Capitol Investment Corp. IV, a public investment vehicle, and Nesco Holdings I, Inc., a provider of specialty rental equipment to the electric utility, telecom and rail end-markets, announced that they have entered into a definitive agreement in which Nesco will become a publicly listed company with an anticipated initial enterprise value of about $1.1 billion. Nesco is currently a portfolio company of Energy Capital Partners.
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. With a nationwide rental fleet of about 4,000 units, Nesco provides its customers a vast and comprehensive product offering along with a focus on service. As a one-stop shop, Nesco also offers its customers the parts, tools and accessories needed to fully equip their crews for activity in the field. Nesco’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. The Capitol team has the best track record of public investment vehicle sponsors, with all three of its prior investments consistently beating the broader markets with an average annualized return of 17%.
“We work hard to set ourselves apart from other investment vehicles by scouring the world for outstanding companies where our team, and our capital, can be a catalyst to accelerate growth and then we actively engage with the businesses post-merger to help execute the business plan and create substantial long-term shareholder value," says Mark Ein, chairman and CEO of Capitol. "Nesco perfectly fits our model as it is uniquely positioned to benefit from the increased demand for its equipment as the result of the significant, consistent growth in infrastructure spending in each of its core end-markets – electric utility transmission and distribution, 5G deployment and rail development." “With the substantial end-market demand, attractive unit economics, capital from this transaction, a world class board and an experienced team all coming together, we believe the combined company will deliver superior returns for investors long into the future.”
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. Over a pivotal decade of substantial growth and shareholder value creation during his tenure, the company’s stock price increased more than 21 times as the market capitalization grew from $385 million to $11.4 billion. 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 17 years, overseeing transformational growth of the wireless tower infrastructure company leading to a market capitalization increase from $553 million to $22.6 billion 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 $100 billion and grew at a 7.8% annual growth rate from 2001 to 2017 compared to a 3.9% annual growth rate in U.S. GDP over the same period. Nesco’s end-markets have demonstrated limited correlation with GDP growth and resiliency throughout prior economic cycles.
Continued future growth is supported by multiple important, fundamental and transformative long-term trends across Nesco’s end-markets:
- The electric utility market, which has an annual infrastructure spend of over $60 billion, is in the early years of a secular investment upcycle expected to persist through the 2020s, driven by utilities’ investment to replace or strengthen an aging electric grid, to integrate growing gas and renewable generation mandated by regulation and to meet the expanding demand from electric vehicles and electric heating with a growing focus on decarbonization.
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The 5G upgrade cycle is driving a new wave of telecom infrastructure spending with 5G capex by the Big 4 wireless providers expected to total $240 billion over the next decade as deployment is expected to add 20 times more cells than the existing macrostructure.
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Urban congestion and increased freight transportation needs have driven a nationwide investment in improving rail infrastructure with the U.S. Senate approving more than $16 billion of spending to support commuter rail and transit projects in 2019 alone.
ECP and its affiliates will retain 70% of their investment in the combined company upon completion of the transaction. “Nesco has built a terrific platform in highly attractive end-markets as demonstrated by its strong financial performance,” said Doug Kimmelman, senior partner and founder of ECP. “We are excited about the prospect of partnering with Capitol to continue Nesco’s growth as a public company with access to new sources of capital.”
CEO Lee Jacobson says his company is thrilled about its new partnership with Capitol and to continue its strong relationship with ECP as it shifts into the next phase of Nesco’s growth story.
“This transaction enables us to invest in our fleet to fulfill the increased demand that we have been unable to serve in recent years and that we expect to only increase as the result of the continued investment in our end-markets, all of which will drive significant and sustained growth for our business," Jacobson says.
