Acquisitions

12 Months Ended

Dec. 31, 2020

Business Combinations [Abstract]

Acquisitions

(3) Acquisitions

2019 Acquisitions

Cobra Equipment Rentals, LLC (dba “We-Rent-It”)

Effective February 1, 2019, we completed the acquisition of We-Rent-It (“WRI”), an equipment rental company with six branches located in central Texas. The acquisition expands our presence in the surrounding market.

The aggregate consideration paid to the owners of WRI was approximately $107.9 million. The acquisition and related fees and expenses were funded from borrowings under our Credit Facility. The following table summarizes the fair value of the assets acquired and liabilities assumed as of the acquisition date. The final closing statement was settled during the first quarter of 2020, resulting in a $0.6 million decrease in the total consideration paid and is reflected in the amounts presented in the table below.

	$’s in thousands
Cash	$	1,745
Accounts receivable		5,119
Inventory		731
Prepaid expenses and other assets		544
Rental equipment		51,747
Property and equipment		3,207
Other assets		21
Intangible assets (1)		8,700
Total identifiable assets acquired		71,814
Accounts payable		(115	)
Accrued expenses payable and other liabilities		(991	)
Total liabilities assumed		(1,106	)
Net identifiable assets acquired		70,708
Goodwill (2)		37,186
Net assets acquired	$	107,894

(1) The following table reflects the estimated fair values and useful lives of the acquired intangible assets identified based on our purchase accounting assessments:

	Fair Value (amounts in thousands)		Life (years)
Customer relationships	$	8,500		10
Tradenames		200		1
	$	8,700

(2) We have allocated the $37.2 million goodwill among our six goodwill reporting units as follows (amounts in thousands):

Rental Component 1	$	14,679
Rental Component 2		19,458
New Equipment		254
Used Equipment		492
Parts		2,012
Service		291
	$	37,186

The level of goodwill that resulted from the WRI acquisition is primarily reflective of WRI’s going-concern value, the value of WRI’s assembled workforce, new customer relationships expected to arise from the acquisition and expected synergies from combining operations. We currently expect approximately $36.7 million of the $37.2 million of goodwill recognized to be deductible for income tax purposes.

Total WRI acquisition costs were $0.4 million. Since our acquisition of WRI on February 1, 2019, significant amounts of equipment rental fleet have been moved between H&E locations and the acquired WRI locations, as well as branch consolidations among the WRI branches acquired and H&E branches have occurred, and therefore, it is impractical to reasonably estimate the amount of WRI revenues and earnings since the acquisition date.    

2018 Acquisitions

Contractors Equipment Center (“CEC”)

Effective January 1, 2018, we completed the acquisition of CEC, a non-residential construction focused equipment rental company with three branches located in the greater Denver, Colorado area. The acquisition significantly expands our presence in the Denver area and surrounding markets.

The aggregate consideration paid to the pre-acquisition owners of CEC was approximately $132.4 million. The acquisition and related fees and expenses were funded through available cash. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the acquisition date.

	$’s in thousands
Cash	$	1,244
Accounts receivable		7,583
Inventory		504
Prepaid expenses and other assets		324
Rental equipment		55,342
Property and equipment		2,700
Intangible assets (1)		21,500
Total identifiable assets acquired		89,197
Accounts payable		(1,023	)
Accrued expenses payable and other liabilities		(876	)
Total liabilities assumed		(1,899	)
Net identifiable assets acquired		87,298
Goodwill (2)		45,092
Net assets acquired	$	132,390

(1) The following table reflects the estimated fair values and useful lives of the acquired intangible assets identified based on our purchase accounting assessments:

	Fair Value (amounts in thousands)		Life (years)
Customer relationships	$	21,000		10
Tradenames		300		1
Leasehold interests		200		10
	$	21,500

(2) We have allocated the $45.1 million goodwill among our six goodwill reporting units as follows (amounts in thousands):

Rental Component 1	$	25,233
Rental Component 2		18,391
New Equipment		217
Used Equipment		632
Parts		379
Service		240
	$	45,092

The level of goodwill that resulted from the CEC acquisition is primarily reflective of CEC’s going-concern value, the value of CEC’s 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.

