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Table
of
Contents
EXECUTIVE
SUMMARY
.................................................................................................................................
2
PART
1:
BEFORE
THE
ACQUISITION
..............................................................................................................
3
Avis
Budget
Group
Corporate
Strategy
.................................................................................................
3
The
Avis
Budget
Group
Overview
......................................................................................................
3
Role
of
the
Corporate
Parent
...............................................................................................................
3
The
Avis
Budget
Corporate
Advantage
................................................................................................
4
Zipcar
Corporate
Strategy
.....................................................................................................................
5
Zipcar
Overview
&
Comparison
to
Avis
and
Budget
..........................................................................
5
Role
of
the
Corporate
Parent
...............................................................................................................
6
The
Zipcar
Corporate
Advantage
..........................................................................................................
7
PART
2:
DURING
THE
ACQUISITION
.............................................................................................................
8
Potential
Synergies
...................................................................................................................................
8
Deal
Review
for
Acquirer
and
Target
.....................................................................................................
11
Is
this
a
good
deal
for
the
acquirer?
...................................................................................................
11
Is
this
a
good
deal
for
the
target?
......................................................................................................
13
Alternative
Structure
of
Deal
.............................................................................................................
14
PART
3:
AFTER
THE
ACQUISITION
..............................................................................................................
17
Opinion
on
Integrating
Zipcar
with
the
Avis
Budget
Group
...................................................................
17
Post
Announcement
Integration
between
Zipcar
and
the
Avis
Budget
Group
......................................
17
SOURCES
....................................................................................................................................................
18
Page 1
EXECUTIVE
SUMMARY
On
January
2,
2013,
the
Avis
Budget
Group
formally
announced
the
acquisition
of
Zipcar
for
$12.25
per
share
in
an
all
cash
deal
valued
at
approximately
$500
million.
The
transaction
is
currently
subject
to
approval
by
Zipcar
shareholders
and
other
customary
closing
conditions,
and
is
expected
to
be
completed
by
the
second
quarter
of
2013.
Through
this
acquisition,
the
Avis
Budget
Group
aims
to
get
a
foot-hold
in
the
car-sharing
space
of
the
overall
automobile
rental
industry,
and
expects
that
the
combination
of
the
two
entities
will
result
in
$50
-
$70
million
in
annual
synergies.
The
purpose
of
this
report
is
to
take
a
look
at
both
the
acquiring
company
(Avis
Budget),
and
the
target
company
(Zipcar)
and
get
an
understanding
of
each
entities
respective
corporate
strategy
and
corporate
advantage.
Next,
the
report
provides
detail
on
the
value
capture
and
monetary
/
non-monetary
synergies
resulting
from
this
acquisition,
and
reviews
the
deals
from
both
the
perspective
of
the
acquirer
and
the
target.
Finally,
the
report
concludes
with
an
opinion
on
how
short
and
long-term
integration
between
the
companies.
Page 2
sharing).
The
corporate
parent
is
responsible
for
the
major
decisions
that
affect
the
operation
of
each
business
unit.
Similar
to
any
major
corporation,
the
Avis
Budget
Group
aims
to
grow
profitability
across
the
various
business
segments;
to
grow
market
share
in
the
automobile
rental
industry;
and
to
reduce
costs
through
process
improvements
and
synergies
across
global
operating
units.
The
role
of
the
corporate
parent
can
be
defined
through
its
core
strategic
initiatives.
1. Optimize
the
Multi-Brand
Strategy
Avis
and
Budget
are
two
major
brands
in
the
automobile
rental
industry.
They
maintain
two
separate
brand
identities
and
target
two
very
different
customer
segments
(Avis
is
a
premium
brand
associated
with
corporate
and
upscale
leisure
travelers;
Budget
as
a
brand
targeted
to
value-conscious
travelers).
Although
the
two
brands
share
many
back
office
functions
and
administrative
infrastructure,
the
corporate
parent
needs
to
align
the
different
brand
strategies
(e.g.
product
offerings,
pricing
systems,
and
marketing
channels)
that
results
in
the
greatest
bottom
line
profit
for
each
business
unit.
