Avis is leaping into the car-sharing service business by buying Zipcar Inc for US$491.2 million, aiming at capturing a new type of customer and technology that will vastly expand its car rental options.
Car sharing has become a popular alternative to traditional rentals in metropolitan areas and on college campuses, allowing members to get a vehicle for an hour or two for short trips instead of renting a car for a day or using mass transit.
The segment has been growing while traditional car rentals have struggled.
Zipcar, which was founded in 2000, has more than 760,000 members, triple what it had in 2008. It went public in 2011 and last year is expected to be its first-ever profitable year.
Avis Budget Group Inc is the third-largest US rental car company, behind Enterprise Rent-a-Car and Hertz Global Holdings Inc.
“I’ve been somewhat dismissive of car sharing in the past but what I’ve come to realize is that car sharing, particularly on the scale that Zipcar has achieved and will achieve, is complementary to our traditional business,” Avis chairman and chief executive officer Ron Nelson said in a conference call after the deal was announced.
Nelson said the acquisition would mean Avis could reach younger, more tech-savvy consumers that prefer sharing services.
The acquisition would help Avis compete with Enterprise and Hertz, which have their own smaller car-sharing services, and having access to Avis’ fleet of cars will help Zipcar meet high demand on weekends when most people take a trip to the grocery store or run other errands.
Avis estimates it will save about US$50 million to US$70 million a year through combining the two businesses into one.
Avis will pay US$12.25 per share, a 49 percent premium on Zipcar’s closing price last Friday.
The stock lost more than half its value early last year as its results and outlook spooked Wall Street. However, late last year, the stock began to recover as the company saw growth in members and revenue, and on Wednesday it soared 48 percent to US$12.19.
The boards of both companies approved the buyout. If Zipcar shareholders approve the deal, it is expected to close in the spring.