Industry News: Avis Buys Car Sharing Company Zipcar For $500 Million

[Drew Dowdell]

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January 2, 2013

By Drew Dowdell

Managing Editor - CheersandGears.com

Avis Budget Group and Zipcar, Inc. have announced an agreement where Avis Budget will aquire Zipcar for $12.25 a share or about $500 million total. Zipcar has about 760,000 members (including yours truly) across 20 metro markets in the U.S., Canada and Europe with locations at over 300 university campuses. Car sharing is now a $400 million per year business in the U.S. market alone.

Avis Budget expects to gain $50 million to $70 million in savings by combining the two companies. Zipcar gains access to Avis Budget's fleet to supplement their own in times of high demand while Avis Budget gains an increased utilization of its fleet.

From my own perspective, I believe this is a good move for both companies. As a frequent Zipster, I regularly run into times when no Zipcars are available for the time slot I need. Having more cars available as well as additional locations is a win for the Zipcar's customers.

Press Release on Page 2

Drew Dowdell is Managing Editor of CheersandGears.com and can be reached at [email protected] or on Twitter as @cheersngears

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Avis Budget Group To Acquire Zipcar For $12.25 Per Share In Cash

- Combined company will be the global leader in car sharing and mobility solutions.

- Combination expected to produce $50-70 million in annual synergies.

- Transaction targeted to close in spring 2013.

- Avis Budget re-affirms its prior estimates of full-year 2012 results.

Jan 2, 2013

PARSIPPANY, N.J. and CAMBRIDGE, Mass., Jan. 2, 2013 /PRNewswire/ -- Avis Budget Group, Inc. (NASDAQ: CAR) and Zipcar, Inc. (NASDAQ: ZIP), the world's leading car sharing network, today announced that Avis Budget Group has agreed to acquire Zipcar for $12.25 per share in cash, a 49% premium over the closing price on December 31, 2012, representing a total transaction value of approximately $500 million. The transaction is subject to approval by Zipcar shareholders and other customary closing conditions, and is expected to be completed in the spring of 2013. The Boards of Directors of both companies unanimously approved the transaction, and Zipcar shareholders representing approximately 32% of the outstanding common stock have agreed to vote their shares in support of the transaction.

Car sharing has grown to be a nearly $400 million business in the United States and is expanding rapidly in major cities around the world. Zipcar has led this industry, leading in innovation and world-class service. Zipcar now has more than 760,000 members, known as Zipsters, with a market-leading presence in 20 major metropolitan areas in the United States, Canada and Europe, and fleet positioned at over 300 college and university campuses. Zipcar has combined leading-edge technology, an outstanding customer experience, and clear brand messaging to develop strong loyalty and advocacy among its customers.

"By combining with Zipcar, we will significantly increase our growth potential, both in the United States and internationally, and will position our Company to better serve a greater variety of consumer and commercial transportation needs," said Ronald L. Nelson, Avis Budget Group chairman and chief executive officer. "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. We expect to apply Avis Budget's experience and efficiencies of fleet management with Zipcar's proven, customer-friendly technology to accelerate the growth of the Zipcar brand and to provide more options for Zipsters in more places. We also expect to leverage Zipcar's technology to expand mobility solutions under the Avis and Budget brands."

Avis Budget expects to generate $50 to $70 million in annual synergies as a result of the transaction. In particular, Avis Budget expects significant cost reductions across the fleet life cycle (from procurement to operations and maintenance to disposition, as well as financing), in addition to savings from eliminating Zipcar's public-company costs. Avis Budget also plans to achieve substantial cost savings by increasing fleet utilization across the two companies. Significant revenue growth opportunities exist, including by leveraging Avis Budget's fleet to meet more of Zipsters' weekend demand, which is currently constrained by fleet availability.

These synergies, combined with the expected growth and rising profitability of Zipcar, are expected to make the transaction accretive to Avis Budget's earnings per share in the second year following the acquisition, excluding certain items and purchase-accounting effects.

"We are delighted to announce our intention to join the Avis Budget Group family of companies, and we believe this combination is a win across the board for our members, shareholders and employees. We will be well positioned to accelerate enhancements to the Zipcar member experience with more offers and additional services as well as an expanded network of locations," said Scott Griffith, chairman and chief executive officer of Zipcar. "As the leading global provider of car sharing services, with a brand that is synonymous with the category, we remain committed to the values and vision that have driven us forward for many years, grounded by our passion for delivering a superior experience to every member for every trip, every day. 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."

"Avis Budget's existing infrastructure, scale and experience with managing multiple brands make us uniquely positioned to accelerate the growth and profitability of Zipcar," Mr. Nelson added. "At the same time, we are committed to retaining the elements of the Zipcar brand and culture that have allowed Zipcar to achieve such rapid growth and success over the last twelve years."