2. Grow
Top
Line
Revenue
Across
the
Avis,
Budget,
and
Budget
Truck
business
units,
the
corporate
parent
continuously
looks
for
new
ways
to
grow
revenue
through
its
core
business
(i.e.
renting
vehicles)
and
through
ancillary
revenue
streams
(i.e.
add-ons
to
each
rental
such
as
insurance,
GPS
systems,
electronic
toll
collection
systems,
or
Satellite
Radio
units).
The
corporate
parent
also
needs
to
look
at
different
business
models
for
growing
revenue,
which
may
include
prepayment
for
certain
rentals,
to
completely
changing
the
car
rental
model
(such
as
the
car-sharing
model).
3. Grow
Profits
This
is
where
the
introduction
of
data
analytics,
risk
management
and
technology
comes
into
play.
As
a
car
rental
business,
the
Avis
Budget
Group
continuously
looks
into
optimizing
its
yield
management
and
pricing
management
algorithms
to
improve
profitability
per
rental
day.
From
a
cost
perspective,
the
group
analyzes
ways
in
which
to
cut
costs
(through
the
use
of
process
improvement
initiatives,
or
through
technology
solutions
that
reduce
long
term
variable
costs).
Finally,
the
corporate
parent
must
also
look
to
match
fleet
sizes
at
locations
to
expected
demand
on
a
regular
basis,
and
maintain
the
necessary
liquidity
to
fund
the
overall
group
operations.
The
Avis
Budget
Corporate
Advantage
As
a
consolidated
group,
Avis
Budget
has
a
corporate
advantage
in
the
automobile
rental
industry.
The
corporate
advantage
is
driven
through
key
organization
linkages
across
business
units,
especially
through
the
car
rental
business
that
accounts
for
95%
of
the
groups
annual
revenue.
In
short,
both
Avis
and
Budget
target
different
industry
segments
but
share
the
same
fleet,
maintenance
facilities,
systems,
technology
and
administrative
infrastructure.
The
primary
linkages
that
drive
the
corporate
advantage
include:
13
J
P3
MAACS
EA
Group
Report
DHANOA,
ROSS,
SETH
Page 4
1. Reservation Methods Both Avis and Budget brands leverage similar technology for making reservations, i.e. online portals, mobile portals, phone reservation centers, online travel portals and also share travel agents and specific partners such as airlines. Each of these resources can determine the ability to fulfill a customer rental at a given time. 2. Marketing Both Avis and Budget support their respective brands through a variety of different channels and campaigns. This includes partnering with other players in the travel industry such as airlines, hotel groups, and credit card companies. Both brands also have their own loyalty programs targeted to individual and corporate customers, and to small, medium and large businesses. 3. Licensing / Franchising In addition to running its own rental operations, both Avis and Budget brands also use licensing as a means of generating royalties for the corporate parent. 4. Data Analytics Across the Avis and Budget brands, there is a common link between the worldwide reservation, rental, data processing and information management systems. These systems focus on fleet planning, yield management, pricing decisions, business mix with customer segment, data warehousing, sales and marketing systems, and customer service processes that help keep the Avis Budget group competitive in the automobile rental industry. 5. Global Fleet Management The Avis Budget group maintains a single fleet of vehicles for the Avis and Budget brands in countries where they operate both brands.
students
to
own
a
car
on
campus;
and
for
local
municipal
agencies
and
small
businesses
where
the
costs
of
maintaining
a
fleet
of
cars
for
business
is
not
ideal.
Zipcars
corporate
strategy
is
focused
on
growing
membership
to
its
car-sharing
network.
This
is
in
contrast
to
Avis
Budget
which
does
not
require
membership
of
customers.
The
idea
behind
membership
is
to
have
a
dedicated
community
of
Zipsters
who
have
the
freedom
of
on- demand
access
to
a
fleet
of
Zipcar
vehicles
at
any
hour
of
the
day,
and
in
any
community
they
may
currently
be
in
(whether
home
or
outside
of
their
place
of
residence/business).
Membership
to
the
network
results
in
Zipsters
having
to
only
pay
for
the
actual
use
of
the
vehicle
all
other
costs
such
as
gas
for
the
vehicle
and
insurance
during
the
vehicles
use
is
covered
by
the
membership.
