New company operates under brand Unidas, bought with divestiture package

10/04/2022

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Claudio Zattar — Foto: Carol Carquejeiro/Valor

Under the Unidas brand, Brookfield’s new car rental business is expected to gross over R$3.3 billion this year, in addition to an EBITDA of over R$1.2 billion, said Cláudio Zattar, the chief executive of Unidas.

The new company was created by the merger of Ouro Verde – which was controlled by the fund – and some assets of the company formerly known as Unidas. Mr. Zattar, who was Ouro Verde’s CEO, took over the new business, which started to operate in an integrated way on Monday.

“Our shareholders are excited about the acquisition and there are good expectations of what this combined business will generate,” said Mr. Zattar. The financial perspectives for the year are basically the minimum of what Ouro Verde and Unidas’s slice that was bought last year posted – a scenario expected to repeat itself this year, since the synergies of the two companies together only start to happen in fact now.

The new Unidas arose from a pragmatic need: the demand from antitrust regulator CADE for a competitor in the sector to then approve Localiza’s plan to incorporate Unidas – the two were Brazil’s first and second-largest car rental companies. Localiza’s move was approved by CADE in the middle of this year. For the divestiture, Brookfield paid around R$3.5 billion

Before, Ouro Verde had a business focused on the B2B operation and planned to approach individual customers through the expansion of its car subscription branch. With the acquisition, the new company took a large step forward and now has good representation in the market. In total, there are 90,000 assets (trucks, cars, machinery, and equipment), of which 77,000 are light vehicles. Localiza, the leader, has about 440,000 cars (after incorporating the former Unidas) and Movida has 190,000 cars.

The divestiture package purchased by Brookfield took nearly 49,000 cars and 182 car rental stores (Unidas had closed the second quarter with 245, considering its own network and franchises). Ouro Verde, focused on B2B, had no stores and focused on representatives across the country.

The sale of used car stores was not within the obligations pointed out by CADE, but the regulator gave Localiza freedom to negotiate the conditions with the company interested in the asset. This way, the group got 22 second-hand vehicle stores, said Mr. Zattar. Until then, neither Ouro Verde nor Localiza had disclosed details about the divestiture package – the only thing known for sure was the volume of the fleet, which had been previously rumored in the market.

The Unidas brand and sub-brands – such as Unidas Frotas and Unidas Livre – were also acquired. The Unidas brand was recognized as one of the 50 most valuable in Brazil according to the Brand Finance Brazil ranking.

“It’s hard to get into a rent a car business from scratch. The barriers are big, the scales are big. You would have to undergo a period of maturity. And now we are among the three largest in the country and with high potential that the market is providing us,” said Mr. Zattar, who before taking over Ouro Verde was Localiza’s head of logistics and car purchases.

Companies also saw the need to have cash on hand and decided to have fewer assets – thus looking at fleet management and outsourcing options.

“The rent-a-car market is a segment that continues to grow. And it doesn’t grow more for lack of cars,” he said, in reference to the semiconductor crisis. Even with the difficulties of buying a car, the scenario is expected to be much better than last year.

“We get availability from automakers. We are already treated as a major rental company,” he said. Even so, the executive said he does not expect a total normalization of vehicle production next year, with problems still in place in the delivery of semiconductors and chips – equipment required not only by the automotive industry.

One change in the market today is that rental companies have been forced to operate with older vehicles. In 2019, the average age of Localiza’s operating fleet in the rent-a-car segment was 7 months. In the second quarter of this year, the age was 17.4 months – the scenario was similar at Unidas. According to Mr. Zattar, the fleet purchased is in line with the average portfolio of the two rental companies.

Mr. Zattar pondered that the older fleet has its pros and cons. On the one hand, the company tends to have higher maintenance costs. On the other, the high price of cars helps companies to sell the vehicle well, and this has been a positive reinforcement in the earning reports. In addition, the strong demand has kept the average daily rates at record levels.

One movement adopted by Localiza and Movida has been internationalization. Recently, Movida bought a small business in Europe, its first step in the region. Mr. Zattar said that the new Unidas, on the contrary, has a strategy designed to be a rental company focused on Brazil. “Our strategy is here. We will continue doing the best for the Brazilian consumer,” he said.

The new Unidas will continue to disclose its results to the market and plans to maintain fundraising through debt issuance. Mr. Zattar was asked if there is a scenario to have shares traded on the stock exchange and if Brookfield would be interested in seeking partners, but he defended that, for now, there are no talks along these lines. “It is still very early … In the future, a larger capital structure aimed at accelerating the need for capital expenditure and growth [would make sense] … But it is a strategy of the controlling shareholder. We haven’t discussed [the topic],” he said.

*By Cristian Favaro — São Paulo

Source: Valor International

https://valorinternational.globo.com/