McGrath Acquires Vesta Modular and Concurrently Divests Adler Tank Rentals

McGrath RentCorp, a leading business-to-business rental company in North America, today announced that it has signed and closed a definitive agreement under which it acquired Vesta Modular a portfolio company of Kinderhook Industries, for a cash purchase price of $400 million, subject to certain adjustments, and sold Adler Tank Rentals to Ironclad Environmental Solutions, a Kinderhook portfolio company, for a cash sale price of $265 million, subject to certain adjustments. Both transactions were completed simultaneously on February 1, 2023.

Founded in 2014 and headquartered in Southfield, MI, Vesta is a leading provider of temporary and permanent modular space solutions. The company operates two divisions – (i) Modular Space Leasing whereby it leases units from its owned fleet of approximately 6,000 units to customers across a diverse range of end markets and applications, and (ii) Modular Construction Services whereby it facilitates the design, manufacturing, logistics, and installation of modular buildings. Vesta’s core end markets include education, industrial, construction, government, municipalities, and retail sectors. Vesta serves over 900 customers. In addition to its Southfield, MI headquarters, it operates strategically-located branches in a number of the nation’s fastest growing markets, such as Atlanta, Houston, and Miami.

As of December 31, 2022 estimated, on a trailing 12-month basis, Vesta generated $40 million of EBITDA on $129 million of total revenue. As of December 31, 2022, Vesta’s rental fleet consisted of approximately 6,000 units at an original cost of approximately $220 million. The transaction implies a multiple of 7.7x FY2022 EBITDA, including run-rate synergies and the present value of tax benefits expected from past net operating losses. McGrath anticipates realizing $8 million of annual run-rate synergies by 2024 and $30 million of value from net operating losses. The final purchase price is subject to customary adjustments.

“Growing Mobile Modular is the strategic focus area for our Company, and the addition of Vesta’s portfolio accelerates our expansion of the business.” said Joe Hanna, President and CEO of McGrath. “We are now able to offer our customers access to an expanded product line across more geographies than ever before. We are confident we will be able to leverage our combined sales and operational resources by seamlessly integrating Vesta in order to grow the new, larger scaled McGrath modular business together. In addition, Vesta has a dedicated and experienced team and we are excited to welcome these new team members into the McGrath family.”

“We are grateful for the successful partnership we forged with Kinderhook over the past two years and are proud of what we have accomplished during that period,” said Dan McMurtrie, Co-Founder and Chief Executive Officer of Vesta. “McGrath is a highly-respected leader in our sector with a tremendous culture and core values that align with those of Vesta. We believe that our employees will thrive under their leadership.”

Founded in 1998 in Newark, NJ, Adler is a rental provider of liquid and solid containment solutions for storage of hazardous and non-hazardous liquids. Adler rents temporary storage tanks and containers used in energy, environmental, industrial and construction applications. Adler operates from branches that serve 27 states across the U.S. The sale price of $265 million implies a multiple of 7.1x FY2022 estimated Adjusted EBITDA. The final sale price is subject to customary adjustments.

As a result of the two transactions, McGrath expects a net cash outflow of approximately $165 million, inclusive of estimated $30 million of reimbursable rental equipment capital expenditures.

Joe Hanna also commented, “Regarding the sale of Adler, I cannot say enough good things about the team and I know being part of Ironclad will open up additional opportunities for growth. The team has done a marvelous job running the business over the years and I want to extend a thank you to Stuart Porter and the entire Adler team for their exceptional work and dedication as a part of McGrath. We expect nothing but success for them under their new ownership structure.”