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In an attempt to strengthen its presence in Brazil and capture the domestic and international vehicle rental market, Avis Budget Group, Inc. (CAR - Analyst Report) 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 pre-existing debt.
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 2012.
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. (URI - Snapshot Report) and Hertz Global Holdings, Inc. (HTZ - Snapshot Report).
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 look include Interval Leisure Group, Inc. (IILG - Snapshot Report) that has a Zacks Rank #1 (Strong Buy).