Following the acquisition, Zipcar will operate as a subsidiary of Avis Budget Group and will continue with its planned move to new headquarters in Boston, Massachusetts. Avis Budget anticipates that key members of the Zipcar management team, including Mr. Griffith and Mark Norman, president and chief operating officer, will continue to set the overall direction and run day-to-day operations of Zipcar.

Avis Budget Group expects to fund the purchase price primarily with incremental corporate debt borrowings, as well as available cash. As of September 30, 2012, Avis Budget Group had cash and marketable securities of approximately $554 million, and Zipcar had cash and marketable securities of approximately $82 million, or approximately $2 per Zipcar share.

Citigroup is acting as financial advisor, and Kirkland & Ellis LLP is acting as legal counsel, to Avis Budget Group. Morgan Stanley is acting as financial advisor, and Latham & Watkins LLP is acting as legal counsel, to Zipcar.

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[G. David Felt]

ZipCar is a limited use limited growth potential. This is a bigger win for Zip than it is for Avis\Budget. I am surprised no other car rental company has decided to add a zipcar quick short term rental option before. The few times I have seen zipcars in the Seattle area or on Stevens pass they seen to be well used for how young the car is.

People just do not car about cars that are not theirs.

[Drew Dowdell]

I disagree on limited growth potential and on limited win for Avis.

This lets Zipcar have easier (less expensive) access to more cars and it gives Avis an additional outlet for their cars coming out of rental rotation to make profit longer.

My only fear is that it will make Zipcar's fleet much more generic. Right now, they have a wonderful diversity of cars.... I fear them turning into ZipNissanSentra.

[regfootball]

No brainer! Zip founders make out like Bandits, Avis does the expected and gets in ground floor on a new type of rental biz.

At a minimum, Avis knocks out a small but significant new competitor.

[G. David Felt]

I disagree on limited growth potential and on limited win for Avis.

This lets Zipcar have easier (less expensive) access to more cars and it gives Avis an additional outlet for their cars coming out of rental rotation to make profit longer.

My only fear is that it will make Zipcar's fleet much more generic. Right now, they have a wonderful diversity of cars.... I fear them turning into ZipNissanSentra.

I think for dense inner city's this will be a win for Zipcar users with more access to auto's and yet I do agree that they could go the way of Bland rental fleet.

Yet outside of dense inner city use, zipcar and the other new start up that allows owners of cars to rent out to others will have limited traction.

[Drew Dowdell]

I disagree on limited growth potential and on limited win for Avis.

This lets Zipcar have easier (less expensive) access to more cars and it gives Avis an additional outlet for their cars coming out of rental rotation to make profit longer.

My only fear is that it will make Zipcar's fleet much more generic. Right now, they have a wonderful diversity of cars.... I fear them turning into ZipNissanSentra.

I think for dense inner city's this will be a win for Zipcar users with more access to auto's and yet I do agree that they could go the way of Bland rental fleet.

Yet outside of dense inner city use, zipcar and the other new start up that allows owners of cars to rent out to others will have limited traction.

.

.... well... yea... but over 50% of the country's population now lives in cities. That's a pretty good market base.

I've been a member of Zipcar since they arrived in Pittsburgh when they bought Flexcar. I often have to hunt for vehicles because everything near me is taken. I've actually been considering closing my account with them for this specific reason. They are fleet constrained way before they are customer constrained.... but now it looks like they have a remedy to that.

[G. David Felt]

Could zip car be the future for college students and people who do not want to have the hassle of auto ownership? This does make me rethink if we could see the auto rental market become a auto share market for inner city people. Yet is America really 50% living in dense cities? Is seems that suburbs still requires car ownership.

[Drew Dowdell]

Could zip car be the future for college students and people who do not want to have the hassle of auto ownership? This does make me rethink if we could see the auto rental market become a auto share market for inner city people. Yet is America really 50% living in dense cities? Is seems that suburbs still requires car ownership.

Zipcar is already placing cars in key areas that are between "city" and "suburb" including college campuses that are anything but urban.

[Robert Hall]

Zipcar is already placing cars in key areas that are between "city" and "suburb" including college campuses that are anything but urban.

Yes, they have a location in Tempe, AZ on the ASU campus down the street from my office, which is quasi-suburban...

[G. David Felt]

Inner City and Campuses tend to make sense for this model of business, but I have a hard time seeing rapid growth outside these markets.

Not to say that I might or someone else might not come up with a way to influence suburban people to take this concept on as a 2nd or 3rd auto.

I guess if you do not need a truck or 4x4/awd for mountain trips, then it might make sense for one to have an account where you could quickly get your hands on an auto for short term use.

See and there is where it might still have growth is by marketing a new approach on how to sell ZipCars.

[G. David Felt]

Thinking on this, maybe all rental companies should go to membership programs where people could use them as a 2nd or 3rd auto for special needs.

