IPO Report: Neff Corporation (NEFF)

Neff Corporation (NEFF) is a leading regional equipment rental company in the United States, focused on the fast-growing Sunbelt states. It is based in Miami, FL.

Seven other companies are scheduled for the week of Nov. 17, 2014.  The full IPO calendar is available at IPOpremium.

Manager, Joint-managers: Morgan Stanley, Jefferies, Piper Jaffray
Co-managers: BoA Merrill Lynch, Wells Fargo Securities

End of lockup (180 days): Wednesday, May 20, 2015
End of 25-day quiet period: Tuesday, December 16, 2014

NEFF scheduled a $220 million IPO with a market capitalization of $489 million at a price range midpoint of $21 for Friday, Nov. 21, 2014 on NYSE.  SEC Documents

Overview
NEFF is a leading regional equipment rental company in the United States, focused on the fast-growing Sunbelt states.

NEFF offers a broad array of equipment rental solutions for its diverse customer base, including non-residential construction, oil and gas and residential construction customers.

NEFF's business is characterized by high fixed costs, which leaves it vulnerable to losses based on  revenue softness.

Valuation
Glossary

Summary
Neutral

Per share dilution is 226% of mid-range price

On annualized basis proforma net income -48% for Sept 9 mos

High fixed costs, profits vulnerable to revenue softness

13% of rev from oil/gas, a negative

Proforma Interest expense is 72% of operating income

NEFF proforma Sept 9 mos P/E of 84, too high

NEFF P/E of 44 based on proforma 2013

URI & HEES have P/Es of around 25

Only NEFF has a negative book value, compared to URI & HEES

Business
NEFF is a leading regional equipment rental company in the United States, focused on the fast-growing Sunbelt states.

NEFF offers a broad array of equipment rental solutions for its diverse customer base, including non-residential construction, oil and gas and residential construction customers.

NEFF’s broad fleet of equipment includes earthmoving, material handling, aerial and other rental equipment, which NEFF packages together to meet the specific needs of its customers.

NEFF considers the earthmoving equipment category to be a core competency of its Company and a key differentiator of its business.

NEFF believes that the earthmoving equipment category offers a return on investment and future growth prospects that are among the strongest in the equipment rental industry.

NEFF’s Predecessor, Neff Holdings was formed as a limited liability company on May 12, 2010 to acquire the assets and operations of its Prior Predecessor.

Prior bankruptcy
On May 16, 2010, NEFF’s Prior Predecessor filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of New York.

NEFF’s Prior Predecessor's plan of reorganization went effective on October 1, 2010. Pursuant to the plan of reorganization approved by the bankruptcy court, substantially all of the Prior Predecessor's assets were acquired by Neff Holdings and its subsidiaries (entities formed by Wayzata to acquire NEFF’s Predecessor's assets in the bankruptcy proceeding).

As of September 30, 2014, NEFF operated 64 branches organized into operating clusters in five regions in the United States: Florida, Atlantic, Central, Southeastern and Western.

NEFF is strategically located in markets that it believes feature high levels of population growth as well as high levels of construction activity over the near term.

NEFF believes that its clustering approach enables it to establish a strong local presence in targeted markets and meet the needs of its customers that have multiple projects within a specific region.

Furthermore, NEFF has invested in and developed a highly successful fleet management capability which allows it to share equipment among its branches in order to improve time utilization and drive a higher return on invested capital.

Competition
While the competitive landscape also includes small, independent businesses with only a few rental locations, NEFF believes that it mostly competes against regional competitors which operate in one or more states, public companies and equipment vendors and dealers who both sell and rent equipment directly to customers.

Some of these competitors include United Rentals, Hertz Equipment Rental, Ahern Rentals, H&E Equipment Services, CAT Rental, Sunstate Equipment and Sunbelt Rentals.

5% shareholders post-IPO
Wayzata, 55%

Dividends
No dividends are planned.

Use of proceeds
NEFF expects to receive $205 million from its IPO and use it for the following:

first, to repay $40.0 million of borrowings under its Revolving Credit Facility (the Revolving Credit Facility is scheduled to mature in November 2018 and had an interest rate of approximately 2.8% as of September 30, 2014);

second, to pay the approximately $15.2 million of other fees and expenses (other than underwriting discounts and commissions) related to this offering, including, if the gross proceeds to NEFF from this offering exceed $175.0 million, the payments aggregating $9.9 million that will be made to certain management and non-employee members of the board of directors in connection with this offering pursuant to Neff Holdings' transaction bonus plan; and

third, to the extent of any remaining net proceeds, to prepay a portion of the outstanding principal amount of the Second Lien Loan (approximately $105.4 million in principal amount plus $2.2 million of prepayment premiums, assuming an initial public offering price of $21.00 per share and no change in the size of this offering). The Second Lien Loan is scheduled to mature in June 2021 and had an interest rate of approximately 7.25% as of September 30, 2014.