Zipcar and Avis Budget Group announced yesterday that they will be joining forces in a transaction that will see the car sharing network bought by the car hire operator for about $500 million in cash. The value of the deal means Avis Budget will be buying Zipcar for $12.25 per share, which is 49% more than its 31 December closing price. The car sharing company’s shareholders still have to approve the takeover, while there are other closing conditions that have to be met.
The car sharing industry has grown to be worth almost $400 million in the US, and it’s quickly spreading to major cities across the globe. This has been led by Zipcar through its world-class service and innovations. The network has 760,000 members and a presence in 20 major metropolitan US, Canadian and European cities. Its fleet is also located at more than 300 colleges and universities.
After Avis Budget Group acquires Zipcar, which is expected to be complete in the Spring, the car sharing network will operate as a subsidiary and will continue its plans to move to a new Boston, Massachusetts headquarters. Key members of the management team are expected to continue setting the overall direction and running the everyday operations of the company, including president and chief operating officer Mark Norman and chairman and chief executive Scott Griffith.
Griffith says that they are thrilled to announce their intention to join the family of companies under Avis Budget Group. They believe this will be beneficial to their members, staff and shareholders. This will put Zipcar in a good position to accelerate improvements in the customer experience with more services, additional offers and a larger network of destinations.
Griffith added that, as the global car sharing leader, they remain dedicated to the vision and values that have driven the company forward for many years, supported with their passion for providing superior experiences for each member every day and on every trip. By merging their on-demand expertise with the global fleet operations expertise and large global network from Avis Budget, they will be able to speed up the revolution they started in personal mobility.
Avis Budget Group is planning to fund the takeover with incremental corporate debt borrowings and available cash. It also expects to generate between $50 million and $70 million in yearly synergies from the transaction. Substantial cost reductions throughout the fleet life cycle are anticipated as well, along with more savings from eliminating public-company costs at Zipcar.
The car hire operator intends to achieve significant cost savings by improving fleet utilisation for both companies too. The combination of these synergies and the anticipated growth and rising profitability at Zipcar are due to make the takeover accretive to Avis Budget Group’s earnings per share by the second year, excluding purchase-accounting effects and certain items.
Ronald L. Nelson, the chairman and chief executive at Avis Budget Group, says this transaction will substantially increase their growth potential in the US and elsewhere. It will also put the company in a position to serve more types of consumers and commercial transport needs. They view car sharing as very complementary to regular car hire, representing a sizeable opportunity for them as a merged group.
Nelson added that Avis Budget expects to apply their efficiencies of fleet management and experience with the proven customer-friendly technology provided by Zipcar to improve growth in the car sharing brand and provide more destinations with car sharing. They are also committed to keeping the elements of Zipcar’s brand and culture which have allowed the network to achieve such fast growth and success in its 12 years of operation.