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Global vehicle rental giant, Avis Budget Group, Inc. (CAR - Analyst Report) recently acquired Payless Car Rental – the sixth largest car rental company – in an all-cash deal worth approximately $50 million. Avis Budget is contemplating operating Payless as an exclusive brand.

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 deep-value segment of the car rental industry that is witnessing robust growth.

Payless acquisition is also likely to boost Avis Budget’s worldwide presence by supporting the latter’s mid-tier brand and providing ample opportunities in an additional section of the car rental market. Payless boasts 120 rental locations in the United States, Canada, Europe and South America, including several in key airport locations and generates annual revenue of about $80 million.

Other Notable Acquisitions

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 in expanding its offerings from car rental to car sharing and help it to compete with rivals such as United Rentals, Inc. (URI - Snapshot Report) and Hertz Global Holdings, Inc. (HTZ - Snapshot Report).

In Oct 2011, the company acquired Avis Europe plc for 635 million pounds or $1.0 billion. After 25 years, the company successfully united the 2 businesses again. This acquisition has given Avis Budget the opportunity to expand in international markets such as India and China.

Conclusion

We believe that Avis Budget will greatly benefit from the acquisition of Payless. The acquisition will help containing costs from lesser vehicle depreciation, lower fleet interest expense and administrative cost synergies. Moreover, this transaction is likely to provide lucrative returns on investment.

Avis Budget currently carries a Zacks Rank #4 (Sell). Other well performing stocks in the same sector that are worth a look include National Research Corp. (NRCIB - Snapshot Report) with a Zacks Rank #1 (Strong Buy).

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