The Hertz Corporation
Autor: Bloodalice • February 18, 2016 • Case Study • 1,354 Words (6 Pages) • 1,039 Views
THE HERTZ CORPORATION:
Analysis of Case (Group 8)
Overview and Timeline
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Target and Acquirer
Target: Hertz Corporation, then owned by Ford Motor Company labeled as “corporate orphan”
| Acquirer:
|
Clayton, Dubilier & Rice (CD&R)-Long interest in multi-location service businesses, investments included Kinko and ServiceMaster
Carlyle Group- Expertise in automotive and transportation sectors, investments included Dunkin’ brands, AMC Entertainment Inc. and Grand Vehicle Works which provided products and services to truck fleets and recreational vehicle users.
Merrill Lynch Global Private Equity- Had previously worked with both CD&R and The Carlyle Group
Hertz & Car Rental Industry
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- Size of global Car rental industry: >$30 Billion USD Revenues
- Size of US market: $20 Billion USD Revenues
- Airport rentals account for 50% of total market size
- Size of European market: $12.5 Billion USD revenues.
US Market
- Current market size of $20 B has grown at a CAGR of 5%
- AIRPORT RENTALS: prime influence from developments in travel industry-
- Airline passenger traffic expected to grow at 4.6% CAGR
- OFF-AIRPORT RENTALS: Primarily driven by local business use, leisure travel and the replacement of cars being repaired
- Have grown faster than airport rental revenues
Europe Market
- $10.5 B from company-operated rental locations
- $2 B through licensed operators
- AIRPORT RENTAL: Comprises 40% of the total market size
- OFF-AIRPORT RENTAL: Significantly more developed than in the US, owing to lower reliance on air-travel.
Revenues from Markets
Type of Car Rental | US Revenue | International Revenues |
By Customer | ||
Business | 47% | 48% |
Leisure | 53% | 52% |
By Location: | ||
Airport | 79% | 54% |
Off-airport | 21% | 46% |
Seasonality of Business
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The equipment rental industry
- Customers: small local contractors to large industrial national accounts
- Equipment’s: rents a broad range of earthmoving equipment, material handling equipment, aerial and electrical equipment, air-compressors, generators, pumps, small tools, compaction equipment and construction-related trucks
- Rental equipment accounted for approximately 30% to 40% of all equipment sold into the U.S. construction industry in 2005
- Revenue is also driven from the ends of sale of new equipment and consumables.
- Equipment rental to Hertz contributed about 21% of total revenues.
Hertz & Equipment Rental
US Equipment Rental Industry
- Highly fragmented with few national players many regional and local operators.
- Overall size of industry: $ 35 Billion annual revenues
- Grew at 9.7% CAGR (15 years)
- HERC: Second largest equipment rental company in the US and Canada
European Equipment Rental Industry
- France: $4 Billion
- Spain: $2 Billion
- HERC : One of the largest equipment rental companies in France and Spain.
- $1.67 billion came from European rental equipment market in 2006.
- 30% of revenues of Hertz is brought in from European and other markets.
Reasons for the Transaction
Perspective of Acquirer
- Hertz’s strong brand recognition :
- Leader in airport rentals
- Its equipment rental provided diversification
- Hertz was viewed as a ‘’Corporate orphan’’ and thus had significant room for improvements
- It was an LBO transaction which means that the financial sponsor itself only needs to provide a fraction of the capital for the acquisition
- Deal was valued at $14.9 billion
- $5.8 billion of corporate debt
- $6.8 billion of debt secured by the company’s vehicle fleet
- the private equity firms invested $2.3 billion
- The returns to the investor will be enhanced (as long as the return on assets exceeds the cost of the debt )
- Improved cash flows
Perspective of Target
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