Lastly,
Zipcar
provides
its
members
the
option
to
choose
the
actual
make
and
brand
of
the
vehicle
they
wish
to
drive.
Based
on
availability
in
the
rental
area,
Zipsters
select
a
model
based
on
their
personal
preferences,
and
on
their
actual
need
for
the
vehicle.
This
is
in
contrast
to
the
traditional
car
rental
model
where
users
simply
specify
the
size
of
vehicle
needed,
leaving
it
up
to
the
rental
agency
to
decide
which
car
to
rent
based
on
availability
in
the
rental
area.
Role
of
the
Corporate
Parent
As
a
small,
growing
business
that
has
yet
to
realize
the
full
potential
of
its
operating
model
in
the
car-sharing
space
within
the
greater
car
rental
industry,
Zipcar
is
predominantly
focused
on
the
growth
of
its
existing
business.
This
strategy
consists
of:
1. Increasing
Adoption
in
Existing
Markets
Zipcar
is
focused
on
major
metropolitan
areas
within
the
United
States,
Canada,
the
United
Kingdom
and
Spain.
There
is
still
untapped
potential
within
these
markets
to
grow
the
car-sharing
concept,
and
capture
market
share
from
traditional
rental
car
companies
and
automotive
dealerships
wishing
to
push
car
ownership
and
leasing
on
residents
within
these
areas.
2. Expanding
into
New
Markets
As
the
concept
of
car-sharing
grows,
Zipcar
is
looking
to
grow
both
domestically
in
the
United
States
and
internationally.
The
expansion
into
new
markets
is
into
markets
that
can
support
car-sharing
(i.e.
metropolitan,
urban
areas).
To
date,
Zipcar
has
grown
both
organically
and
through
acquisitions,
acquiring
other
upstart
car-sharing
firms
such
as
Flexcar
(United
States)
in
2007,
Streetcar
(United
Kingdom)
in
2010,
and
Avancar
(Spain)
in
2011.
3. Growing
the
Relationship
with
Members
The
Zipcar
model
is
driven
through
its
membership,
and
as
such
the
company
looks
for
newer
ways
to
enhance
the
customer
experience.
Past
enhancements
of
the
model
have
included
the
creation
of
Zipvan,
where
customers
may
rent
a
van
based
on
the
car-sharing
model,
and
targeted
marketing
and
promotions
based
on
the
Zipsters
customer
information,
preferences,
and
renting
history.
13
J
P3
MAACS
EA
Group
Report
DHANOA,
ROSS,
SETH
Page 6
4. Enhancing Technology within its Car-Sharing Business Zipcar maintains a fully integrated platform that centralizes the management of reservations, member services, fleet operations and financial systems (similar to other car rental companies). In addition to this, Zipcar will continually focus on using technology to enhance the customer experience of using Zipcar. Past examples of this have included smart phone applications that allow its members to reserve a vehicle in a particular area, and use that application to start the vehicle when it is ready for use. The Zipcar Corporate Advantage One can say that Zipcar has no corporate advantage as it is a business that is purely focused on the car-sharing space within urban and metropolitan areas. Zipcar does not operate multiple brands of car-sharing services, and acts a single entity within the car sharing space.
Page 7
Budget. The acquisition provides the opportunity for cross-selling to these segments i.e. offering the ease and convenience of Zipcar to Avis Budgets traditional user base and vice versa. This offers the potential to grow top-line revenue for both entities with reduced requirement for customer acquisition investment.
Value of Synergies
When observing the market reaction to the acquisition announcement, one can gain an understanding of the markets estimated value of total synergies. On the date of the announcement, Avis Budgets announced acquisition price of $12.25 a share represented a 49% premium, or $161MM more than Zipcars market cap. This premium of $161MM reflects the markets view of the share of synergies captured by Zipcars shareholders. On the same day, Avis Budgets share price also saw a 4% jump from $19.39 to $20.21, reflecting a $87.3MM increase in market cap. This increase of $87.3MM reflects the markets view of the share of synergies captured by Avis Budget. Combining Zipcars takeover premium with Avis Budgets share price appreciation, one can see the market estimate of total synergies is $161MM + $87MM = $248MM.
