Virginia residents who skim the business headlines throughout the day may already have heard, but rental-car giant Avis announced Wednesday that it is going to pay $491.2 million to acquire car-sharing service Zipcar.
The reason this transaction caught our eye is that to us, it seems like an excellent example of a well-established company using a merger or acquisition to penetrate a new market, keep up with competitors and achieve ambitious growth targets. In other words, it is a good illustration of how mergers and acquisitions can be strategic business moves with very real consequences for the future.
So, let's take a closer look at this particular deal.
Car-sharing is a service in which users pay to use one of a fleet of vehicles by the hour. It has really taken off in core urban markets where it is just too impractical for most people to have cars of their own, like Los Angeles and New York City. With some 760,000 users, Zipcar is the largest car-sharing service in the world.
In a statement, Avis' CEO said acquiring Zipcar will help Avis reach its growth benchmarks. He did not say this, but the purchase will also help Avis keep up with Hertz, which established its own car-sharing service, known as Hertz on Demand. That venture undoubtedly added a some sense of urgency to Avis' negotiations to acquire Zipcar.
As you can see, acquiring Zipcar is going to help Avis stay on track to meet its growth benchmarks and will mean the company can keep pace with its rivals. It will also allow Avis to enter a previously unexplored market.
Obviously, a transaction with so many potential benefits must be handled with great care and attention to detail. Because so much rests on these sorts of deals, wise business professionals choose the attorneys with whom they work very carefully.
Source: USA Today, "Avis to buy Zipcar, enter car-sharing business," Charisse Jones, Jan. 2, 2013