Nesco to buy CTOS for $1.475bn

Nesco has agreed to acquire Custom Truck One Source, a provider of specialized truck and heavy equipment solutions.

Nesco has agreed to acquire Custom Truck One Source, a provider of specialized truck and heavy equipment solutions. The purchase price is $1.475 billion. In connection with the transaction, Platinum Equity LLC has committed to invest over $850 million into Nesco while existing CTOS shareholders, which include Blackstone, the current majority owner of CTOS, are expected to invest approximately $100 million into Nesco. Also, Energy Capital Partners and Capitol Investment, who together own a majority stake in Nesco, will retain their entire ownership positions.

PRESS RELEASE

FORT WAYNE, Ind., Dec. 3, 2020 /PRNewswire/ — Nesco Holdings, Inc. (NYSE: NSCO, “Nesco” or the “Company”) today announced it 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 service.

The combination will create a leading, one-stop-shop provider of specialty rental equipment serving highly attractive and growing infrastructure end-markets, including transmission and distribution (“T&D”), the 5G revolution build-out and critical rail and other national infrastructure initiatives. 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. Following closing, the combined company will have a more attractive financial profile with significantly reduced leverage and enhanced liquidity providing flexibility to address anticipated demand in the large and growing addressable market in which it operates.
In connection with the transaction, an affiliate of Platinum Equity, LLC (“Platinum”) has committed to invest over $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, Inc. (“Blackstone”), 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 also at the same price as Platinum. Energy Capital Partners (“ECP”) and Capitol Investment (“Capitol”), who together currently own ~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 number one 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,” said Mark Ein, Chairman & CEO of Capitol and Vice Chairman of Nesco. “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 a long-time, successful investor in a wide range of specialty rental businesses.

“This is a powerful team of investors coming together to create value,” said Tom Gores, Chairman and CEO of Platinum Equity. “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,” said Louis Samson, Partner at Platinum Equity. “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,” said Fred Ross, Chief Executive Officer of CTOS. “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.”

John-Paul (JP) Munfa, Managing Director at Blackstone, added, “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. 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,” said Lee Jacobson, Chief Executive Officer of Nesco. “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.”

Strategic Combination Creates a Compelling Industrial Growth Company
Enhanced value proposition to customers through “one-stop-shop” national platform. The combined company will offer customers a full suite of 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. Together, the combined company will operate on a national scale with over 1,800 employees, 46 company-operated locations and a rental fleet that will be nearly double in size with almost 9,000 units and more than $1.3 billion in combined original equipment cost (“OEC”).

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, all of which benefit from strong secular growth and macro mega trends, as well as limited downside cyclicality. The combined company’s increased scale and national presence will provide significant opportunities to further penetrate new and existing customers across geographies and end-markets.

Integrated platform with scale and differentiated offerings. The combination will create a unique business model that should drive a better customer experience and a significant increase in the number and breadth of rental assets available. 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. Cost savings are expected to be realized through back office consolidation, procurement and SG&A efficiencies and service and production optimization. The combined company also expects additional upside opportunities from identified revenue synergies via expanded service offerings and cross-selling opportunities and fleet synergies.

Compelling financial profile with strong momentum and ample flexibility. The combined company expects to deliver pro forma 2020 adjusted EBITDA of approximately $337 million including run-rate cost synergies and pro forma 2021 adjusted EBITDA of $380 million to $400 million including run-rate cost synergies, as well as meaningful free cash flow as core end-market activity continues to grow. At closing, the combined company expects to benefit from more than $300 million in liquidity and a reduction in net leverage from 6.3x to 3.9x, based on last twelve months ended September 30, 2020 adjusted EBITDA, including run-rate cost synergies.

Leadership and Headquarters
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. Together, the parties will work to drive value for all shareholders.

Mr. Ross is expected to serve as CEO of the combined business. The combined company will be headquartered at the CTOS campus in Kansas City with significant operations maintained in Indiana. Additional details, including plans for integrating the respective brands, will be addressed post close by a transition team comprising representatives from each of the companies.

Approvals
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. ECP and Capitol have entered into voting agreements in support of the transaction.

Advisors
J.P. Morgan Securities LLC is serving as financial advisor to Nesco and Latham & Watkins LLP is serving as legal counsel. Citi is serving as financial advisor to CTOS and Kirkland & Ellis LLP is serving as legal counsel.

Debt financing commitments have been obtained by Bank of America, who will be leading the financing.

Hughes Hubbard & Reed LLP is serving as legal counsel to Platinum.

Conference Call and Webcast
Representatives of Nesco, CTOS, Capitol and Platinum will host a conference call today, December 3, 2020, at 8:30 a.m. ET to discuss the transaction. The conference call can be accessed by dialing +1 877-524-8416 (U.S. and Canada only) or +1 412-902-1028.
A live webcast of the conference call will be available on the investor relations section of Nesco’s website at https://investors.nescospecialty.com/events-and-presentations/default.aspx#upcoming-events.

ABOUT NESCO
Nesco is one of the largest providers of specialty equipment, parts, tools, accessories and services to the electric utility transmission and distribution, telecommunications and rail markets in North America. Nesco offers its specialized 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. Nesco’s coast-to-coast rental fleet of more than 4,000 units includes aerial devices, boom trucks, cranes, digger derricks, pressure drills, stringing gear, hi-rail equipment, repair parts, tools and accessories. For more information, please visit investors.nescospecialty.com.

ABOUT CUSTOM TRUCK ONE SOURCE
CTOS is a leading provider of specialized truck and heavy equipment solutions to the utility, telecommunications, rail and infrastructure markets in North America. CTOS solutions include rentals, sales, aftermarket parts and service, equipment production, manufacturing, financing solutions, and asset disposal. With vast equipment breadth, CTOS’ team of experts service its customers across an integrated network of 26 locations across North America. For more information, please visit www.customtruck.com.