The Hertz Corporation

Private Equity
Session 3
The Hertz Corporation - Case Questions

© 2013 Viney Sawhney

The Hertz Corporation (A)
CD&R pursued Hertz for three years only to find itself facing an auction and a complicated deal. Is it worth it? What are the primary sources of value in the transaction?
Operating changes? Financing changes?

Capitalize each:
Operating changes worth $2+ billion Financing changes worth similarly large amount

Couldn’t Ford do this for itself? Why or why not?
© 2013 Viney Sawhney 2

The Hertz Corporation (A)
Questions - continued
Examine the deal structure. Why separate Fleetco and Opco? Valuation
First understand how to compute “Corporate EBITDA” Understand derivation of “After-tax Levered Free Cash Flow” Understand derivation of Equity Cash Flows Value the equity cash flows compared to price paid

Compare the ECF valuation to IRR calculations typically performed by PE firms including CD&R How much should CCM bid on September 5?
© 2013 Viney Sawhney 3

The Hertz Corporation (B)
Why has CD&R chosen to rely so heavily on ABS financing for the acquisition of Hertz? Compose a broader list of alternatives CCM should consider at this point:
Should they consider backing out of the deal with Ford? If not under what set of (worse) circumstances would you recommend such a course?

How should CD&R plug the funding gap? What happened
Pre-closing? Post-closing?
© 2013 Viney Sawhney 4

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