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Equipment Renter Nesco Becomes Listed Company Following Combination with Capitol Investment Corp. IV.

M2 EQUITYBITES-August 5, 2019-Equipment Renter Nesco Becomes Listed Company Following Combination with Capitol Investment Corp. IV

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5 August 2019 - US-based public investment vehicle Capitol Investment Corp. IV (NYSE: CIC) and Nesco Holdings I, Inc., a provider of specialty rental equipment to the electric utility, telecom and rail end-markets, have closed a deal in which Nesco will become a publicly listed company with an anticipated initial enterprise value of approximately USD 1.1bn, the companies said.

Nesco was a portfolio company of Energy Capital Partners.

The company offers its specialised equipment to a diverse customer base for the maintenance, repair, upgrade and installation of critical infrastructure assets including electric lines, telecommunications networks and rail systems.

With a nationwide rental fleet of approximately 4,000 units, Nesco provides its customers a vast and comprehensive product offering along with an unrelenting focus on service.

Nesco also offers its customers the parts, tools and accessories needed to equip crews for activity in the field.

The company's long-lived equipment assets offer highly attractive economic returns and the company has demonstrated strong financial performance with an Adjusted EBITDA margin of 49% in 2018 and a 24% compound annual growth rate of Adjusted EBITDA over the past two years.

Capitol is the fourth public investment vehicle of chairman and CEO Mark Ein and president and CFO Dyson Dryden, following three prior successful transactions.

Joining the combined company's board of directors as chairman is William Plummer who served as the CFO of United Rentals, Inc. from 2008 until he left the company in January 2019.

Jeffrey Stoops will also join the combined company's board of directors.

Stoops has served as the CEO of SBA Communications Corp. for the last seventeen years, overseeing transformational growth of the wireless tower infrastructure company leading to a market capitalisation increase from USD 553m to USD 22.6bn and a stock price increase of 15 times.

Nesco's current management team, led by CEO Lee Jacobson and CFO Bruce Heinemann, will continue to run the combined company post-transaction.

Mark Ein and Dyson Dryden, as well as Doug Kimmelman, the senior partner and founder of ECP, Rahman D'Argenio, an ECP partner, and CEO Lee Jacobson will also serve as directors on the combined company's board of directors.

The annual investment spend in Nesco's end-markets exceeds USD 100bn and grew at a 7.8% annual growth rate from 2001 to 2017 compared to a 3.9% annual growth rate in US GDP over the same period.

Under the terms of the proposed transaction, Capitol will become the owner of all the equity of Nesco and will be renamed Nesco Holdings, Inc. Capitol will become a Delaware domiciled corporation immediately prior to the closing of the transaction.

The combined company will have an anticipated initial enterprise value of approximately USD 1.1bn, implying a 7.9x multiple of projected 2019 Adjusted EBITDA and a 6.4x multiple of projected 2020 Adjusted EBITDA.

At closing, current stockholders of Capitol and current Nesco shareholders hold approximately 72% and 28%, respectively, of the issued and outstanding shares of the combined company's common stock, assuming no public shareholders of Capitol exercise redemption rights.

The current Nesco shareholders will also receive USD 75m of cash consideration and incentive earnout shares totaling up to 1.8m common shares, issued in 0.9 m increments when the combined company's stock price reaches USD 13.00 and USD 16.00 per share.

The net cash proceeds from the transaction are expected to be used to pay down Nesco's existing debt.

In addition, Capitol has entered into a USD 400m debt commitment agreement with J.P. Morgan Chase Bank, N.A., Morgan Stanley Senior Funding, Inc., Citigroup Global Markets Inc., Deutsche Bank AG and Fifth Third Bank, the proceeds of which will be used to repay existing Nesco indebtedness.

Citigroup Global Markets Inc., Deutsche Bank Securities Inc. and J.P. Morgan Securities LLC served as financial and capital markets advisors to Capitol, while Morgan Stanley and Co. LLC served as exclusive financial advisor to Nesco. Latham and Watkins LLP and Graubard Miller acted as legal advisors to Capitol and Kirkland and Ellis LLP acted as legal advisor to Nesco and ECP.

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Publication:M2 EquityBites (EQB)
Date:Aug 5, 2019
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