Avis Budget has said it expects to generate $50 to $70 million in annual synergies as a result of the deal. According to estimates provided by Reuters, the breakdown of these synergies is as follows:
Page 9
These factors would improve Zipcars profitability substantially. Last reported full year data shows Zipcar making a loss (net income -$7MM on $241MM sales). However, data from Q3 2012 shows the company moving into profitability with 5.5 percent net margin, or $4.3MM of net income on $78.2MM sales. With the synergies identified analysts believe Zipcars net margins could jump all the way to 18 percent. Of course, a good portion of any benefit from sharing fleets would really belong to Avis Budgets existing business. Nonetheless, according to Reuters, these anticipated synergies, with a net present value after tax of $175MM, would still exceed the $161MM takeover premium.
1. Equipping Aviss cars with Zipcar technology and making them available on the weekend could increase revenue by up to $25 million a year 2. Adding one-way rentals as well as expanding Zipcar locations could inject another $20 million to revenues Combining (1) and (2), and assuming no associated costs, could add $30 million after tax to annual profit 3. Expected cost savings due to improved fleet management could net another $25 million of synergies
The
role
of
members
of
the
Board
of
Directors
of
Avis
Budget
is
to
ensure
that
any
business
decision
that
is
made
is
in
the
best
interests
of
the
shareholders
of
the
firm
i.e.
the
decision
creates
value
for
current
shareholders.
As
such,
if
we
were
in
this
role,
the
questions
that
we
would
want
to
ask
would
be
related
to
the
cost
and
benefits
of
the
acquisition
and
the
likelihood
of
a
successful
outcome
i.e.
an
outcome
that
increased
the
value
of
the
shareholders
stake
in
the
firm.
Research
shows
that,
in
general,
acquisitions
do
not
positively
contribute
to
an
acquiring
firms
performance
and
that
50-80%
of
M&As
are
considered
non-value
creating.
Given
this,
it
is
of
great
importance
that
the
Board
ensures
the
decision
to
acquire
is
made
for
the
right
reasons.
The
Board
has
an
important
role
to
play
in
ensuring
the
M&A
activity
they
are
presiding
over
is
successful.
There
are
a
number
of
reasons
why
M&A
occur
which
are
not
based
on
creating
shareholder
value.
The
Board
must
question
management
adequately
to
ensure
such
reasons
are
not
the
driving
force
behind
the
acquisition.
Reasons
that
are
not
primarily
driven
by
value
creation
include:
Managerial
biases
- Managerial
overconfidence
- Management
unwilling
to
walk
away
from
deal
they
have
significantly
invested
in
13
J
P3
MAACS
EA
Group
Report
DHANOA,
ROSS,
SETH
Page
10
Given these considerations, we would ask the following questions about the deal: 1. What is the value to Avis? What is the NPV of the investment? What synergies do we expect to achieve with Zipcar and how achievable are they? What is the time frame for achieving the synergies? What markets does the acquisition let us enter where we currently do not have access to? - Is acquisition the best way to enter these markets? What are the characteristics of the market we are hoping to gain entry to? What competitive advantage does the acquisition give us? What are our competitors doing in this space? 2. Are we paying the right price? What is our valuation of the synergies we can achieve with Zipcar? What is our valuation of Zipcar is the company currently overvalued or undervalued by the market? What is our bidding strategy? What is our walk-away price? Do we know if other competitors are investigating Zipcar? Have there been other recent deals in the industry? What was the value of the companies and what was the winning bid?
Incentive conflict - Top management incentivised to perform M&A as compensation linked to firm size - Investment bank compensated based on deal closes
3. Do we believe we can make this a successful M&A? Do we believe in the value proposition Zipcar offers? How sure are we that this will remain relevant? Do we believe in Zipcars management team? Where do we expect future growth to come from for - Zipcar - Avis Budget Is M&A the right route? Have we considered organic growth or a strategic alliance?
strong
position
in
the
existing
car
rental
market
and
was
(and
still
is)
active
in
multiple
geographies
across
the
globe.
The
company
had
a
position
both
in
the
traditional
leisure/commercial
segment
and
the
budget
conscious
segment
of
car
renters;
however,
the
car
rental
industry
was
starting
to
undergo
significant
changes
and
it
was
important
for
Avis
Budget
to
recognize
and
adapt
to
these
changes
to
prevent
becoming
irrelevant
in
the
industry.
