Presented By: Raghav Bhatter, Shikhar Agarwal
Hertz
Hertz Company
Company Overview
Overview
CCM
CCM
Deal
Deal Structure
Structure
Conclusion
Conclusion
Ford Motor
Company
Hertz
Corporation
CD&R
Carlyle
Group
and Merill
Lynch
Off/On-airports
1,77 million cars
RAC
Hertz
HERC
$4.5 bln market
revenues
180 largest
airports
Off/On-airports
12% share of the
market
$1.5 bln market
revenues
The third largest
company
$1.3 bln revenue
The fourth
largest company
$152 mln
revenue
USA
Europe
Region
Hertz
Hertz Company
Company Overview
Overview
CCM
CCM
Deal
Deal Structure
Structure
Conclusion
Conclusion
PE investment Firm Founded in 1978.
Investments in More than 50 US and
European Businesses.
Specialized in Acquiring Under
Managed Divisions.
American
Based Global Asset
Management Firm.
Found in 1987 by 5 partners as a
Boutique investment banking firm.
Began Investing as a Private Equity
firm in 1990 and has invested more
than USD53 Billion in over 450
investments.
Founded
in 1914 by Charles E Merrill
as an investment firm.
Managed Assets worth more than
USD2 Trillion before its acquisition by
Bank of America.
YEAR 2002
YEAR 2003
CD&R began studying the
rental car business (RAC).
Early in its investigation, CD&R
studied Budget and Alamo.
Hertz Much more attractive.
Ford dismissed the proposal as
uninteresting and unfeasible.
CD&R financing challenge
Securitizing Hertzs rental fleet
in cooperation with Lehman
Brothers and Deutsche Bank
New proposals.
CD&R convinced that Hertzs
capital structure was inefficient.
New visit to Ford The deal
could be indeed financed.
Hertz was non-strategic to Ford.
Ford executives remained
unconvinced as well as Hertzs
CEO.
YEAR 2005
Early 2005 Ford core US auto business was in trouble.
Monetizing Hertz One step to improve Ford balance sheet.
Ford advisors recommended two tracks:
IPO Filed in June
Sale of the business Proposal and preliminary bids by
July
Ford made confidential financing and operating information.
Hertz executives Informational meetings with potential buyers.
After a month of due diligence, CD&R identified several specific
opportunities for improving operations.
However,
to go ahead with the Deal
CD&R needed more partners and it
approached The Carlyle Group and
Merrill Lynch who were more than
happy to be a part of the Deal.
US RAC On-airport
Operating Expenses
US RAC Fleet Costs
US RAC Off-airport
strategy
US RAC Non-Fleet
CapEx
European OpEx &
SG&A
HERTZ
HERC ROIC
Hertz
Hertz Company
Company Overview
Overview
CCM
CCM
Deal
Deal Structure
Structure
Conclusion
Conclusion
The Hertz
Corporation
Domestic
Subsidiaries
HERC
Hertz Vehicle
Financing
Hertz
International
OpCo
FleetCo
OpCo owns rest of Hertzs assets
Conducts all rental transactions with
customers
Leases fleet from FleetCo and
provides equity for FleetCo
Bankruptcy remote special purpose
entities provide optimized
securitization for asset backed debt
financing
Leasing rates from OpCo cover
debt payments
Stability
Hertz should be able to survive a severe business
downturn without need to restructure or default
Flexibility
Capital structure should enable Hertz to make large
car purchases and manage fluctuations in the rental
activity
Liquidity
Hertz should be able to exploit future growth
opportunities without having to refinance
Lower
Costs
Funds should be obtained at significantly lower cost
than current capital
Hertz
Hertz Company
Company Overview
Overview
CCM
CCM
Deal
Deal Structure
Structure
Conclusion
Conclusion
PE-groups
bid around $13.8 bln for
Hertz
Ford
CCM
asks for a revised bid
are considering whether $15
bln are still a fair price...
Lower
WACC
More
Revenues
Less
Costs
CCM already pushed capital structure and leverage
to the limit
Significantly lower WACC is very unrealistic
Projections already include revenue growth forecast
No rational reason for Hertz to outperform the
market
Revenue growth above market highly speculative
CCM included conservative cost cutting projections
Still quite some leeway for further improvements
Most realistic value driver
Timing of RAC and equipment rental are businesses with short
cash cycles
Cash
Thus timing of cash flows is no lever for value
Flows
We
think...
...that a valuation of $15 bln can be
justified.
...CCM should go ahead with the deal.
History
proves us right...
In
November 2006, the three firms opted
for an IPO at the price of USD15 Per
Share.
Post IPO, the three firms had a combined
holding of 72% Equity in the Company.
In July 2007, the company went for
another round of IPO which left them
with a 55% holding.
Today the share trades at USD 21.52 and
has a market Capitalization of USD10.02
Billion. The PE Ratio is 28.84.
Thank you for
your attention!
Any questions?
