Tiny Nesco Holdings (NYSE:NSCO) stock got a lot bigger Thursday morning, after the rental fleet operator (which rents out bucket trucks, cranes, and similar specialized vehicles to electric utilities and other companies that use them for infrastructure repairs) announced what it called a "transformative transaction" involving both a large equity investment and an even larger acquisition.
Shares of Nesco stock were up 46% in 10:40 a.m. EST trading.
So what exactly is going on at Nesco? As the company advised this morning, private equity firm Platinum Equity is investing $850 million to acquire a majority interest in Nesco, buying newly issued shares at $5 each. Other, existing Nesco private equity investors will put a further $100 million into the company -- also by buying newly issued stock at $5. Then a further $200 million will be raised (although it's not entirely clear from whom). Topping it all off, Nesco will then borrow $750 million, presumably from these same private equity firms.
In any case, once all the new shares have been issued and acquired, the company will carry approximately $1.3 billion in pro forma net debt, up from about $760 million net debt currently.
Why does Nesco need all this new money? That's the even bigger news: It is going to use all this investment to acquire its rival specialized truck-renter, Custom Truck One Source, for $1.475 billion, creating what it calls "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."
The new combined company will service the electric utility industry nationally with a rental fleet nearly twice its current size (just under 9,000 specialized utility trucks for rent), earning $400 million in annual adjusted EBITDA, and reaping projected cost savings of $380 million a year in "synergies."
The deal is projected to close in the first quarter of 2021, shareholders and regulators permitting.