Corporate Finance @ Boston University Graduate School of Management. Matthew Churinske Felipe Flores Michael Hallstrom Cate Macgregor Kobi Magnezi

1. AVIS-ZipCar
Acquisition Valuation
Matthew Churinske
Felipe Flores
Michael Hallstrom
Cate Macgregor
Kobi Magnezi
December 11, 2013

2. Agenda
•
•
•
•
Discounted Cash Flow
Comparable Company Multiples
Comparable Acquisition Multiples
Possible post-acquisition synergies
December 11, 2013

3. Introduction
49% premium
December 31,
2012
ZipCar closing
Price $8.24
March 2013, Zipcar
was acquired by
Avis Budget Group
Inc. for $491 million
January 2, 2013
First deal
announcement
December 11, 2013

4. Industry Overview
•
•
•
•
•
Revenue has grown at an annualized rate of 1.2%
Revenues are forecasted to grow at an annualized
rate of 2.8% until 2018
Industry net profits are expected to reach $3.9B in
2013. Average profit:
11.2% of revenues.
6%
The concentration in
the market has
19%
increased.
leisure car rental
41%
business car rental
Car sharing has
car leasing
specifically grown
car sharing
in popularity over the
34%
past five years.
December 11, 2013

5. ZipCar
• Founded in 2000
• Operates in 20 major metropolitan areas and
on more than 300 college campuses
worldwide.
• More than 750,000 members.
• Proprietary technology drives Zipcar’s
leadership and innovation in the car sharing
space.
December 11, 2013

6. ZipCar: Revenue and Costs
Revenue
Costs
• Vehicle usage and
membership fees
• application and damage
waiver fees
• Licenses its proprietary
technology
• 28% Growth between
2008-2012
• 34% Growth in members
between 2011-2012
• Net losses in each year
from its founding through
2011
• 2012: First net profit
• Main costs:
(1) Fleet operations
(2) member services and
fulfillment
(3) R&D
(4) SG&A
December 11, 2013

7. Cash Flows and Credit Risk Analysis
• The majority of cash derived from
• Nearly all customers pay in credit.
• Capital expenditures as a % of annual
revenue
• 39% in 2012
• 25% in 2011
• Although the positive operating cash
flows, free cash flow was negative due
2012
2011
2010
Times Interest Earned
1.39
*
*
OCF to Total Debt
0.65
0.50
0.14
1.04
0.62
0.21
Current Ratio
1.38
1.90
0.92
Quick Ratio
1.08
1.65
0.75
Total Liabilities to Equity
0.68
0.55
Total Liabilities to Assets
operating activities
0.40
0.36
Total Debt to Equity
0.44
0.32
Coverage Analysis
OCF/Current Liabilities (OCF
Ratio)
Liquidity Analysis
Solvency Analysis
**
0.55
**
to P&I payments for an aggregate debt
of $109.1M
December 11, 2013

8. Comparable Companies Valuation
December 11, 2013

9. Comparable companies
Selection process:
• Same operations:
renting vehicles to
businesses and
consumers for
personal or
commercial use.
• Managing a large
fleet
• reasonable
comparable on the
basis of their
financials
December 11, 2013

10. Operation comparison using Management
Efficiency ratios
United
Amerco
Hertz
Management Effectiveness
Avis
Rental
(U-Haul)
Ryder
ZipCar
HTZ
CAR
URI
UHAL
R
Zip
Asset Utilization (TTM)
0.445
0.461
0.4358
0.5062
0.754
0.73
Days Sales Outstanding (Annual)
70.87
26.29
55.72
4.15
41.92
9.2
5.15
13.88
6.55
87.91
8.71
39.65
Return on Assets (TTM)
1.34%
-0.01%
2.58%
6.03%
2.68%
0.99%
Operating Margin (TTM) - Dec 2012
1.53%
0.49%
14.36%
19.82%
3.68%
2.19%
Receivables Turnover (Annual)
December 11, 2013