At
the
time
of
the
acquisition,
car
rental
consumers
were
beginning
to
demand
increasing
flexibility,
more
convenience
and
more
personalized/individualized
service.
Additionally,
as
car
ownership
started
declining
(particularly
in
urban
locations),
there
was
increasing
demand
for
short
term
(less
than
24
hour)
rentals
and
a
change
in
the
demographic
of
those
renting
cars.
Specifically,
young
urbanites
were
increasingly
looking
for
alternatives
to
car
ownership.
This
demographic
is
quite
different
from
Avis
Budgets
classis
customer
demographics
of
business
travelers
and
holiday
makers.
Aviss
key
competitors
(i.e.
Hertz,
Enterprise)
had
already
started
moving
into
this
space
and
were
offering
hourly
car-rental
services
to
their
customers.
Thus
at
the
time
of
the
deal,
Avis
Budget
was
lagging
behind
competitors
in
gaining
a
foothold
in
this
new,
growing
market.
To
understand
how
best
to
grow
in
the
future,
Avis
Budget
had
to
first
understand
the
resource
gap
that
they
faced
in
updating
their
business
model.
The
key
resource
gaps
they
were
facing
included:
Access
to,
and
understanding
of,
the
target
customer
demographic
for
car- sharing/short-term
car
rental
services
Technology
to
allow
more
convenient
and
flexible
short
term
rentals
Brand
strength
in
the
car-sharing
market
Avis
Budget
could
have
used
a
number
of
different
strategies
to
fill
these
resource
gaps.
The
first
decision
would
be
whether
to
buy
or
build
to
fill
the
gaps.
Developing
the
capabilities
required
in-house
would
have
taken
significant
time
(i.e.
building
brand)
and
some
of
the
capabilities
are
not
easily
imitable
(i.e.
technology).
Additionally,
Avis
Budget
competitors
had
already
moved
into
the
car-sharing
space
and
speed
of
movement
was
important
to
Avis
Budget
to
prevent
them
being
left
behind
in
the
rush
for
market
share.
As
a
result,
building
resources
and
capabilities
internally
was
unlikely
to
be
an
effective
way
to
fill
the
resource
gap
and
the
decision
was
made
to
acquire
Zipcar.
Upon
analysis,
we
conclude
that
Zipcar
does
fulfil
Avis
Budgets
needs
in
terms
of
closing
the
resource
gap:
Zipcar
has
built
a
strong
brand
among
young,
urbanites
and
is
well
recognized
by
this
demographic
- In
contrast,
Avis
is
seen
as
a
dinosaur
of
the
car
rental
business
13
J
P3
MAACS
EA
Group
Report
DHANOA,
ROSS,
SETH
Page 12
Zipcar understands this demographic and has used their extensive data gathering abilities to build datasets around their membership base. - Avis does not have access to data on this demographic and has little knowledge of their needs, wants and preferences Zipcar have a considerable share of the car-sharing market in USA and Europe and are considered the leading player at this time. This allows Avis Budget to leapfrog competitors (e.g. Hertz) who have made shallow inroads into this market and establish dominance Zipcar has developed sophisticated technology to make car rental more flexible and more convenient (for example: mobile apps for making and updating car bookings, technology to remotely unlock and lock cars, etc.). Avis can harness this technology to increase the efficiency of renting and to improve the customer experience
Based on this assessment of Avis Budgets resource gap and Zipcars ability to fulfil the gap, Avis Budget stands to gain significantly from this deal. As discussed earlier, the markets reaction indicates that the acquisition was seen as a value creating move. Acquiring Zipcar allows Avis Budget to play both an aggressive and a defensive move. By establishing a dominant position in the newly emerging car-sharing market, Avis Budget are positioning themselves well to become a dominant player in this market while also allowing them to build up business in a new market to maintain profitability as the traditional car rental market starts to decline. Is this a good deal for the target? Zipcar has experienced strong growth rates in recent years (43% CAGR over 2007-2011) and has expanded to several major markets, mostly through acquisitions of competitors. However, at the end of 2011 they had yet to achieve profitability (they were expected to achieve profitability in 2012). The reason for the lack of profitability was the capital required to fund Zipcars recent aggressive expansions. The business has high fixed costs due to the need to expand fleet ahead of entering new markets. While Zipcar had been successful in building their brand, extending their customer base, and establishing a dominant market share position, this had come at the detriment of cash flows and profitability. Zipcar was in a relatively unsustainable position and it was unclear how it would fund future growth. To reiterate, Zipcars resource gap was focused around scale, access to capital, and cash flow. Avis Budget were able to provide all elements of this resource gap to Zipcar - As of 2011, Avis Budget fleet comprises 393,000 vehicles, while Zipcars was at 11,000. The acquisition would allow Zipcar to benefit from the significantly increased scale of the
Page 13
merged entity, specifically allowing them to achieve cost savings around procurement and insurance costs. Avis Budget is a mature company with stable cash flows and a reported ~$550M available cash. The acquisition allows Zipcar access to these financing resources allowing investment in future expansion and alleviating cash flow concerns.