Total CEC acquisition costs were $1.0 million. Since our acquisition of CEC on January 1, 2018, significant amounts of equipment rental fleet have been moved between H&E locations and the acquired CEC locations, as well as branch consolidations

among the CEC branches acquired and H&E branches have occurred, and it is impractical to reasonably estimate the amount of CEC revenues and earnings since the acquisition date.

Rental, LLC (dba “Rental Inc.”)

Effective April 1, 2018, we completed the acquisition of Rental Inc., a non-residential equipment rental and distribution company with five branches located in Alabama, Florida and Western Georgia. The acquisition expands our presence in the surrounding market.

The aggregate consideration paid to the owners of Rental Inc. was approximately $68.6 million. The acquisition and related fees and expenses were funded through available cash and from borrowings under our Credit Facility. The following table summarizes the fair value of the assets acquired and liabilities assumed as of the acquisition date.

	$’s in thousands
Cash	$	260
Accounts receivable		2,873
Inventory		5,324
Prepaid expenses and other assets		47
Rental equipment		22,578
Property and equipment		1,935
Intangible assets (1)		10,200
Total identifiable assets acquired		43,217
Accounts payable		(439	)
Manufacturer flooring plans payable		(3,293	)
Accrued expenses payable and other liabilities		(469	)
Total liabilities assumed		(4,201	)
Net identifiable assets acquired		39,016
Goodwill (2)		29,554
Net assets acquired	$	68,570

(1) The following table reflects the estimated fair values and useful lives of the acquired intangible assets identified based on our purchase accounting assessments:

	Fair Value (amounts in thousands)		Life (years)
Customer relationships	$	10,000		10
Tradenames		200		1
	$	10,200

(2) We have allocated the $29.6 million goodwill among our six goodwill reporting units as follows (amounts in thousands):

Rental Component 1	$	9,064
Rental Component 2		5,445
New Equipment		10,217
Used Equipment		1,692
Parts		2,171
Service		965
	$	29,554

Included in the total goodwill amount of $29.6 million is approximately $3.4 million of accrued purchase price consideration to be paid to the sellers pursuant to the terms of the purchase agreement among the parties named thereto. The level of goodwill that resulted from the Rental Inc. acquisition is primarily reflective of Rental Inc.’s going-concern value, the value of Rental Inc.’s 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.

Total Rental Inc. acquisition costs were $0.3 million. Since our acquisition of Rental Inc. on April 1, 2018, significant amounts of equipment rental fleet have been moved between H&E locations and the acquired Rental Inc. locations, and it is impractical to reasonably estimate the amount of Rental Inc. revenues and earnings since the acquisition date.       

Pro forma financial information

We completed the CEC acquisition effective January 1, 2018. Therefore, the operating results of CEC are included in our reported consolidated statements of income for the full year ended December 31, 2018. We completed the Rental Inc. acquisition effective April 1, 2018. Therefore, our reported consolidated statements of income for the year ended December 31, 2018 do not include Rental Inc. for the period from January 1, 2018 through March 31, 2018.  We completed the WRI acquisition on February 1, 2019. Therefore, our reported consolidated statements for the year ended December 31, 2019 do not include WRI for the month of January 2019.

Pursuant to Topic 805, Business Combinations, pro forma disclosures should be repeated whenever the year or interim period of the acquisition is presented. The pro forma information below gives effect to the CEC and Rental Inc. acquisitions as if they had been completed on January 1, 2017 (the “pro forma acquisition date”). The pro forma information is not necessarily indicative of our results of operations had the acquisitions been completed on the above date, nor is it necessarily indicative of our future results. The pro forma information does not reflect any cost savings from operating efficiencies or synergies that could result from the acquisitions, nor does it reflect additional revenue opportunities following the acquisitions. The unaudited tables below present unaudited pro forma consolidated statements of income information for the year December 31, 2017 as if CEC and Rental Inc. were included in our consolidated results for the entire period presented.

