Hertz Lbo Buyout Bid

Hertz LBO Buyout Bid

Introduction

After its final bid price for Hertz was turned down by Ford, CD&R' consortium, known as CCM, needed to submit a revised final price on September 5. Facing competition from another private equity consortium, including Bain Capital, The Blackstone Group, Thomas H. Lee Partners, and Texas Pacific Group, CCM faced a series of key questions. In this paper, we provide our advice on the key issue—What the revised final price should be?

Good Business Framework

• Market Position: Major Competitor

Hertz is a major competitor, both in RAC and HERC markets. In the on-airport market, Hertz was the leading on-airport provider, almost 80% of Hertz's total U.S. RAC revenue came from this segment and it had the second largest share in the market (22%) following Enterprise Rent-A-Car. In the off-airport market, only 21% of Hertz's domestic revenue resulted from this segment. In the international market, RAC held only 12% of the market. HERC is the third largest equipment rental company in North America and the fourth in Spain and France.

• Market Growth: Stable

The US RAC market is recovering from the September 11, 2011 terrorist attack, although had not yet return to its pre-September 11 peak. The US on-airport had a historical (pre-September 11) annual growth rate of 5%. In addition, the business has a top-line growth of over 3%. The HERC industry had recently rebounded from the combined effects of rapid expansion, overcapacity, and the recession that followed September 11,and some firms had been forced into restructuring by 2002.

• Market share trend: Holding Share

With the leading market share of 30% in the US RAC on-airport business, Hertz holds a total share of 20% in the US RAC market, only second to Enterprise Rent-A-Car. In the generally more fragmented non-US markets, it was the third largest competitors, with a share of 12%. In the North American equipment rental industry, it was one of the only three national competitors. With the strong market position, Hertz would at least hold its market share in both the RAC market and HERC market.

• Business cycle risk: Highly cyclical

The RAC industry is highly cyclical, largely depending on the disposable income of people. The business is highly exposed to the changes in traveling activity and severe disruption. The industry revenue was stronger in the second and third quarters. HERC is also cyclical as it depends on the construction demands and economic condition of the country.

• Market stability: Stable

The market in which Hertz operates is stable. The US RAC market was mature and dominated by a few well- known brands. So