Hertz Lbo
Hertz A:
1. CD&R pursued Hertz for three years only to find itself facing an auction and a complicated deal. Is it worth it?
• It is worth it. Because hertz is a mature company with predictable cash flows. Such acquisition provides a great opportunity to generate decent return on equity to sponsors
• CD&R had access to available debt avenues to make the company grow
• CD&R was able to make operating changes and improve the companies efficiency
2. What are the primary sources of value in the transaction – both operating changes and financing changes?
• U.S. RAC on airport operating expenses - CD&R estimated that labor per transaction, administrative, and other costs had increased 41 %, 65 % and 30 %.
• U.S. RAC off-airport strategy - CD&R proposed to slow expansion, focus selectively on profitable growth, and close locations that failed to achieve positive contribution.
• European operating SG&A expenses - Hertz’ operational SG&A expenses as a percentage of revenue were nearly three times higher than those in the U.S.
• U.S. RAC fleet costs - Despite its scale advantages, Hertz historically had higher fleet costs than those of key competitors.
• U.S. RAC nonfleet capital expenditures - Reduce future capital spending to a level more in line with competitors
• HERC, Return On Invested Capital (ROIC) - HERC managers earned maximum bonuses year after year, despite the low returns on capital. CD&R expected to realize significant savings by changing managers’ incentives to focus on ROIC.
3. Couldn’t Ford afford to make these changes itself? Why or why not?
• Ford was in financial trouble at the time and finally considered selling Hertz inorder to improve its balance sheet.
• Ford executives had several years in the car rental business and were convinced that they were running a finely tuned company.
• Management was receiving high-end bonuses for
1. CD&R pursued Hertz for three years only to find itself facing an auction and a complicated deal. Is it worth it?
• It is worth it. Because hertz is a mature company with predictable cash flows. Such acquisition provides a great opportunity to generate decent return on equity to sponsors
• CD&R had access to available debt avenues to make the company grow
• CD&R was able to make operating changes and improve the companies efficiency
2. What are the primary sources of value in the transaction – both operating changes and financing changes?
• U.S. RAC on airport operating expenses - CD&R estimated that labor per transaction, administrative, and other costs had increased 41 %, 65 % and 30 %.
• U.S. RAC off-airport strategy - CD&R proposed to slow expansion, focus selectively on profitable growth, and close locations that failed to achieve positive contribution.
• European operating SG&A expenses - Hertz’ operational SG&A expenses as a percentage of revenue were nearly three times higher than those in the U.S.
• U.S. RAC fleet costs - Despite its scale advantages, Hertz historically had higher fleet costs than those of key competitors.
• U.S. RAC nonfleet capital expenditures - Reduce future capital spending to a level more in line with competitors
• HERC, Return On Invested Capital (ROIC) - HERC managers earned maximum bonuses year after year, despite the low returns on capital. CD&R expected to realize significant savings by changing managers’ incentives to focus on ROIC.
3. Couldn’t Ford afford to make these changes itself? Why or why not?
• Ford was in financial trouble at the time and finally considered selling Hertz inorder to improve its balance sheet.
• Ford executives had several years in the car rental business and were convinced that they were running a finely tuned company.
• Management was receiving high-end bonuses for