If you've ever said, "Don't worry about it, it's just a rental," guess who hurts: Hertz, a world leader in car rental. On its own and through agents and licensees, Hertz operates some 8,800 rental locations in about 150 countries worldwide. The US is home to about 2,360 of Hertz's staffed rental sites, of which about 70% are at airports. Its fleet includes approximately 444,000 cars from Ford, General Motors, Toyota, and other manufacturers. Car rental accounts for about 85% of its sales. Hertz also rents a variety of heavy equipment through about 315 locations in North America, Europe, and China. Not to be left at the curb, Hertz is investing in electric and hybrid vehicles as well as car sharing.
Hertz Global Holdings operates throughout North America, Europe, Latin America, Asia, Australia, New Zealand, Africa and the Middle East. It rings up about 35% of its sales outside North America.
In addition to renting vehicles, Hertz Global Holdings rents equipment through subsidiary Hertz Equipment Rental Corp. (HERC). HERC rents everything from small tools to heavy earthmoving equipment to clients, including small contractors and large industrial customers, through some 315 branches in the US, Canada, France, Spain, Italy, China, and Saudi Arabia. Unlike the airport car rental industry, where several national brands dominate, the US equipment-rental market is fragmented, and Hertz sees opportunities for HERC to gain market share both in the US and abroad through the acquisition of smaller players. HERC accounts for nearly 15% of its parent company's total sales. Other Hertz businesses include: Hertz Car Sales, which sells one-year-old vehicles from the rental fleet; soon-to-be divested Advantage Rent A Car; Hertz Truck & Van Rental; Donlen, the firm's fleet leasing and management subsidiary with operations in the US, Canada, and Mexico; and Hertz Entertainment Services (launched in 2010).
Hertz Global Holdings saw its 2011 sales increase nearly 10% vs. 2010, while net income continued its steady climb following a deep plunge in 2008. Revenue from Hertz's car rental segment grew by more than 9% in 2011 vs. the prior year, while equipment rental revenue jumped 13% (after posting a decline in the previous annual comparison). HERC's strong performance resulted from higher rental volumes and pricing compared to the previous year. Rental car revenue benefitted from increases in car rental days worldwide of 8%, refueling fee and other fee income. Growth in Europe outpaced the US, up 12% vs. 8%, respectively, in 2011 vs. 2010.
Volatility in the economy and air travel market impressed upon Hertz the need to diversify to lessen its dependence on its airport locations, which accounted for 70% of its US rental revenue in 2011 (down from 73% in 2009). To that end, in fall 2012 Hertz opened 150 Hertz Local Edition locations in 33 states that cater to the neighborhood car rental market. It also continues to make acquisitions in new markets and industries. Hertz's hard-won deal for Dollar Thrifty Automotive Group (DTG), which closed in late 2012, furthered the already considerable amount of consolidation in the car rental industry. Combined, Hertz and DTG have more than $10 billion in sales and about 10,000 locations globally. (The purchase of DTG gives Hertz a US market share of more than 20% and strengthens its presence abroad, given DTG's strong international business.)
Hertz, which rings up about two-thirds of its revenue in the US, is attempting to also expand geographically through acquisitions and joint ventures. An example is its acquisition of UK-based car-rental firm Autotravel. The acquisition increased the number of Hertz's U.K. locations by more than 25%.
Mergers & Acquisitions
After more than two years, Hertz has persuaded a reluctant Dollar Thrifty Automotive Group (DTG) to succumb to its advances. Indeed, in a deal valued at $2.3 billion, DTG in August 2012 announced that it has agreed to be acquired by Hertz, after rejecting a lower bid from the company in 2010 and a rival bid from Avis Budget Group. Hertz agreed to pay $87.50 a share for DTG, in a two-step process that includes a tender offer for all of DTG's outstanding shares followed by a cash merger in which Hertz will buy any remaining shares of DTG common stock. As part of the deal, Hertz will sell its Advantage Rent a Car discount business Adreca Holdings Corp., a subsidiary of Macquarie Capital. The deal was cleared by the US FTC in November 2012.
In late 2011 Hertz purchased the fleet leasing and management company Donlen Corp., in a deal valued at $947 million in cash and debt. Donlen leases and manages more than 144,000 vehicles across the United States, Canada, and Mexico. By acquiring Donlen, Hertz gained access to the long-term vehicle fleet leasing and fleet-management businesses, thereby expanding its range of services. The sale closed in the third quarter of 2011. Previous purchases include the car-sharing company Flexcar, based in Australia, in 2010 and later integrated Flexcar into its Connect by Hertz operation. The purchase was Connect's first move into the Australian market. The company invested in Connect by Hertz the previous year by acquiring Paris-based Eileo, which specializes in car-sharing technology. Buying the company boosted Hertz's operations in London, New York City, and Paris, where it uses its Connect by Hertz service.
To beef up its nascent Hertz Entertainment Services (launched in early 2010) business, in July HES acquired 1st Call Studio Equipment, an equipment rental company that serves the US film and television industries. The company is based in Sylmar, California, and has operations in New Mexico and Louisiana. It offers equipment such as booms, scissor lifts, fork lifts, light towers, and gators for the making of feature films, television shows and commercials, and music videos. Among its customers are Universal Studios, Raleigh Studios, Playa Vista Studios, and Santa Clarita Studios. In an add-on acquisition in late 2010 HES bought 24/7 Studio Equipment, a California-based studio equipment rental firm specializing in aerial and reach equipment serving the film and television industries in Southern California.
Investment funds associated with Clayton, Dubilier & Rice own more than 14% of the shares of Hertz Global Holdings. The Carlyle Group holds about 13%, while Bank of America, through its Merrill Lynch subsidiary, owns more than 10% of the shares. – less