Car rental companies are similar to financial services companies. Buying cars with borrowed money, renting them out, and selling them to used car dealers is like managing the borrowed money and collecting it back.
But Min Byung-chul, head of Affinity Equity Partners’ South Korea business, defines the car rental business broadly: It provides services throughout the entire life cycle of a car, from launch to scrapping.
“The core of Affinity’s value creation strategy for SK Rent-a-Car is to transform car rental services from a simple financial business to a management service across the entire life cycle of a car,” said Min, who is also known by his English name Charles Min.
In June, Affinity bought SK Rent-a-Car, South Korea’s second-largest car leasing company, from SK Networks Co. for 820 billion won ($615 million).
The acquisition was the private equity firm’s first since Partner Min took over as head of the Seoul office last year after founding members, including former Chairman Park Young-taeg and Managing Partner Lee Chul-joo, left the firm.
In 2014, Min led Affinity’s bid for Lotte Rental Co., South Korea’s leading car rental company, but the company lost out to retail giant Lotte Group, which acquired KT Rental for 1.2 trillion won the following year.
But Min never gave up his pursuit of car rentals. He had offered to buy SK Rent-a-Car before it entered the market. His talks with SK Networks to buy the car rental division had stalled. But the deal was finally done.
GROWTH POTENTIAL
Affinity Equity is betting big on the growth potential of the car rental business.
With the high proliferation of automobiles in South Korea, cars are no longer something to own. Like smartphones, drivers are getting used to replacing their cars with new ones.
They also prefer long-term rental to purchasing a car with installment payments.
In addition, the private equity firm believes that the car rental business will grow beyond the traditional business model of renting, returning and selling to used car dealers.
SK Rent-a-Car could take care of customer service for the cars it rents, collect and manage data about its customers and their driving behavior, and also offer used car rentals without outsourcing them. Last year, the company entered the market for certified used cars.
In addition, the company could replace its customers’ cars with new models every six months or a year. On weekends, its corporate customers could rent out their cars that are sitting unused in parking lots to make money.
To expand SK Rent-a-Car’s business horizons, Affinity aims to acquire after-sales service companies and used car trading platforms instead of chasing small and medium-sized car rental companies.
In the short term, a spin-off from SK Group could lead to a downgrade of the company’s credit rating and thus higher financing costs, while at the same time losing related customers of the country’s second-largest conglomerate.
But Affinity ignores such concerns. Rather, the separation from the corporate group would improve operational efficiency. The company could outsource some activities to sister companies it relied on at reasonable prices.
SK Rent-a-Car was also able to venture more boldly into new business areas that were difficult to realize in a bureaucratic organization.
Founded in 1998, Affinity Equity manages approximately $14 billion in 11 countries in the Asia-Pacific region.
Its portfolio companies in South Korea include Serveone Co., a product procurement and maintenance services provider, Lock&Lock Co., a food container manufacturer, and Burger King’s operations in South Korea and Japan.
In 2014, Affinity and KKR & Co. together received net proceeds of approximately $4 billion from the $5.8 billion sale of South Korea’s Oriental Brewery to Anheuse-Busch InBev, the most lucrative exit deal in the South Korean private equity industry.
Write to Jong Kwan Park at [email protected]
Yeonhee Kim edited this article