[Robert Hall]

Not to say that I might or someone else might not come up with a way to influence suburban people to take this concept on as a 2nd or 3rd auto.

I guess if you do not need a truck or 4x4/awd for mountain trips, then it might make sense for one to have an account where you could quickly get your hands on an auto for short term use.

See and there is where it might still have growth is by marketing a new approach on how to sell ZipCars.

Yes, sort like the neighborhood Enterprise rental car or U-Haul...I rent cars from Enterprise when I do a weekend road trip or a truck from U-Haul when I've had to move furniture to my storage unit..

[G. David Felt]

Not to say that I might or someone else might not come up with a way to influence suburban people to take this concept on as a 2nd or 3rd auto.

I guess if you do not need a truck or 4x4/awd for mountain trips, then it might make sense for one to have an account where you could quickly get your hands on an auto for short term use.

See and there is where it might still have growth is by marketing a new approach on how to sell ZipCars.

Yes, sort like the neighborhood Enterprise rental car or U-Haul...I rent cars from Enterprise when I do a weekend road trip or a truck from U-Haul when I've had to move furniture to my storage unit..

But then why spend the money on ZipCar, why not just add this feature to your options. I am sure Enterprise or any of the other rental companies could do this also. It is not like ZipCar has a deep bench of customers to exploit.

[Robert Hall]

Not to say that I might or someone else might not come up with a way to influence suburban people to take this concept on as a 2nd or 3rd auto.

I guess if you do not need a truck or 4x4/awd for mountain trips, then it might make sense for one to have an account where you could quickly get your hands on an auto for short term use.

See and there is where it might still have growth is by marketing a new approach on how to sell ZipCars.

Yes, sort like the neighborhood Enterprise rental car or U-Haul...I rent cars from Enterprise when I do a weekend road trip or a truck from U-Haul when I've had to move furniture to my storage unit..

But then why spend the money on ZipCar, why not just add this feature to your options. I am sure Enterprise or any of the other rental companies could do this also. It is not like ZipCar has a deep bench of customers to exploit.

Brand recognition...the ZipCar brand is established, so this gives Avis an in to customers that would never have considered a regular rental car company.

[Drew Dowdell]

Fuel is included with Zipcars.

[G. David Felt]

Interesting, I have learned more about ZipCar than I have ever known before. I wonder how they grew when I really see no advertising for them at all.

Including fuel is a nice feature, what else do they include in comparison to a rental company and how does a car get services/refueled? I assume you always bring it back empty or as low as possible.

[Drew Dowdell]

No. There is a credit card in the sun visor and you fill it up if it is below 1/4 of a tank. There are certain pin numbers you need to include when purchasing the gas, so don't think you'll be able to run around filling up your own vehicles on their credit card. They will also reimburse you for filling up the washer fluid. Some insurance is included by default, but the deductable is $500. They will let you buy that down to nothing for an extra $75 per year.

[G. David Felt]

Very interesting, I can see this as a valid use by inner city folks not really needing a car the majority of the time.

[Robert Hall]

Services like ZipCar, AirBnB, Bike Share, cowork environments, are all part of the 'collaborative consumption' movement. Not part of my reality context, but I can understand the mindset for people who don't want to be tied down with ownership of stuff....

[G. David Felt]

Services like ZipCar, AirBnB, Bike Share, cowork environments, are all part of the 'collaborative consumption' movement. Not part of my reality context, but I can understand the mindset for people who don't want to be tied down with ownership of stuff....

While I see value in a service like this for a select group of inner city people, I do not see this being a mass market use here in America. I can see this more in use in Europe or the Asian Rim.

[Robert Hall]

Services like ZipCar, AirBnB, Bike Share, cowork environments, are all part of the 'collaborative consumption' movement. Not part of my reality context, but I can understand the mindset for people who don't want to be tied down with ownership of stuff....

While I see value in a service like this for a select group of inner city people, I do not see this being a mass market use here in America. I can see this more in use in Europe or the Asian Rim.

I think it's also a generational thing....a lot of younger, well educated people in the US prefer city life to suburbia and traditional commuting, etc.

[Drew Dowdell]

Services like ZipCar, AirBnB, Bike Share, cowork environments, are all part of the 'collaborative consumption' movement. Not part of my reality context, but I can understand the mindset for people who don't want to be tied down with ownership of stuff....

While I see value in a service like this for a select group of inner city people, I do not see this being a mass market use here in America. I can see this more in use in Europe or the Asian Rim.

You have to remember, more than half the country lives in cities. That's a lot of market. Blanket a city with a bunch of sharable cars and a lot of city folks will opt out of car ownership all together. Zipcar is far cheaper than fueling, insuring, and paying for parking for your own car. If you live in a spot with a few of these ZipCars around, it can be a viable alternative to a $350 a month car payment + insurance + gas + parking..... plus you can pick your car depending on your mood or needs.

