Private Equity Affinity Becomes Major Shareholder of SK Rent-a-Car and Lotte Rental
As private equity firm Affinity Equity Partners was selected as the acquisition candidate for Lotte Rental, the number one player in the rental car industry, attention is focused on how the market structure will change in the future. Affinity previously acquired the second-largest operator, SK Rent-a-Car, in August this year. With this acquisition, Affinity has become a giant operator occupying about one-third of the domestic rental car market.
On the 6th, Lotte announced that it had signed a binding memorandum of understanding with Affinity for the sale of management rights shares of Lotte Rental. The shares to be transacted this time amount to 56.2%, worth approximately 1.6 trillion won. The deal is understood to have been made as the interests of Lotte, which is restructuring non-core businesses at the group level, and Affinity, which has been increasing its market dominance by acquiring rental car companies recently, aligned.
If this deal is finalized, Affinity will become the owner of the first and second largest rental car companies in Korea. According to data from the Korea Car Rental Business Association Federation, Lotte Rental had 257,098 authorized vehicles as of the third quarter of this year, with a market share of about 20.8%, making it the industry leader. The second place is SK Rent-a-Car with about 15.7% (194,782 vehicles). Simply combined, Affinity will control more than one-third of the domestic rental car market.
Most of the companies ranked third and below in the rental car market are finance-focused companies such as Hyundai Capital and Hana Capital, mainly operating long-term rental businesses. Lotte Rental operates rental businesses including both long- and short-term rentals, as well as used car sales and rentals of non-automotive devices such as communication equipment.
The rental car market has grown rapidly in recent years as vehicle usage patterns have changed. With a stronger tendency to focus on usage rather than ownership, it has become common to rent cars through specialized companies on a one- to two-year basis and frequently change vehicles. However, growth has recently slowed. Due to interest rate hikes, rental car operators are feeling the burden of vehicle ownership. The short-term rental car business is characterized by many small and medium-sized operators, fierce competition, and low profitability. The short-term rental car market is also affected by the popularity of car-sharing services, especially among younger generations.
Since the basic profit structure of the rental car business is oriented toward long-term rentals for corporations, there is room for economies of scale to operate. Affinity can exert buying power in vehicle purchases and is likely to have a competitive advantage in sales targeting corporations. Due to the large volume, it is also advantageous when selling used cars. A significant portion of the profits of large rental car operators comes from the sale of rental cars.
For Affinity, it is expected that they will focus on creating synergy between the two companies to enhance corporate value. According to Lotte Group, even after this acquisition, Affinity has promised to guarantee employment for Lotte Rental employees, operate a separate corporation, and allow brand usage for three years. This implies that after three years, a merger or brand integration between the two companies may be pursued.
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