VW/Europcar: bunce for an old banger
This deal looks like a detour stockholders do not need
Corporate M&A folk rarely get the better of private equity. So they will have whooped and punched the air at reports that VW may buy Paris-based car rental group Europcar from Eurazeo for an enterprise value of €1.8bn. The German car giant sold Europcar to the buyout group for €3.1bn in 2006.
But it is not quite as simple as VW selling high and buying low. Eurazeo and a subsidiary already sold stock worth some €1.8bn in the expanded Europcar. So private equity appears to have washed its face, even if returns were unexceptional.
Nor does a purchase at a time when car rental companies are cheap make this a great deal for VW. Europcar shares have been wallowing more than 80 per cent below their 2017 peak. Coronavirus has left a lot of holiday rental cars parked idly. Recovery may be slow.
Debt on operations amounts to just over €1.4bn, including leases. That is 4.6 times estimated ebitda for 2021. With a 30 per cent premium, VW might pay 13 times 2021 earnings, where Europcar traded three years back.
VW is burning a lot of fuel. It has delayed its $2.9bn deal to take control of truckmaker Navistar but clearly plans to go ahead. In addition, there is the Argo AI autonomous driving joint venture with Ford in which VW will eventually need to invest around $1bn. Then, there is the dividend — €2.9bn last year — the resilience of which Jefferies questions.
Europcar at least has a better business model than Hertz, which recently filed for bankruptcy. The US group keeps its rental cars to sell eventually into the used market. That is good when prices are rising, but the trend is over. In contrast, Europcar hedges via a buyback scheme with auto manufacturers. Stock markets have nevertheless knocked its share price badly given the travel industry’s shutdown.
VW will see an opportunity to exploit the longer-run prospects that flexible car ownership presents. It may equally want another channel into which to stuff unwanted inventory. Even so, this deal looks like a detour stockholders do not need.