Enterprise Rent-A-Car's surprise
acquisition of Vanguard, in a multibillion-dollar deal that
apparently left competitor Dollar-Thrifty waiting at the altar, has
all the earmarks of a metamorphic leap.
Enterprise has focused on off-airport growth since its inception in
1947, finding its niche in local replacement rentals for insurance
companies and repair shops. Until now, acquisitions have been
hardly a blip on its radar, yet steady organic growth has made it
the largest car rental operator in the country.
All that changed
with the announcement of a buyout that brings two major airport
location operators, Alamo and National, under Enterprise's growing
umbrella. In one giant step, the deal will extend Enterprise's
reach far into the leisure and corporate travel markets.
It is also likely
to integrate Enterprise more tightly into the travel industry
itself, observers said, bringing the company's relationship with
other travel sectors -- hotels, airlines and cruise lines -- into
sharper focus as it explores new marketing opportunities through
"This is something that is out of character for
Enterprise," said Mike Kane, president of VRC Group, of Royal Oaks,
Mich., an industry consultant. "The company has always grown
organically, with no sizeable acquisitions, at least nothing like
But Kane and others
describe the "pre-emptive strike" by Enterprise as a natural
evolution at this point in its growth, which over 50 years will
have taken the company from a local rental agency into a privately
held, $7 billion-a-year juggernaut.
agreement will boost Enterprise's total fleet from nearly 800,000
vehicles to more than 1.2 million and will increase its revenue by
some $2.1 billion, the amount Vanguard of Vanguard's turnover last
year, according to estimates.
companies would have slightly more than a 46% share of the market.
That might raise some eyebrows among federal antitrust regulators,
who must determine whether allowing one company to control that big
a chuck of the car rental sector would be
But the acquisition
is seen by most analysts as flying under the radar of federal
antitrust officials. Kane, for example, said regulators "probably
have bigger fish to fry," and Enterprise officials described a
review under Hart-Scott-Rodino antitrust regulations as
The deal gives
Enterprise a light-speed jump in its attempts during the past seven
years to build its airport business.
significant player globally, Enterprise will now be positioned to
sell its services to corporate and leisure markets in a way that,
prior to the acquisition of Alamo and National, had been a tough
Pat Farrell, vice
president of corporate communications for Enterprise, said the
opportunity to overhaul the company's airport business had been a
key motivation to pursue the deal.
"We have worked
strongly over the past seven years to begin to explore the airport
market," he said. "It is not something we had a lot of background
in, but ... we listen to where customers ask us to be.
"We have become
large enough to know that the rental car providers who are going to
be long-term players are going to be companies that provide
customers and travel agents with their full complement of needs,"
he said. "Right now, we are a very small player at the airports. We
have grown market share to 7%, and we are now at 230 airports, but
it is very early on in this development."
In the past,
Farrell said, while Enterprise would often emerge from sales calls
to corporate accounts as a primary provider of rental services in a
home city market, it was clearly second in airport
"Other players were
used to dealing with the road warriors, and we were just not
there," Farrell said.
Still, he said, the
experience of making a foray into airport markets gave the company
the confidence to go after the acquisition.
Enterprise made its
move, Farrell said, after executives saw a report in the New York
Times indicating that Vanguard and Dollar-Thrifty were in
preliminary merger talks. The whole process took less than seven
weeks after Enterprise went knocking on Vanguard's door.
Analysts early last
week were still digesting the abandoned Vanguard/Dollar-Thrifty
negotiations and mulling the impact of Enterprise combining its $7
billion annual revenue with Vanguard's $2.1 billion. Among
investors, news of the merger sent Avis Budget Group's stock upward
and pushed down Hertz's shares.
asserting that the industry was overdue for price increases,
predicted that the active involvement of private equity players
could kick off a round of hikes that would bring car rental rates
more in line with actual costs.
Farrell declined to
comment on that.
Even after the deal
is completed, the competitive landscape will not be that much
different for the other giants of the industry -- Hertz,
Avis-Budget and Dollar-Thrifty -- except that the emergence of a
new goliath will pit those public companies toe to toe against
Alamo, National and Enterprise (assuming that Enterprise has no
intention of subsuming the Alamo and National brands).
which has a market capitalization of $1.3 billion, was acquired by
Chrysler in the 1990s and later spun off as a public company. In
speculation in February regarding a Vanguard/Dollar-Thrifty merger,
Vanguard was seen as the likely principal shareholder.
experts in the car rental market said, Vanguard's principal owner,
Cerberus Capital Management, a New York-based investment firm that
has its fingers in numerous industries, is one of several private
equity groups bidding to take over Chrysler from
Chrysler has long
been a supplier of rental fleets to the industry. Cerberus has been
building its presence in the automotive industry with the
acquisition of a majority stake in GM Finance last year and by
acquiring assets of auto parts suppliers in the past few months.
Analysts said the moves indicated that Cerberus has been creating
vertically integrated auto holdings that would fit together neatly
in an acquisition of Chrysler.
insider, who asked not to be named, said he expected Cerberus to
make a play for Dollar-Thrifty as part of its acquisition strategy
now that it has moved to divest itself of Vanguard.
could not be reached for comment.
acquisition of Vanguard won't necessarily mean major changes in how
the company buys and sells cars, a major factor in determining the
profitability of rental car companies, but Kane predicted that its
larger footprint would not hurt.
"It will increase
their already big stature with the auto manufacturers," he said of
Enterprise. "But they already do a fine job of buying and selling
Vanguard in 2003 after its $230 million acquisition of bankrupt ANC
Rental, which owned Alamo and National. Cerberus later took a
dividend from Vanguard that was almost as large as the purchase
declined to say how much it paid Cerberus for Vanguard, but
analysts have estimated that a combined Vanguard and Dollar-Thrifty
would be valued at about $3 billion.
don't seem worried.
acquisition of Vanguard should provide further stability in the
market," said Hertz spokesman Richard Broom. "Generally, we think
consolidation ... is a positive development."
Hertz, a subsidiary
of the Ford Motor Co. until it was sold to a group of private
investors, "is in a singularly unique position," Broom said. "We
are the only single-brand company in the car rental business. We
are able to focus on our cost structure and our strategies and not
be distracted by dual -- or, in Enterprise's case, triple -- brand
president and CEO of Vanguard, predicted that the consolidation
would benefit consumers.
Vanguard did not
respond to a request for comment.
contact reporter Dan Luzadder, send e-mail to [email protected].