The changing landscape of transportation got more interesting in this new year with the announcement that rental car giant Avis is buying the largest car sharing company, Zipcar, for $491.2 million. Zipcar started up in 2000 and has seen slow growth in this niche industry where more major competitors have been entering in recent years. Zipcar now has 760,000 members and competes with car rental majors Hertz (Hertz On Demand) and Enterprise Holdings (Enterprise CarShare), along with a few major automakers; Ford Motor Co. announced a partnership last year that brought hundreds of Ford Focus models to campuses around the country.
Frost & Sullivan Partner Sarwant Singh and Automotive & Transportation Consultant Mohamed Mubarak released an analysis report on the acquisition. Zipcar launched an IPO in April 2011, and it went very well. The company was initially valued at $174 million, but saw its shares surge by nearly 75% to $31 per share, bringing the market value, at that time, up to about $1.2 billion. That certainly has dropped, but Avis was willing to pay $12.25 per share for the company, nearly 50% more than its market value on the stock exchange. Car sharing is a cash-intensive business – it’s not profitable until it reaches critical mass, Singh and Mubarak said in their report. It’s vital to obtain external funding from investors or governments for new programs like car sharing to take off.