Business

Avis steps on the gas

Terry Macalister

Avis has shook up the competitive industry with its $500m purchase of vehicle-sharing firm Zipcar. Terry Macalister reports.

By acquiring car sharing firm Zipcar, global vehicle hirer Avis hopes to speed up a personal mobility revolution. (Reuters)

The growing commercial value of car-sharing operations was underlined this week when global hire giant Avis Budget bought car-sharing and car-club service Zipcar for $500-million – a near 50% premium on its share value.

Zipcar, which itself acquired Britain's Streetcar less than three years ago, has 767000 members, or Zipsters, who pay an annual joining fee and are then charged by the hour to use its vehicles.

The Zipcar business is seen by many as a "greener" alternative to traditional ownership models because it encourages less road use. But it is still struggling to turn in a full year of profits.

Avis believes it can turn green into gold. "We see car sharing as highly complementary to traditional car rental, with rapid growth potential and representing a scalable opportunity for us as a combined company," said Ronald Nelson, chairperson and chief executive of Avis.

The world's number three car hire firm, founded in 1946 with three cars at Willow Run airport in Detroit, has been trying to bulk up after being overtaken in overall scale by Hertz and already trailing well behind Enterprise.

Vast global network
Avis recently lost out to Hertz, which bought Dollar Thrifty – the world's number four car-hire company – for $2.6-billion, and says it wants to speed up the growth of Zipcar by putting more cars in more locations.

"By combining Zipcar's expertise in on-demand mobility with Avis Budget Group's expertise in global fleet operations and vast global network, we will be able to accelerate the revolution we began in personal mobility," said Scott Griffith, chairperson and chief executive of Zipcar.

Car sharing originates in Europe and Zipcar was founded 12 years ago in Cambridge, Massachusetts, specifically to take the concept to the United States.

It has become popular in cities as individual cars are kept in residential streets, outside workplaces or on student campuses, and many believe it is cheaper than owning your own vehicle.

Car-sharing clubs give members a smartcard with which to open the car, eliminating the need to go to an office to collect and return keys. Hertz and Enterprise have launched their own car-sharing operations in the past few years, whereas Zipcar will become an Avis subsidiary and have headquarters in Boston.

Quarter net income
Avis anticipates that putting the two businesses together will enable it to extract between $50-million to $70-million in annual savings. The New Jersey-based firm also expects the acquisition will add to its adjusted earnings per share in the second year after it is complete.

Avis said it expected certain members of Zipcar management, including Griffith and president and chief operating officer Mark Norman, to help to run its day-to-day operations.

If Zipcar shareholders approve the deal worth $12.25 per share it is expected to be completed later this year. The boards of both companies – holding 32% of the shares – have already agreed to support the takeover.

In Zipcar's most recent quarter net income reached $4.3-million and revenue was up to $78-million, but much of the profit came from the sale of vehicle emission credits in the US. Griffith said in November that the business, which saw membership grow by 18% in the third quarter, was on track for 2012 to be Zipcar's "first full year of profitability".

In recent weeks Zipcar has acquired or completed the integration of two of Europe's largest competitors, Austria's Carsharing and Barcelona-based Avancar, as well as launching the new Zipvan service in Los Angeles and Philadelphia.

Avis said it was also on track with its expected financial results for the current year. The company has forecast earnings of $2.35 to $2.45 per share on revenue of $7.3-billion. Analysts are expecting earnings per share of $2.42 on the same revenue. – © Guardian News & Media 2013

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