In an attempt to strengthen its presence in Brazil and capture
the domestic and international vehicle rental market,
Avis Budget Group, Inc.
) has agreed to acquire 50% ownership interest in its existing
Brazilian licensee for approximately $50 million. The company's
strategic move is backed by the growing car rental demand in the
country as well as the upcoming FIFA World Cup in 2014 and
Olympic Games in 2016.
The car rental business in Brazil is expected to touch the $4
billion mark by 2016, which represents a compounded annual growth
rate of 13% since 2008. Moreover, as per the data provided by
Global Business Travel Association, spending on business travel
in Brazil is projected to grow over 10% every year while
international business travel spending is rising 20% in 2013.
Therefore, we believe that the acquisition will provide Avis
Budget with opportunities to consolidate its presence in the
South American car rental industry that is witnessing robust
growth. In concurrence with the acquisition, the company is
expecting to record $30 million in the third quarter of 2013 as
an impairment charge primarily related to the licensee's
Avis' legacy of Brazilian operations dates back to 1978. At
present, the company has over 4,000 cars in the country operating
through more than 40 rental locations. The company's licensee has
been using its Avis brand since 2003 and Budget brand since 2005
and generated rental revenues of approximately $50 million in
Other Notable Acquisitions
In an all-cash deal worth approximately $50 million, Avis
Budget acquired Payless Car Rental, which is the sixth largest
car rental company as of Jul 2013. Payless primarily concentrates
on deep-value segments of the car rental industry, unlike Avis
Budget's Avis brand and mid-tier Budget brand. Therefore, this
acquisition will provide Avis Budget with enormous opportunity to
spread its wings in the deep-value segment of the car rental
industry that is witnessing robust growth.
In March this year, Avis Budget successfully completed the
acquisition of the world's leading car sharing network company,
Zipcar Inc. Avis agreed to buy Zipcar in Jan 2013 for $500
million. This strategic move will facilitate the company to
extend its offerings from car rental to car sharing and will help
it to compete with rivals such as
United Rentals, Inc.
Hertz Global Holdings, Inc.
In Oct 2011, Avis Budget acquired Avis Europe plc for 635
million pounds or $1.0 billion. After 25 years, the companies
successfully reunited and the combined entity is known as Avis
Budget. This acquisition has given Avis Budget the opportunity to
expand in emerging economies such as India and China.
Avis Budget is aggressively expanding its operations through
acquisitions and joint ventures. Moreover, in an effort to
enhance its global footprint, the company is investing in other
booming markets where car rental demand is growing. This is well
evident from the aforementioned acquisitions, Avis Budget's
partnership with a popular theme park and resort in Spain,
PortAventura as well as the opening of new car rental units in
Spain and the Asia Pacific. We believe that these strategies,
together with better customer support systems will boost the
company's top line.
Avis Budget currently carries a Zacks Rank #5 (Strong Sell).
Other well performing stocks in the same sector that are worth a
Interval Leisure Group, Inc.
) that has a Zacks Rank #1 (Strong Buy).
AVIS BUDGET GRP (CAR): Free Stock Analysis
HERTZ GLBL HLDG (HTZ): Free Stock Analysis
INTERVAL LEISUR (IILG): Free Stock Analysis
UTD RENTALS INC (URI): Free Stock Analysis
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