Alternative
Structure
of
Deal
We
do
not
believe
this
deal
would
have
worked
so
well
if
structured
as
an
alliance
rather
than
as
an
acquisition.
There
are
a
number
of
different
structures
that
could
have
been
examined.
Licencing
Avis
Budget
could
have
licenced
Zipcars
technology
and
implemented
it
in
its
own
fleet.
This
would
have
increased
the
level
of
customer
service
Avis
Budget
was
able
to
offer
and
would
have
improved
some
of
their
flexibility
options.
However,
beyond
this
it
would
not
have
given
Avis
Budget
any
further
legitimacy
in
the
newly
emerging
car-sharing
market
or
help
them
understand
the
target
customers.
Additionally,
Zipcar
would
have
been
able
to
licence
the
technology
to
multiple
players
leaving
little
competitive
advantage
for
Avis
Budget
to
leverage.
Strategic
alliance
with
equity
stake
There
are
a
number
of
issues
that
should
be
considered
when
determining
whether
an
alliance
with
equity
stake
is
preferable
to
an
outright
acquisition.
Coordination
A
high
degree
of
knowledge
sharing
between
two
companies
and
coordination
of
strategy
is
often
difficult
to
achieve
in
an
alliance
as
there
is
concern
about
excessive
knowledge
sharing
leading
to
power
imbalances
between
the
players.
In
the
case
of
Zipcar
and
Avis
Budget,
significant
knowledge
transfer
was
required
from
Zipcar
to
Avis
Budget
(e.g.
technology,
customer
insights).
Structuring
this
within
an
alliance
would
have
been
difficult
to
achieve
as
Zipcar
stood
to
lose
a
lot
of
power
as
Avis
Budget
acquired
their
know-how.
Thus,
based
on
coordination
issues,
acquisition
would
be
the
preferred
deal
structure
in
this
case.
Alignment
of
interests
Avis
Budget
and
Zipcar
have
different
goals
for
their
relationship.
Avis
Budget
has
an
incentive
to
learn
as
much
as
they
can
from
Zipcar
and
could
then
potentially
go-it-alone
in
the
newly
emerging
car-sharing
market
or
adapt
their
existing
business
model
to
cater
to
this
market.
This
is
a
significant
risk
to
Zipcar,
who
would
face
a
cash-rich
and
powerful
competitor
in
its
market
space.
Thus,
for
Zipcar,
acquisition
is
the
safer
deal
structure.
On
the
other
side,
Zipcar
stands
to
benefit
from
scale
benefits
associated
with
procurement
and
from
access
to
Avis
Budgets
cash
flows.
The
scale
benefits
could
have
been
achieved
within
the
structure
of
an
alliance
but
it
is
unlikely
a
deal
would
have
been
structured
that
provided
the
cash
flow
requirements
for
Zipcar
in
as
secured
a
way
as
can
be
achieved
through
acquisition.
From
Zipcars
point
of
view,
setting
up
a
strategic
alliance
would
not
have
been
an
optimal
deal
structure
in
this
case.