[G. David Felt]

Yet as more use this service I doubt people will care about the auto and I suspect they will end up trashed as I have seen of the few Zip's in Seattle. That is one thing I have noticed about City dwellers, they tend to not care about taking care of things.

I admit I will never be a Zip Car user, but I do understand the market and need for the Inner City Dweller.

[Robert Hall]

Services like ZipCar, AirBnB, Bike Share, cowork environments, are all part of the 'collaborative consumption' movement. Not part of my reality context, but I can understand the mindset for people who don't want to be tied down with ownership of stuff....

While I see value in a service like this for a select group of inner city people, I do not see this being a mass market use here in America. I can see this more in use in Europe or the Asian Rim.

You have to remember, more than half the country lives in cities. That's a lot of market. Blanket a city with a bunch of sharable cars and a lot of city folks will opt out of car ownership all together. Zipcar is far cheaper than fueling, insuring, and paying for parking for your own car. If you live in a spot with a few of these ZipCars around, it can be a viable alternative to a $350 a month car payment + insurance + gas + parking..... plus you can pick your car depending on your mood or needs.

It makes perfect sense to me... at some point I want to live in a downtown loft type environment again somewhere, I did it for a few years in Denver (but still had cars). My next home when I leave AZ will probably be in suburbia, as I really want more square footage...

Edited January 3, 2013 by Cubical-aka-Moltar

[Drew Dowdell]

Yet as more use this service I doubt people will care about the auto and I suspect they will end up trashed as I have seen of the few Zip's in Seattle. That is one thing I have noticed about City dwellers, they tend to not care about taking care of things.

I admit I will never be a Zip Car user, but I do understand the market and need for the Inner City Dweller.

You are fined by Zipcar if the next user finds the car in bad condition or damaged. The users are responsible for keeping the car clean and reporting damage if found. Again, I've been using Zipcar and its predecessor Flexcar since 2007 and never really had a problem.

[Drew Dowdell]

Even though I own a car, I use zip car because taking the bus to work and then grabbing a Zipcar for 2 hours over lunch is cheaper than driving in and paying for parking on days that I need to run an errand. I also use Zipcar when I need a truck. I bus into downtown or over to Carnegie Mellon University, grab the truck and go.

[G. David Felt]

That is cool that they have a system in place to try and keep the auto's clean and usable so they do not get trashed.

[regfootball]

renting cars was always expensive and rare because of the liability and damage issue.

that is why if you're under 25 it's tougher to rent a car.

and renting is like it is in housing. People tend to think if you are a renter, you don't care, and are more prone to trashing the place.

It's human nature. If you own it and have vested interest in it, you'll keep it up. If you rent it, who cares? Someone else will take care of it.

The way the govt is going, maybe zipcar use will become part of what is given out too.

Zip cars are a good idea for urban dwellers but it conceals a larger problem. Car ownership is too expensive now to begin with. So decades ago, when people could own a car to get to their job, they were able to. Now it's more reality. $h! pay, high debt, bad job, no future, and housing and other bills take all your income.

Volt type cars would be good for a Zipcar. Short trips, plug it back in when you get back.

That's not to assume that everyone should own a car or would want to. It's not to say that it should be a society that 'requires' everyone to own a car. But it does highlight how expensive it is in comparison to everything else when the economy has been so horrific and shows no signs of ever being healthy again.

It's been a trend to have some population move to cities into condos and stuff. It's a bit romantic, but the cost / benefit of it really is not the strong argument aside from not requiring you to own a car if you are one of the people that work in a downtown. People tend to think all the jobs are in a downtown. No they are not. And then there is for everyone who may have a trendy urban condo, there are as many old houses being boarded up with weeds in the yard in those same cities maybe a mile or two away.

There are plenty of stories out there of people being dissatisfied with the living downtown in a box thing. Many had never lived in condos before, and dislike it. Many don't like the density. Your exodus would be bigger for those groups if they wouldn't lose their ass on selling their property.

Just listening on the radio yesterday. One of my downtowns here, they closed the Macy's finally! After the 20 year agreement with the city on a loan just to subsidize the place was up. Macy's had paid the loan off of course, but probably was still losing their ass on the operation of the store. No business! Now the city will probably dump a ton more money into more 'development' that won't be market supported. People might buy a 20 oz pop over noon hour, but don't shop at nights and on weekends. You even hear stories of traffic exodus from cities on the weekends out to the shopping centers because even though some new retail gets built, people who live in these condos and such prefer to get in a car and go to the costcos and malls that are outside the trendy urban centers.

A lot of people would like to think its a huge mass movement to the cities proper. That is a hyperbole. It's not to the level that is stated. ANd usually once people get that out of their system, if they are having kids they usually give up on the romantic nature of being downtown and look for the first opportunity to get out to where the good schools are.