Digital Transformation

Avis takes over hourly-rental firm Zipcar in $500 million deal

By Noel Young | Correspondent

January 2, 2013 | 4 min read

Car hire giant Avis Budget Group is buying the car-sharing pioneer Zipcar which rents by the hour or the day.

The $500 million cash deal announced today represents a new direction for Avis in the tough car rental market. Hertz Global and Enterprise each have hourly rental operations competing with Zipcar.

Zipcar in London

The Zipcar-type rentals tend to have younger customers than traditional business or leisure travelers. In the US, many locations are on university campuses. There are five UK locations: London, Bristol, Maidstone, Oxford and Cambridge,

Ronald Nelson, Avis chief executive, said, “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.”

Later in a conference call with analysts, he conceded had been been "somewhat dismissive" of car sharing in the past "But what I’ve come to realise is that car sharing, particularly on the scale that Zipcar has achieved , is complementary to our traditional car rental model. It enables us to serve new, younger, more wired consumers that our existing brands don’t always connect with.”

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Avis is paying $12.25 a share 49 percent over Zipcar’s closing stock price of $8.24 at the end of 2012.

The company, based in Cambridge, Mass, went public in April 2011 at $18 a share.

Founded in 2000, Zipcar says it has more than 760,000 members, whom it calls as Zipsters. It is in 20 metropolitan areas in the United States, Canada and Europe. It entered the UK market when it acquired Streetcar in London.

In November, Zipcar said it expected a profit of as much as $4 million — its first annual profit - after a 15 percent gain in third-quarter revenue, to $78 million, from the year-ago period.

But despite being the leader in the hourly car rental market since its founding in 2000, Zipcar has found it tough going as more firms have piled into its market.

Avis will make significant cost reductions in acquiring Zipcar, including savings on its fleet. Avis cars could also meet more of Zipcar’s heavy weekend demand. Avis said it expected annual “synergies” of $50 million to $70 million.

A year ago, Zipcar acquired a majority stake in Avancar, which operates a fleet of vehicles in Barcelona and Sant Cugat del Valles. Streetcar was London's largest car club when it was acquired by Zipcar.

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