Diamond Castle To Rebuild NES

Target: NES Rentals Holdings Inc.

Sponsor: Diamond Castle Holdings

Seller: NES shareholders

Sale Price: $850 million

Financial Advisor: Sponsor: Banc of America Securities LLC; Target: Bear Stearns & Co. Inc

Legal Counsel: Sponsor: Gibson, Dunn & Crutcher LLP Target: Kirkland & Ellis LLP

National Equipment Services Inc. was formed in 1996 by Golder, Thoma, Cressey, Rauner Inc. as a platform to acquire and manage equipment rental companies nationwide. Ten years—and 42 acquisitions—later, the company is going back into private equity hands.

The latest deal for the company, today called NES Rentals Holdings Inc., was its sale late last month to New York-based Diamond Castle Holdings in a transaction valued at about $850 million. The price worked out to $18.75 per share of common stock plus the assumption of certain liabilities.

With revenues in excess of $582 million and profits of about $33 million, NES’s primary business is renting aerial equipment, such as cranes, scissor lifts and boom trucks, to customers in the industrial and non-residential construction end markets. The company also has a reach into the tank rental business and dedicates a small portion to renting traffic safety equipment.

According to Diamond Castle Senior Managing Director and Co-founder David Wittels, though, the company’s focus is on aerial equipment.

With more than 120 locations in 34 states, NES is one of the largest companies in the $29 billion equipment rental business, and Diamond Castle is betting that there is still market share to be gained.

“We believe we are in a favorable time in the [non-residential construction] industry’s cycle, which should continue to see some pretty good momentum through 2007 and 2008,” said Ari Benacerraf, a co-founder and senior managing director at Diamond Castle.

When NES was formed ten years ago, the equipment rental space was ripe for consolidation, as the major players in the industry combined only made up about 10% of total industry revenue. Just two years after its formation, NES was generating about $218 million in revenues from its 79 locations. In July 1998, the company went public in a $94.5 million IPO, with proceeds being used to fund further add-on acquisitions.

However, the growth of NES got sidetracked following the Sept. 11, 2001 terror attacks, which led to a drop in demand for equipment rentals and made it more difficult for the company to shed its debt.

“Some of the acquisitions that NES made during those early years would have been considered very aggressive even by today’s standards,” Benacerraf said.

By November 2002, NES had amassed $485.5 million in debt and its stock was trading at a meager 53 cents per share. The New York Stock Exchange suspended NSV shares from trading and the company had to find a temporary home on the Pink Sheets before it filed for Chapter 11 in June 2003 with about $800 million in debt, according to reports at the time.

NES Emerged from bankruptcy in February 2004 having eliminated about $275 million of debt from its balance sheet. The company, which later returned to the Pink Sheets, received a three-year $496 million exit loan facility from Wachovia to revitalize its rental fleet, among other things.

Given the company’s extremely acquisitive past, Benacerraf said Diamond Castle will be have a “highly targeted,” approach to making future add-ons. “There is still a lot of upside just in integrating the company’s prior acquisitions,” he noted.

Diamond Castle invested $170 million of equity in this deal from its Diamond Castle Partners IV LP fund, which is still in fundraising mode. The remainder of the deal took the form of ABL and second-lien financing, which was led by Deutsche Bank. —A.N.