Shaking Up the Industry
United Rentals, Inc. has made headlines with its recent acquisition of Yak Access, LLC, Yak Mat, LLC, and New South Access & Environmental Solutions, LLC, collectively known as “Yak.” In a bold move valuing Yak at about $1.1 billion in cash, URI has set the stage for a game-changing diversification of its Specialty business, amplifying shareholder returns and cementing its status as a go-to destination for customers.
As the trading session unfolded on Mar 4, 2024, United Rentals saw a 1.7% spike in its share price, reflecting the market’s positive reception of the acquisition.
Strategic Prowess: A Catalyst for Growth
United Rentals’ bold leap into acquiring Yak signals a strategic expansion of its portfolio, particularly into the lucrative “Matting Solutions” domain. With a firm foothold in this burgeoning market segment, URI reinforces its commitment to differentiation and becoming a comprehensive service provider for customers.
The acquisition not only unlocks immediate cross-selling opportunities but also synergizes construction and maintenance applications seamlessly, leveraging the synergy of United Rentals’ established customer base. Culturally, Yak mirrors URI’s customer-centric ethos, emphasizing long-term partnerships and safety as core values.
Setting the Stage for Financial Success
From a financial perspective, United Rentals anticipates robust growth prospects in the matting business, especially in energy and power markets, which are poised for expansion through public and private investments. The acquisition brings added financial benefits in the form of tax advantages amounting to around $166 million in net present value, bolstering the deal’s allure.
Cost savings are projected to yield a $7 million adjusted EBITDA boost within two years post-closing. Despite the acquisition being priced at 6.4 times the adjusted EBITDA for 2023, factoring in tax incentives and cost synergies reduces the adjusted purchase multiple to an enticing 5.2 times.
With an immediate positive impact on earnings per share (EPS) and free cash flow, the acquisition offers an attractive return profile. URI expects to maintain a pro forma leverage ratio of about 1.7 times at closing, comfortably within its target range of 1.5-2.5 times.
Looking Ahead: A Bright Future for United Rentals
The acquisition deal structure allows for potential additional cash consideration based on post-closing revenue achievements in the first two years, with a maximum payout capped at $50 million. In essence, URI’s acquisition of Yak Access marks a strategic milestone in the company’s growth trajectory, fortifying its market presence and strengthening its financial performance. With a strong focus on delivering customer value and harnessing synergies, United Rentals continues to pave its path as an industry frontrunner.
Over the last six months, United Rentals’ stock has soared by 49.9%, outperforming the Building Products – Miscellaneous industry’s 34.3% rise. The company’s stellar performance can be attributed to the sustained demand across its end markets, underpinned by the robust core rental business. With favorable market conditions and strategic acquisitions like the Yak deal, URI stands poised for continued growth in 2024.
Insights into Other Key Picks in the Construction Sector
For investors eyeing the construction sector, notable options include:
NVR, Inc. (NVR), boasting a Zacks Rank of 1 (Strong Buy) and a solid track record of 20.2% stock appreciation in the past three months.
Summit Materials, Inc. (SUM), with a Zacks Rank of 1 and an impressive earnings surprise average of 18.2% over four quarters.
Century Communities, Inc. (CCS), also holding a Zacks Rank of 1, showcasing a remarkable four-quarter earnings surprise average of 49.2%.
These picks offer investors a diverse range of opportunities within the construction sector, each backed by growth potential and favorable market conditions.
Curious to know more? Take a look at Zacks’ selection of top stocks for 2024 and explore exciting investment prospects.
Want the latest recommendations from Zacks Investment Research? Dive into their insights on the top stocks to watch in the coming days.
Disclaimer:
The author’s opinions shared in this article do not necessarily reflect those of Nasdaq, Inc.
