounts receivable	$	4,120
Prepaid expenses and other assets		26
Rental equipment		63,215
Property and equipment		2,122
Operating lease right-of-use assets		68
Customer relationships intangible asset (1)		33,700
Total identifiable assets acquired		103,251
Accounts payable		(57	)
Accrued expenses payable and other liabilities		(832	)
Operating lease liabilities		(68	)
Total liabilities assumed		(957	)
Net identifiable assets acquired		102,294
Goodwill (2)		18,187
Net assets acquired		120,481
Noncompetition agreement intangible asset (1)(3)		3,500
Total cumulative consideration	$	123,981

(1)

The following table reflects the fair values and useful lives of the acquired intangible assets:


	Fair Value (amounts in thousands)		Life (years)
Customer relationships	$	33,700		10
Noncompetition agreements		3,500		5
	$	37,200

(2)

The acquired goodwill has been allocated to the equipment rentals reporting unit.

(3)

The fair value of the noncompetition agreements is considered to be a separate transaction under ASC 805 and as such, has been excluded from the purchase price.

The level of goodwill that resulted from the Precision acquisition is primarily reflective of Precision’s going-concern value, the value of assembled workforce, new customer relationships expected to arise from the acquisition and expected synergies from combining operations. We currently expect the goodwill recognized to be 100% deductible for income tax purposes.

Acquisition costs for the nine months ended September 30, 2024 were $0.4 million included within SG&A expenses on the condensed consolidated statement of income. Since our acquisition of Precision on January 1, 2024, significant amounts of equipment rental fleet have been moved between H&E locations and the acquired locations, and it is impractical to reasonably estimate the amount of Precision revenues and earnings since the acquisition date.

The assets and liabilities were recorded as of January 1, 2024 and the results of operations are included in the Company's consolidated results as of that date.

2023 Acquisition

Giffin Equipment

Effective November 1, 2023, we completed the acquisition of Mel Giffin, Inc. (d/b/a Giffin Equipment) (“Giffin”), an equipment rental company with three branches located in California. The acquisition expands our presence in the California market.

The aggregate cash consideration paid was approximately $31.3 million. The acquisition and related fees and expenses were funded from available cash and borrowings. The following table summarizes the fair value of the assets acquired and liabilities assumed as of the acquisition date. Customary closing adjustments were finalized during the third quarter of 2024.


	$’s in thousands
Accounts receivable	$	870
Prepaid expenses and other assets		10
Rental equipment		12,291
Property and equipment		431
Operating lease right-of-use assets		121
Intangible assets (1)		6,500
Total identifiable assets acquired		20,223
Accrued expenses payable and other liabilities		(19	)
Operating lease liabilities		(121	)
Total liabilities assumed		(140	)
Net identifiable assets acquired		20,083
Goodwill (2)		11,182
Net assets acquired	$	31,265

(1)

The following table reflects the fair values and useful lives of the acquired intangible assets:


	Fair Value (amounts in thousands)		Life (years)
Customer relationships	$	3,900		10
Noncompetition agreements		2,600		5
	$	6,500

(2)

The acquired goodwill has been allocated to the equipment rentals reporting unit.

The level of goodwill that resulted from the Giffin acquisition is primarily reflective of Giffin’s going-concern value, the value of assembled workforce, new customer relationships expected to arise from the acquisition and expected synergies from combining operations. We currently expect the goodwill recognized to be 100% deductible for income tax purposes.

Acquisition costs for the nine months ended September 30, 2024 were $0.1 million included within SG&A expenses on the condensed consolidated statement of income. Since our acquisition of Giffin on November 1, 2023, significant amounts of equipment rental fleet have been moved between H&E locations and the acquired locations, and it is impractical to reasonably estimate the amount of Giffin revenues and earnings since the acquisition date.

The assets and liabilities were recorded as of November 1, 2023 and the results of operations are included in the Company's consolidated results as of that date.

Pro forma financial information (unaudited)

We completed the Giffin acquisition effective November 1, 2023, the Precision acquisition effective January 1, 2024 and the Lewistown acquisition effective May 1, 2024; therefore, our reported condensed consolidated statements of income for the three and nine months ended September 30, 2023 does not include Giffin, Precision or Lewistown and the nine months ended September 30, 2024 does not include Lewistown for the entire period.

The unaudited pro forma information in the table below (amounts in thousands) is for informational purposes only and gives effect to the Giffin, Precision and Lewistown acquisitions had all been completed on January 1, 2023 (the “pro forma acquisition date”). The unaudited pro forma information is not necessarily indicative of our results of operations had the acquisition been completed on the pro forma acquisition date, nor is it necessarily indicative of our future results. The unaudited pro forma information does not reflect any cost savings from operating efficiencies or synergies that could result from the acquisition, nor does it reflect additional revenue opportunities following the acquisition. The unaudited pro forma financial information includes adjustments primarily related to the incremental depreciation and amortization expense of the rental equipment and intangible assets acquired, the elimination of interest expense related to historical debt as well as other expenses that are not part of the combined entity and transaction expenses.


	Pro Forma (unaudited)
	Three Months Ended September 30,		Nine Months Ended September 30,
	2023		2024		2023
Total revenues	$	414,101	$	1,135,408	$	1,123,032
Net income	$	48,435	$	89,971	$	114,099

H&E Equipment Services, Inc. 10-Q