The world's number three car hire firm believes it can turn the 'greener' alternative of car sharing into gold
Zipcar expected 2012 to be its first fully profitable year. Photograph: Spencer Platt/Getty Images
The growing commercial value of car sharing operations was
underlined on Wednesday when global hire giant Avis Budget, bought
Zipcar for $500m (£307m) – a near 50% premium to its share value.
Zipcar,
which itself acquired Britain's Streetcar less than three years ago,
has 767,000 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
to 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, chairman
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.
Avis recently
lost out to Hertz, which bought Dollar Thrifty – the world's number four
car hire company – for $2.6bn, and now says it want 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, chairman 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 US.
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 which they use 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,
while Zipcar will become an Avis subsidiary and have headquarters in
Boston.
Avis anticipates that putting the two businesses together
will enable it to extract between $50m to $70m 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
run its day-to-day operations. If Zipcar shareholders approve the deal
worth $12.25 per share it is expected to complete later this spring. 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 $4.3m while revenues were up to $78m – 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.
When
Zipcar bought Streetcar in April 2010 it paid $50m, of which almost a
third went to Andrew Valentine and Brett Akker, two university friends
who had established the business.
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 $7.3bn.
Analysts are expecting earnings per share of $2.42 on the same revenue.
source: http://www.guardian.co.uk/business/2013/jan/02/avis-budget-buys-zipcar-share-value
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