	(amounts in thousands)
	Year Ended December 31, 2017
	H&E(1)			CEC			Rental Inc.			Total
Total revenues	$	1,030,019		$	36,790		$	34,942		$	1,101,751
Pretax income		59,344			3,043			7,267			69,654
Pro forma adjustments to pretax income:
Impact of fair value mark-ups/useful life changes on    depreciation (2)		—			(3,575	)		(2,794	)		(6,369	)
Intangible asset amortization (3)		—			(2,420	)		(1,200	)		(3,620	)
Interest expense (4)		—			—			(1,609	)		(1,609	)
Elimination of merger related costs		788			4,497			—			5,285
Elimination of historic interest expense (5)		—			1,966			382			2,348
Pro forma pretax income		60,132			3,511			2,046			65,689
Income tax expense		(50,511	)		(2,949	)		(1,719	)		(55,179	)
Net income	$	110,643		$	6,460		$	3,765		$	120,868
Net income per share – basic (6)	$	3.12		$	0.18		$	0.11		$	3.40
Net income per share – diluted (6)	$	3.10		$	0.18		$	0.11		$	3.39

(1) Amounts presented above for “H&E” are derived from the Company’s consolidated statement of income from our Annual Report on Form 10-K for the year ended December 31, 2017.

(2) Depreciation of rental equipment and non-rental equipment were adjusted for the fair value markups, and the changes in useful lives and salvage values of the equipment acquired in the acquisitions.

(3) Represents the amortization of the intangible assets acquired in the acquisitions.

(4) A portion of the consideration paid for Rental Inc. was funded with borrowings from our Credit Facility. Interest expense was adjusted to reflect the additional debt resulting from such acquisition.

(5) Represents the elimination of historic debt of CEC and Rental Inc. that is not part of the combined entity.

(6) Because of the method used in calculating per share data, the summation of entities may not necessarily total to the per share data computed for the total company due to rounding.

The pro forma information below gives effect to the Rental Inc. and WRI acquisitions as if they had been completed on January 1, 2018 (the “pro forma acquisition date”). The pro forma information is not necessarily indicative of our results of operations had the acquisitions been completed on the above date, nor is it necessarily indicative of our future results. The pro forma information does

not reflect any cost savings from operating efficiencies or synergies that could result from the acquisitions, nor does it reflect additional revenue opportunities following the acquisitions. The unaudited tables below present unaudited pro forma consolidated statements of income information for the year December 31, 2018 as if Rental Inc. and WRI were included in our consolidated results for the entire period presented.

	(amounts in thousands, except per share data)
	Year Ended December 31, 2018
	H&E(1)		Rental Inc.(7)			We-Rent-It			Total
Total revenues	$	1,238,961	$	7,408		$	36,002		$	1,282,371
Pretax income		104,663		1,020			6,892			112,575
Pro forma adjustments to pretax income:
Impact of fair value mark-ups/useful life changes on    depreciation (2)		—		(749	)		(4,452	)		(5,201	)
Intangible asset amortization (3)		—		(300	)		(1,050	)		(1,350	)
Interest expense (4)		—		(480	)		(5,664	)		(6,144	)
Elimination of historic interest expense (5)		—		82			517			599
Pro forma pretax income (loss)		104,663		(427	)		(3,757	)		100,479
Income tax expense (benefit)		28,040		(114	)		(973	)		26,953
Net income (loss)	$	76,623	$	(313	)	$	(2,784	)	$	73,526
Net income (loss) per share – basic (6)	$	2.15	$	(0.01	)	$	(0.08	)	$	2.05
Net income (loss) per share – diluted (6)	$	2.13	$	(0.01	)	$	(0.08	)	$	2.04

(1) Amounts presented above for “H&E” are derived from the Company’s consolidated statement of income in this Annual Report on Form 10-K for the year ended December 31, 2018 and includes actual results for CEC for the full twelve months ended December 31, 2018 and actual results for Rental Inc. for the period April 1, 2018 through December 31, 2018.

(2) Depreciation of rental equipment and non-rental equipment were adjusted for the fair value markups, and the changes in useful lives and salvage values of the equipment acquired in the acquisitions.

(3) Represents the amortization of the intangible assets acquired in the acquisitions.

(4) Interest expense was adjusted to reflect the additional debt resulting from the acquisition.

(5) Represents the elimination of historic debt of Rental Inc. and WRI that is not part of the combined entity.

(6) Because of the method used in calculating per share data, the summation of entities may not necessarily total to the per share data computed for the total company due to rounding.

(7) Represents Rental Inc. pro forma operating results for the three month period ended March 31, 2018. We completed the Rental Inc. acquisition effective April 1, 2018.