13
J
P3
MAACS
EA
Group
Report
DHANOA,
ROSS,
SETH
Page 14
Exclusivity It is essential to Avis Budget that competitors do not gain access to Zipcars leading technology and to the Zipcar brand Avis Budget needs exclusivity. Exclusivity agreements can be written into alliance contracts but can be difficult to achieve and to enforce. By acquiring Zipcar, Avis Budget ensures exclusivity. Costs Avis Budget can achieve significant synergies with Zipcar (as detailed earlier). Our analysis suggests the benefits of these synergies will outweigh the cost to Avis of acquiring and integrating Zipcar. Since the benefits of acquisition outweigh the costs, acquisition is favoured over alliance (assuming all other factors agree). Motivation of Zipcar employees There is a moderate risk that the acquisition will have a negative impact on the Zipcar culture and on staff morale and motivation. Zipcar has a strong, distinctive culture that is very different to Avis Budgets more traditional, more corporate culture. In many ways, it would be easier to preserve Zipcars culture with an alliance than with an acquisition: one of the significant risks to the success of this acquisition is a cultural clash. Allowing Zipcar to maintain its cultural identity is essential to the success of this acquisition and should be of key importance during integration planning.
Commitment
The
key
resources
that
Avis
Budget
stands
to
benefit
from
(Zipcars
technology,
brand,
customer
insight
and
market
access)
are
relatively
well
established
and
have
been
tried
and
tested
in
a
number
of
different
markets.
In
cases
where
these
resources
are
not
yet
tested
or
have
not
been
shown
to
be
successful,
an
alliance
would
decrease
risk
for
Avis
Budget.
However,
given
these
resources
have
been
shown
to
be
successful
in
a
number
of
different
markets,
this
should
not
be
a
barrier
to
acquisition.
When
considering
these
criteria,
an
acquisition
seems
to
be
the
right
way
to
structure
this
deal
it
is
unlikely
that
an
alliance
would
be
so
successful.
Additionally,
when
considering
an
alliance,
it
is
essential
to
think
not
only
about
what
each
side
will
gain
from
but
also
how
this
will
change
over
time.
Initially,
both
Zipcar
and
Avis
Budget
have
a
lot
to
gain
from
an
alliance
and
the
power
balance
is
relatively
equal.
However,
Zipcars
gains
are
predominantly
benefitting
from
Avis
Budgets
economies
of
scale
and
having
access
to
additional
cash
flows.
These
are
not
things
that
can
be
easily
learned
from
working
alongside
Avis
Budget
and
Zipcar
is
likely
to
benefit
from
these
only
throughout
the
life
of
the
partnership.
If
the
partnership
were
to
end,
Zipcar
would
no
longer
benefit.
Conversely,
Avis
Budget
stands
to
gain
technological
know-how,
consumer
understanding
and
brand
association.
Technological
expertise
and
consumer
insights
are
skills
that
can
be
learned,
and
with
information
sharing,
Avis
Budget
could
be
expected
to
develop
these
capabilities
internally
within
a
few
years.
Additionally,
with
careful
co-branding,
Avis
Budget
will
be
able
to
build
their
brand
with
the
target
demographic
and
gain
legitimacy
in
this
market.
Over
time,
Avis
will
gain
a
significant
amount
from
a
partnership
that
will
remain
even
if
the
partnership
itself
ceases.
Thus,
within
a
few
years
of
setting
up
an
alliance,
we
would
expect
the
balance
of
power
to
shift
and
Avis
Budget
to
become
the
powerful
partner.
Zipcar
would
then
be
in
a
weak
13
J
P3
MAACS
EA
Group
Report
DHANOA,
ROSS,
SETH
Page
15
position with limited bargaining power to improve the terms of the alliance. From Zipcars perspective, there is much to lose from a partnership in the long term, and little to gain. In conclusion, due to the risk of this power imbalance occurring, we would recommend that an alliance is not the optimal way to structure this deal, and that an acquisition of Zipcar by Avis Budget was the right decision.
Page 16
PART
3:
AFTER
THE
ACQUISITION
Opinion
on
Integrating
Zipcar
with
the
Avis
Budget
Group
After
analyzing
the
business
and
strategies
of
Zipcar
and
the
Avis
Budget
Group,
and
after
analyzing
various
aspects
across
value
capture
and
synergies
across
the
acquisition
of
Zipcar
by
the
Avis
Budget
Group,
we
conclude
that
the
integration
between
the
two
companies
should
be
that
of
a
Symbiosis
approach
in
the
short
run.