11. Financial comparison
Company Performance
Company (Stock Symbol)
Hertz (HTZ)
U-Haul aka AMERCO(UHAL)
United Rentals (URI)
Ryder System, Inc. ( R)
Avis-Budget Group (CAR)
Zipcar (ZIP)
Revenue
$9,020,807
$2,558,587
$4,117,000
$6,256,967
$7,357,000
$278,868
Net
Income
$243,079
$264,708
$75,000
$209,979
$290,000
$14,187
Net
EBIT/Net
EBITDA/Net
Income /
Income
Income
Revenue
EBIT
EBITDA
EBITDA/EBIT
2.69% $1,095,535
4.51 $3,243,693
13.34
2.96
10.35% $499,183
1.89 $754,555
2.85
1.51
1.82% $591,000
7.88 $1,488,000
19.84
2.52
3.36% $443,674
2.11 $1,432,560
6.82
3.23
3.94% $643,000
2.22 $2,239,000
7.72
3.48
5.09%
$6,098
2.22
$50,797
8.33
3.58
December 11, 2013

12. Composition of the Model
December 11, 2013

13. The composition process
Extract
information from
the respective
10Ks
•
•
•
•
Common shares outstanding
The value of interest-bearing debt
Cash and cash equivalents
Revenue, EBITDA, EBIT
Calculate the
Market Value of
Equity and EV
Calculate three
performance
multiples
• Revenue/EV
• EBITDA/EV
• EBIT/EV
•
Revenue Multiple: 1.79 (individual company ranged 1.0 – 2.8)
•
EBITDA Multiple: 6.08 (company ranged 4.4 – 7.7)
•
EBIT Multiple: 18.38 (company ranged 9.2 – 19.9).
December 11, 2013

14. Model based on the financial results of the
five companies
Al l Fi gures i n 000's
Calculating Enterprise Value
Company (Stock Symbol)
***Mkt value of equity
Hertz (HTZ)
**U-Haul aka AMERCO(UHAL)
United Rentals (URI)
Ryder System, Inc. ( R)
Avis-Budget Group (CAR)
$6,857,575
$3,387,289
$4,232,632
$2,564,989
$2,715,904
Int-bearing debt
$15,448,624
$1,661,845
$7,364,000
$3,820,796
$9,711,000
Cash & cash equiv.
$533,255
$463,744
$106,000
$66,392
$606,000
Performance Metrics
Enterprise value
$21,772,944
$4,585,390
$11,490,632
$6,319,393
$11,820,904
Revenue
$9,020,807
$2,558,587
$4,117,000
$6,256,967
$7,357,000
EBITDA
Multiples based on BEV
EBIT
$3,243,693 $1,095,535
$754,555
$499,183
$1,488,000
$591,000
$1,441,640
$443,674
$2,239,000
$643,000
EV/R
EBITDA / EV
EBIT / EV
2.4
1.8
2.8
1.0
1.6
6.7
6.1
7.7
4.4
5.3
19.9
9.2
19.4
14.2
18.4
1.92
1.79
6.03
6.08
16.23
18.38
Figures publicly reported for the last twelve months from December 31, 2012
**UHAL figures were reported for the last twelve months from March 28, 2013
***Calculated as common shares outstanding X closing share price, December 31, 2012 (except for UHAL which was March 28, 2013))
Mean
Median
$3,951,678
$3,387,289
$7,601,253
$7,364,000
$355,078
$463,744
$11,197,853
$11,490,632
$5,862,072
$6,256,967
$1,833,378
$1,488,000
$654,478
$591,000
Valuations of ZipCar based on Comparable Companies
Calculated
ZIPCAR - Value 1
ZIPCAR - Value 2
ZIPCAR - Value 3
Calculated
$435,289
$244,961
$48,196
$109,140
$109,140
$109,140
$45,255
$45,255
$45,255
$499,174
$308,846
$112,081
Multiple used
$278,868
1.79
$50,797
6.08
$6,098
18.38
Estimated share prices based on calculated equity values
Value 1 - price per share:
Value 2 - price per share:
$10.85
$6.11
Value 3 - price per share:
$1.20
8.24
Actua l s ha re pri ce a t cl os e, 12/31:
Enterprise value of ZipCar based on comparable companies: $499.2
Million
`
December 11, 2013

