The Advantage bankruptcy is moving fast. New information from court documents filed yesterday and this morning has answered some questions — while generating more. Here we go:
Can Advantage survive bankruptcy as a stand-alone company?
This is highly unlikely. I thought the chances were slim of Advantage reorganizing under its current ownership, but it appears that an Advantage sale is a foregone conclusion. Per bankruptcy court documents, Advantage is headed for auction on Dec. 9. The bankruptcy court is looking to approve the sale by Dec. 17 and close it by Jan. 3, 2014. This is happening fast.Who will buy Advantage?
Apparently, there are three bidders at present. Get to know this name: Catalyst Capital Group. Catalyst is a Toronto-based private equity investment firm that has emerged as Advantage’s “debtor-in-possession” (DIP) financier. Catalyst has been approved by the court to provide up to $46 million to keep Advantage afloat for now.
Catalyst calls itself “specialists in operational restructurings.” By becoming Advantage’s DIP financier, Catalyst has two cards to play. First, Catalyst has put itself in a position as the “stalking horse” bidder for Advantage, according to court documents filed yesterday. Apparently this $46 million (or less, depending on obligations) will be used as a “credit bid” for the company. As a stalking horse bidder, any other bidder must come in higher than Catalyst’s bid. And if another bid wins out, Catalyst gets paid a $3 million break-up fee.
Catalyst may want to buy Advantage to run it and eventually sell it, or it may take its tidy break-up fee and walk away. Could Hertz buy back Advantage?
There has been talk that Hertz has been in “advanced negotiations” as one of the bidders to get Advantage. Some in the investment community believe the Federal Trade Commission (FTC) would allow this sale, because it doesn’t traditionally scrutinize deals under $50 million, as is the case here.
However, according to court documents, a new deal must obtain the consent of the FTC on or before Dec. 17 — and fall “within the meaning of” the FTC’s final order on the Hertz/Dollar Thrifty merger. That consent decree ordered Hertz to divest of Advantage and other airport concessions. Under those terms, it appears unlikely Hertz would meet the anti-competitive test the FTC applied originally.Who is the third bidder?
At this point, we don’t know. Could Enterprise Holdings or Avis Budget Group step in? It would seem either of those two companies would have to go through the FTC’s scrutiny for anti-competitiveness market to market, similar to the original deal. Market-share issues abound.
What about Sixt, a foreign player with the resources and operational excellence of Hertz but without the issue of market dominance? Sixt is a premium car rental company acting like a discount brand in the U.S. for the moment — it doesn’t need another discount brand alongside it. Sixt may be able to take over those vacated Advantage airport locations under the Sixt brand. But if Sixt had the appetite to make such a big corporate push, you’d think it would have pushed harder this year to open more corporate airport stores, which it hasn’t done.
Remember when Richard Branson’s Virgin Group sent a “letter of interest” to the FTC in June regarding Advantage, as the FTC seemingly waivered on approving the Hertz deal? “Virgin Car Rental” — backed up by its world-class brand — is very intriguing, but we haven’t heard from Virgin since then.
We do know that the auction for Advantage will take place on Dec. 9, at which point this third bidder will emerge.Where is Macquarie Group in all this?
In the deal to place Advantage under new ownership after Hertz, Australian private equity firm Macquarie Group was to provide the financing needed while Franchise Services North America (FSNA) would operate Advantage. From public documents, it appears that Advantage was severely underfunded from the beginning of the Macquarie partnership.
It’s unlikely we’ll ever really know why Macquarie didn’t provide the resources to give Advantage a fighting chance. But to put it in perspective, Macquarie Group made $7 billion in 2012, while its initial stake in Advantage was $15 million. It can afford to walk away, especially to avoid being associated with the word “bankruptcy.”Will the Advantage brand survive?
This is uncertain at this point. The Advantage sale is proceeding as a “363 sale,” in which the new buyer will take the company free and clear of all liens. It’s an asset sale, which means the buyer would only take the parts it wants — and the prize is the airport contracts, under Advantage or another name. Really, it depends on how Catalyst Group proceeds.
What is ironic is that the FTC tried to engineer a solvent Advantage for competitive reasons. When the FTC made its final consent decree in July, you would think that the FTC would’ve sniffed out Advantage’s colossal problems. It didn’t, or at least it allowed the sale to go through. It didn’t take long for Advantage to fail. How will an Advantage bankruptcy and sale affect FSNA’s franchise operations?
Understanding that U-Save operators own their own businesses as franchisees, at this point, the bankruptcy won’t affect them. The bankruptcy is limited to a division (“Simply Wheelz”) of its parent company, FSNA. FSNA will use the Advantage sale to pay off creditors and move on.