Car sharing is catching on so much that rental car giant Avis has purchased the best-known brand in that industry, Zipcar, for $500 million.
Zipcar has 760,000 members in 20 markets who borrow cars by the hour rather than renting by the day or week, or owning a car. The service is especially attractive to people who live in urban markets with access to mass transit who only occasionally need a car.
The company was founded in 2000, went public in 2011 and is expected to post its first annual profit of $4 million when it closes the books for 2012. Its third-quarter revenue was $78 million.
Avis says it can save between $50 million and $70 million through the acquisition – for which it will pay $12.25 for Zipcar shares, 49 percent over the December 31, 2012 closing price of $8.24. Zipcar has struggled to prove to investors it could make it on its own, with Avis’s buy price significantly lower than the company’s $18 a share IPO price in April 2011.
“By combining with Zipcar, we will significantly increase our growth potential, both in the United States and internationally, and will position our company to better serve a greater variety of consumer and commercial transportation needs,” Avis Chairman and CEO Ronald Nelson said in a statement accompany the Wednesday morning
Zipcar has had trouble raising enough capital to properly expand and add sufficient vehicles. Avis can solve that immediately by adding Zipcar points to its existing rental outlets and by supplementing Zipcar fleets with cars from its own fleet.
Car sharing is viewed as a growth industry as there are signs that both young people aged 18-30 are less interested in owning cars than their predecessors and see car-sharing services as a smarter way to live as long as they are in markets where mass transit can solve 75% or so of their transportation needs. Some analysts believe the trend could spread to seniors as well.
Part of Avis’s motivation in buying Zipcar is undoubtedly the recent move by rival Hertz to buy Dollar/Thrifty. When one deal in an industry gets done, there is usually more to follow.