15. Value of Interest - Bearing Debt
Calculation
Al l Fi gures i n 000's
Interest-Bearing Debt: Components
Company (Stock Symbol)
LT Debt
ST Debt & Current
Portion of Long
Other-1
Other-1 Descrip
United Rentals (URI)
$6,679,000
$3,452,821
$367,975
Avis-Budget Group (CAR)
$2,848,000
$57,000
Other-2 Descrip
$15,448,624 Debt
Notes , l oa ns a nd
$1,661,845 l ea s es pa ya bl e
Subordi na ted
convertibl e
$630,000
$55,000 debentures
Ryder System, Inc. ( R)
Other-2
Hertz (HTZ)
U-Haul aka AMERCO(UHAL)
Zipcar (ZIP)
Value of InterestBearing Debt
$15,448,624
$1,661,845
$7,364,000
$3,820,796
Debt under vehi cl e
$1,603,000 progra ms
Current portion of
ca pi tal l ea s e
obl i ga tions a nd
$14,424 other debt
Debt from thei r
$5,203,000 fundi ng orga ni za tion
Ca pi tal l ea s e
obl i ga tions a nd
other debt, net of
$94,716 current portion
$9,711,000
$109,140
December 11, 2013

16. Market Value of Equity Calculation
Company (Stock Symbol)
Hertz (HTZ)
U-Haul aka AMERCO(UHAL)
United Rentals (URI)
Ryder System, Inc. ( R)
Avis-Budget Group (CAR)
Common Shares
Market Value of Market Value of Equity
Outstanding,
Equity
(thousands)
12/31/12****
16.27
421,485,862
$6,857,574,975
$6,857,575
173.54
19,518,779
$3,387,288,908
$3,387,289
45.52
92,984,016
$4,232,632,408
$4,232,632
49.93
51,371,696
$2,564,988,781
$2,564,989
19.82
137,028,464
$2,715,904,156
$2,715,904
Share Price: Mkt
Close, 12/31/12***
***UHAL data is as of 3/28/13
****UHAUL shares outstanding measured
as "weighted average common shares
outstanding: basic and diluted"
December 11, 2013

17. Bottom-up calculation
All figures in 000's
EBIT: Components
Company (Stock Symbol)
Hertz (HTZ)
U-Haul aka AMERCO(UHAL)
United Rentals (URI)
Ryder System, Inc. ( R)
Avis-Budget Group (CAR)
Zipcar (ZIP)
Net Income
Interest Expense
$243,079
$649,892
$264,708
$90,696
$75,000
$209,979
$290,000
$14,187
$512,000
$140,557
$268,000
$4,385
Tax Expense
(benefit)
$207,466
$143,779
Other-1
Description-1
-$4,902 Interest income
Description-2
Interest expense subordinated
convertible
$4,000 debentures, net
$13,000
$102,218
Early extinguishment
of debt
$10,000
$75,000
-$367 Interest income
-$10,397 Tax benefit
Bottom-Up
EBIT
$1,095,535
$499,183
Top-Down
EBIT
$1,095,535
$499,183
$604,000
$452,754
Other-2
$591,000
$443,674
$643,000
$7,808
$643,000
$6,098
All figures in 000's
EBITDA: Components
Company (Stock Symbol)
Hertz (HTZ)
EBIT
$1,095,535
U-Haul aka AMERCO(UHAL)
$443,674
$643,000
$172,582
Amortization
Expense
$84,096
$591,000
Ryder System, Inc. ( R)
Avis-Budget Group (CAR)
$2,068,378
Non VehicleRelated
Depreciation
$499,183
United Rentals (URI)
Vehicle-Related
Depreciation
Zipcar (ZIP)
$6,098
$49,209
$1,471,000
Other-1
Description-1
Amortization and
write-off of deferred
$54,131 financing costs
Depreciation, net of
(gains) losses on
$237,996 disposals
Depreciation &
$897,000 amortization
Depreciation
$939,677 expense
Other-2
Description-2
Amortization and
write-off of debt
$28,899 discount
Amortization of
deferred policy
$17,376 acquisition costs
Amortization of
deferred financing
costs and original
$23,000 issue discounts
Top-Down
EBITDA
Amortization &
accretion of
marketable
$106 securities
$3,503,621
$3,243,693
$754,555
$754,555
$1,511,000
$1,488,000
$1,432,560
$2,239,000
$125,000
Depreciation &
$41,253 amortization
Bottom-Up
EBITDA
$1,432,560
$2,239,000
$47,457
$50,797
December 11, 2013

