Essay on Hertz Lbo

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1. How much value do you expect to be created by operating improvements and capital structure changes envisioned by CD&R? CD&R proposed changes to the following areas. a. US RAC on-airport operating expenses: Labor per transaction, administrative and other costs had increased 41%, 65% and 30% respectively between 2000 and 2005. In addition, margins were not constant across locations and varied from 32% to -7%. CD&R proposed that the operating expenses could be reduced resulting in cost savings of $75M per year. b. US RAC off-airport strategy: Hertz’s plan for expansion in off-airport locations had not generated the profit commensurate with the capital required to support it. Further, profit margins varied from 55% to -200% across…show more content…
3. Compare your anticipated sources of value to the illustrative projections contained in the Hertz selected projections online. The anticipated sources of value are the following: a. US On-Airport segment – margin increase through productivity gains that more than offset cost inflation b. Off Airport segment – market share to increase due to further penetration of replacement segment. c. European and international RAC: steady volume growth, and cost savings and margin enhancements expected from narrowing of the gap between US and non-US performance comparable cost categories. d. HERC: EBITDA margin improvements resulting from capital efficiency and SG&A leverage. From the projections we see the following: 2005 2006 2007 2008 2009 2010 RAC Gross EBITDA ($, M) $2,201 $2,436 $2,616 $2,868 $3,097 $3,305 Change 10.68 % 7.39 % 9.63 % 7.98 % 6.72 % RAC Adjusted EBITDA $469 $491 $554 $623 $708 $809 Change 4.69 % 12.83 % 12.45 % 13.64 % 14.27 % As we can see from the table above, RAC Gross EBITDA is increasing every year about 8%. The RAC adjusted EBITDA is increasing at about 12.5% every year on average. The RAC Adjusted EBITDA which is the Gross EBITDA minus financing and depreciation charges is growing at a much higher pace. We can attribute
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