In what is likely the largest investment ever by a car rental company in a major chauffeured transportation supplier, Avis Budget Group late today announced it had invested about $60 million in cash in Carey International, and now owns 45 percent of Carey's common stock—an ownership stake that Avis Budget has the option to increase to about 80 percent within one year.
Exercising that option would be "subject to certain conditions, which would likely include the assumption or repayment of Carey's existing indebtedness," according to Avis Budget, parent of the Avis Rent A Car and Budget Rent A Car brands.
"With this investment, Avis Budget Group expects to be able to offer corporate customers and travel partners the most complete portfolio of local ground transportation products and services available anywhere," said Avis Budget Group chairman and CEO Ronald Nelson. "As the world's premier chauffeured services brand, Carey provides premium-quality services across a broad geographic footprint, making it an ideal partner for Avis Budget."
The car rental company said Carey International's executive team—including president and CEO Gary Kessler and executive vice president and CFO Mitchell Lahr—will remain in place, and that Carey's existing investor group, led by Chartwell Investments, continues to hold a majority ownership position in the chauffeured transportation company.
"The opportunities for us to leverage Avis Budget's strong customer relationships, technological capabilities and vehicle services expertise will allow us to enhance service delivery to our clients and strengthen our position as the leader in the chauffeured transportation industry," Kessler said.
Avis Budget said privately held Carey earned about $250 million in revenue in 2006, the most of any chauffeured transportation firm, and operates in 550 cities and 60 countries through its network of franchisees and alliance partners. Publicly held Avis Budget garnered $3.4 billion in 2006 revenue
(BTN, June 25).
The move should strengthen Avis Budget's position in the corporate travel market because of the additional ground transportation services it can offer, said consultant Neil Abrams, president of the Purchase, N.Y.-based Abrams Consulting Group.
"This gives Avis Budget significant leverage in the corporate sector," Abrams said. "Now, they can offer a multitude of services. If car rental doesn't work for a client in an area, they have alternate transportation capability. They can customize a corporate travel program, so you have the Avis, Budget and Carey brands. The more they can do beyond their core, the better it is for them."
Though this is Avis Budget's most significant foray into chauffeured car services, it's not the company's first, even in 2007. In June, Avis Rent A Car launched a chauffeured driver service to its loyalty program members in 10 top U.S. business destinations, supplying drivers at hourly rates for rented cars
(BTN, June 11), a move that led to some speculation that closer ties between the two industries soon would follow.
"I was not overwhelmed by that," said Abrams of Avis' chauffeured service. "It's not a great value-add for rental customers, but this move certainly extends their reach. I love to see it. It's pushing the industry in another direction. It's bold, aggressive and sends a message that they are not going to be confined to what they've done for the past 50 years."
To do that, Abrams said, car rental firms likely will need to look past their immediate competitors for future growth opportunities. "This certainly heralds a look into a new strategy for Avis Budget in breaking out of the pure car rental business model to broader travel and transportation systems and delivery mechanisms," he said. "There aren't too many combinations left of car rental companies acquiring each other—maybe just one. Where else will they go, especially the publicly traded companies whose investors do not want stagnation?"
The move is the second major investment by a car rental company this year, following Enterprise Rent-A-Car's acquisition of the parent company of the Alamo and National car rental brands
(BTNonline, Aug. 1).