Uva-F-1560, Hertz - 1415 Words

The bidding process for Hertz began when William Ford Jr. announced plans to explore â€Å"strategic alternatives† for Hertz in April 2005. Two months later in June, an S-1 registration statement was filed setting up a â€Å"dual track process† that would result in a Hertz IPO should other sale prospects fail. This decision affects the bidding process in multiple ways. For one there is less time for the two bidding groups to come up with a price and resulting agreement. They are forced to act quickly and find a price that the Hertz management will agree upon. If they don’t do this, then Hertz will just go through with the IPO. This could lead to a driven up price, since the bidding groups will do whatever it takes to win the bid. Hertz is an†¦show more content†¦ABS debt was not only less expensive (it carried a low interest rate around 4.5%), but it provided a more flexible financing arrangement since debt could increase or decrease with fleet size. Also, senior debt and purchase price multiples had increased to 4x EBITDA and 8x EBITDA respectively. These numbers are used in coming up with a purchase price multiple, which is a key drive in finding the enterprise value. When trying to find the Enterprise Value for Hertz, the sponsor group took a couple key assumptions. First off, management had projected transaction volume to grow 6.9% in 2005, which according to the case is one of the key drivers of the rental car business. This seems to be a reasonable assumption considering that travel was starting to rebound from the lows post 9/11. Also, the Bidding group believed $400-$600 million in annual EBITDA savings was attainable by 2009 (confirmed by external industry advisors). Hertz was behind in EBITDA margins, increasing operating expenses outpacing revenue growth, the off-airport growth strategy had significant losses, higher nonfleet capital expenditures, Europe’s RAC SGamp;A was 3 times higher than those in the U.S., and return on assets lagged competitors. The bidding group thought by targeting these problem areas, and others, they could generate higher profits. Another assumption