McGrath RentCorp to Snap up Design Space Modular Buildings for $260M


Business-to-business rental company McGrath RentCorp (MGRC) has agreed to acquire Design Space Modular Buildings PNW for a total cash consideration of $260 million.

McGrath RentCorp estimates the acquisition to be accretive to its bottom line and free cash flow upon closing. It expects the transaction to close in Q2 2021.

Design Space provides modular building and portable storage in the Western U.S. through 15 branches. The company has a rental fleet of about 6,400 units with a total initial cost of $140 million.

Over the 12 months ended December 2020, Design Space generated total revenue of $81 million and EBITDA of $32 million.

McGrath RentCorp President and CEO Joe Hanna said, “The acquisition of Design Space is highly complementary to our modular building rental business. This strategic initiative accelerates our expansion into attractive new geographies.” (See McGrath RentCorp stock analysis on TipRanks)

Hanna added, “With our available capital and combined sales and operational resources, we look forward to building on Design Space’s success and achieving future growth together.”

Notably, the acquisition expands the footprint of McGrath RentCorp in the Western U.S. and positions it for growth synergies and cost optimization, the company said.

On May 5, Oppenheimer analyst Scott Schneeberger reiterated a Buy rating on the stock with a $90 price target (9.6% upside potential).

During Oppenheimer’s 16th Annual Industrial Growth Conference, McGrath RentCorp’s top brass highlighted the resilience of the business amid the COVID-19 pandemic, margin expansion in its Mobile Modular segment, enhanced foodservice ability on the back of its recent Kitchen to Go acquisition, and multiyear growth potential in its TRS-RenTelco segment driven by Specialty Rental equipment for 5G implementation.

Shares have gained about 64% over the past year.

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