18. Results Breakdown
Based on the Revenue multiple:
• Zipcar EV = $499.2M
• Zipcar Mkt. Value of Equity = $435.3M, or $10.85 /share
• Based on the EBITDA multiple:
• ZipCar EV = $308.8M
• ZipCar Mkt. Value of Equity = $245.0M,
or $6.11/share
Based on the
revenue multiples
approach, which was
deemed most
appropriate for
appraising the
Based on the EBIT multiple:
• ZipCar EV = $112.1M
• ZipCar Mkt. Value of Equity = $48.2M, or $1.20 /share
business, Zipcar is
valued at $499.2 M.
December 11, 2013

19. Discounted Cash Flow Valuation
December 11, 2013

20. Composition of the Model: Projections
Zipcar Inc
STATEMENTS OF OPERATIONS
Historical
(in thousands)
2007
2008
2012
Projections
2009
2010
2011
$ 131,182
$186,101
$241,649
$278,868 $ 316,515
$ 357,662
$ 402,370
$448,642
$493,507
$122,634
$159,185
$173,613 $ 188,370
$ 204,382
$ 221,754
$240,603
$261,054
$ 21,225 $ 21,862
$ 22,518
$ 23,194
2013
13.5%
Revenues
$57,818 $ 105,969
Fleet operations
Member services and
fulfillment
$50,033
$ 84,199 $ 93,367
$ 4,379
$
7,580 $ 10,414 $ 15,114 $ 19,460 $ 20,007
$ 20,607
2014
2015
2016
Revenue growth assumptions:
13.0%
12.5%
11.5%
5,373 $ 5,856 $ 6,383
Research and development $ 904 $ 1,549 $ 2,314 $ 3,170 $ 3,948 $ 4,522 $ 4,929 $
Selling, general and
$16,204 $ 25,324 $ 29,973 $ 49,172 $ 57,117 $ 71,558 $ 77,998 $ 85,018 $ 92,670 $101,010
administrative
Amortization of acquired
$ 219 $ 1,226 $
990 $ 3,414 $ 3,892 $ 3,070 $ 3,131 $
3,194 $ 3,258 $ 3,323
intangible assets
Total Operating Expenses $71,739 $ 119,878 $ 137,058 $193,504 $243,602 $272,770 $ 295,036 $ 319,192 $ 345,400 $373,837
Operating Income
-$13,921
-$13,909
-$5,876
-$7,403
-$1,953
Interest Expense
Other, net
Earnings before Tax
Tax Benefit or Expense
Net Income
-$2,070
$1,547
-$14,444
$0
-$14,444
-$1,603
$997
-$14,515
$0
-$14,515
-$2,457
$3,750
-$4,583
$84
-$4,667
-$8,185
$1,778
-$13,810
$311
-$14,121
-$8,634
$3,169
-$7,418
-$270
-$7,148
Tax on Operating Profit
NOPAT
$6,098
$21,479
$38,470
$56,970
$74,805
2017
10.0%
$
6,958
$110,101
$
3,390
$404,696
$88,811
-$4,385 $ (4,911) $ (5,501) $ (6,161) $ (6,900) $ (7,728)
$1,537 $ 1,568 $
1,599 $ 1,631 $ 1,664 $ 1,697
$3,250
$18,136
$34,569
$52,440
$69,569
$82,780
-$10,937
(6,348)
(12,099)
(18,354)
(24,349)
(28,973)
$14,187
$11,788
$22,470
$34,086
$45,220
$53,807
7,518
$13,962
13,465
25,006
19,940
37,031
26,182
48,623
31,084
57,727
December 11, 2013