We
see
that
Zipcar,
given
its
unique
business
operating
culture
(the
company
still
maintains
the
young,
vibrant
start-up
mentality)
and
its
innovation
and
leadership
in
the
car-sharing
space,
requires
a
high
level
of
organizational
autonomy
from
the
Avis
Budget
group
to
continue
its
momentum
in
the
car-sharing
space.
Furthermore,
the
acquisition
from
the
onset
requires
a
high
level
of
strategic
interdependence
between
Zipcar
and
the
Avis
Budget
Group.
Zipcar
depends
on
the
capital
and
resources
that
the
Avis
Budget
Group
will
provide,
allowing
Zipcar
to
scale
and
experiment
with
the
car-sharing
model
in
an
even
wider
number
of
markets.
In
turn,
the
Avis
Budget
Group
will
need
to
observe
and
use
the
Zipcar
car-sharing
model
as
a
proving
ground
for
further
investing
into
the
model
across
greater
locations
within
its
rental
network,
and
understand
its
implications
to
its
traditional
corporate
and
leisure
traveler
customer
segments.
Assuming
that
the
Avis
Budget
Group
fully
understands
and
is
able
to
realize
the
value
of
the
car-sharing
model
to
its
legacy
business,
the
long
run
integration
between
the
Avis
Budget
Group
and
Zipcar
should
be
that
of
an
Absorption
acquisition.
At
this
point
in
time,
after
the
car-sharing
model
has
been
proved,
there
should
be
a
low
need
for
organizational
autonomy
across
the
two
entities.
At
this
point,
the
corporate
cultures
of
the
two
businesses
will
need
to
merge
into
one.
The
high
level
of
interdependence
here
will
be
the
leveraging
of
both
the
traditional
car
rental
model
as
well
as
that
of
the
car-sharing
model,
adjusted
for
the
different
customer
segments
worldwide.
Post
Announcement
Integration
between
Zipcar
and
the
Avis
Budget
Group
Following
the
announcement
of
the
acquisition
(January
2,
2013)
of
Zipcar
by
the
Avis
Budget
Group,
Zipcar
will
continue
to
operate
as
a
subsidiary
of
the
Avis
Budget
Group
and
will
continue
to
be
headquartered
of
the
US
East
Coast
(Boston,
MA).
Furthermore,
there
will
be
minimum
changes
to
the
existing
Zipcar
management
team,
as
they
will
continue
to
set
the
overall
direction
for
the
subsidiary,
manage
daily
Zipcar
operations,
and
look
for
newer
ways
to
retain
and
grow
the
Zipster
community.
Given
the
recent
date
of
the
acquisition
announcement,
it
is
too
early
to
comment
on
the
success
(or
not!)
of
the
actual
integration
between
Zipcar
and
the
Avis
Budget
Group.
Page 17
SOURCES
1. SEC
Form
10-K,
for
Fiscal
Year
Ended
December
31,
2011
Avis
Budget
Group
Inc.
2. SEC
Form
10-K,
for
Fiscal
Year
Ended
December
31,
2011
Zipcar,
Inc.
3. Zip
car
press
release
on
acquisition
-
http://zipcar.mediaroom.com/index.php?s=43&item=294
4. Car
Sharing
Catches
On
as
Zipcar
Sells
to
Avis
-
http://dealbook.nytimes.com/2013/01/02/avis-to-buy-zipcar-for-500-million/
5. A
Faster
Lane
to
Profitability
-
http://dealbook.nytimes.com/2013/01/02/a-faster- lane-to-profitability/
6. Dear
Avis,
Please
Dont
Screw
Up
Zipcar
-
http://tech.fortune.cnn.com/2013/01/18/dear-avis-please-don%C2%B9t-screw-up- zipcar/
7. Not
the
End
of
the
Road
for
Zipcar
-
http://www.fool.com/investing/general/2013/01/04/not-the-end-of-the-road-for- zipcar.aspx
8. Aviss
Smart
Zipcar
Buy
-
http://blogs.reuters.com/felix-salmon/2013/01/02/aviss- smart-zipcar-buy/
Page 18