21. WACC and Beta
WACC CALCULATION
Capital Structure
Equity
Debt
Capital
Target E/V
Target D/V
Cost of Equity
Risk free rate
Beta
Market risk premium
Total
$330,602
$109,140
$439,742
60%
40%
A beta of 0.88 was calculated using the performance of the
S&P 500 as the market indicator from the day Zipcar went
public until December 31, 2012.
ZIP % change
20.00%
10.00%
0.00%
1.78%
0.88
5.50%
6.62%
-10.00%
-20.00%
-30.00%
S&P % change
Cost of Debt
4.87%
-40.00%
6.000%
4.000%
Tax Rate
WACC
35%
5.24%
2.000%
0.000%
-2.000%
-4.000%
-6.000%
-8.000%
December 11, 2013

22. Discounted Cash Flow: Results
The discounted cash flows for 2013–2017
resulted in an NPV of $16,161. The PV of the
terminal value was found to be $534,022.
After adding back marketable securities, the
total value of Zipcar was determined to be
$572,422; subtracting the value of debt from
the firm value gave a value of equity of
$463,282; and finally, dividing by the
outstanding shares provided us with an
intrinsic share price of $11.55.
December 11, 2013

23. Comparable M&A Valuation
December 11, 2013

24. Comparable transactions
Selected Comparable Mergers and Acquisitions
(Values in millions USD)
Transaction
Close Date
Target
Acquirer
3/15/2013
ZipCar
Avis Budget Group
Value
$510
United Rentals
Hertz
$2,586
$2,592
Selected Comparable Transactions
5/1/2012
RSC Holdings INC
11/28/2012
Dollar Thrifty
1
Target
Target
Revenue
$279
Target
EBITDA
$47
Market Cap
$330
$1,440
$1,557
$508
$692
$1,180
$2,221
2
Target BEV3
Not Selected Comparable Transactions
10/3/2011
Avis Budget EMEA
Avis Budget Car Rental
$1,010
$2,186
$338
9/1/2011
Donlen Corp
Hertz
$947
$350
10/31/2012
Apex Car Rentals
Avis
$89
6/8/2011
Hill Hire
Ryder
$253
$187
7/15/2013 Payless Car Rental System Avis Budget Car Rental
$50
1. Transaction Value: The total consideration given to the seller including cash, notes, securities, and milestone payments
2. Target Market Cap: Price per share for target firm's stock on day the deal was announced x the # common shares outstanding
3. Target BEV: Target Market Cap + (short term debt + long term debt) - cash & marketable securities
$403
$3,520
$3,170
-
Using comparable M&A transactions, Zipcar’s EV was
calculated to be $448.9M.
December 11, 2013

25. Comparable transactions
The following provides an overview of Zipcar’s EV calculation based on
the top two comparable M&A companies:
December 11, 2013

26. Using All Comparable M&As to Check
Zipcar’s EV Valuation
December 11, 2013

27. Analysis of Synergies
December 11, 2013

28. Synergies Benefits
• Avis Budget acquired Zipcar to become the
leading company and an innovator in the
rapidly growing car sharing industry.
These cost synergies
• Potential benefits are
•
•
•
•
•
•
are estimated to save
the company $25M
over the short-run.
Additional estimated
saving of $20+M
Reduce fleet acquisition
Reduce vehicle-operating
Reduce vehicle financing
Reduce Insurance
Leverage the larger fleet size with suppliers
More efficient fleet utilization
Additional
estimated saving
of $20+M
December 11, 2013

29. Summary
December 11, 2013

30. Low and high bids
Valuation Method
Estimate of ZipCar’s value
Comparable Companies
$499.2M
DCF
$463.3M
Comparable Acquisitions
$448.9M
Each of these models was given equal weight and the averaged value was
accepted as the best estimate of the true value of the company: $470.5M
$470.5M
75%
synergies
premium
$505M
December 11, 2013

31. Thank you!
December 11, 2013