Korea's leading rental car company, Lotte Rental, is being sold to a Hong Kong private equity fund, raising early concerns about an exit among company insiders and outsiders. While the medium to long-term outlook for the domestic rental car market is positive, there are analyses suggesting that due to the high valuation, restructuring pressures will increase.
On the 10th, industry sources reported that Affinity Equity Partners plans to acquire a 56.2% equity stake in Lotte Rental for 77,115 won per share, totaling about 1.6 trillion won. On the 9th, Lotte Rental's closing price was 29,550 won, with a total market capitalization of 1.08 trillion won.
The market, as well as company insiders, have noted that the valuation for this merger and acquisition (M&A) is somewhat high. Private equity funds need to sell their equity again in the future to recover their investment, and failure to do so in time is expected to increase pressures for cost reductions and restructuring among members.
Affinity has valued Lotte Rental at 2.8 trillion won. When applying the valuation from the acquisition of SK Rent-a-Car from SK Networks in August to Lotte Rental, it would be estimated at 2.3 trillion to 2.5 trillion won; however, since Lotte Rental is the top rental car company in the country, a premium was likely added. Lotte Rental has 254,000 approved rental cars, while SK Rent-a-Car has 194,000.
The labor unions of Lotte Rental and Lotte Autoever have formed a coalition called the Sales Countermeasures Committee to oppose the sale. The committee stated, “Enterprises acquired by Affinity have caused serious employment instability due to outsourcing, voluntary resignations, and layoffs. If Lotte Rental is acquired, it will lead to mergers, restructuring, wage cuts, and dividends, ultimately realizing capital gains through a resale.”
With Affinity's acquisition of Lotte Rental following SK Rent-a-Car, it is expected that the two companies will seek synergies. The policy is to operate Lotte Rental and SK Rent-a-Car as separate entities for the next three years. In the market, after this period, plans are being discussed to publicly buy Lotte Rental's equity to delist and then merge the two companies.
The outlook for the domestic rental car market is positive. According to Hana Securities, the size of the domestic rental market was 8.5 trillion won last year and is expected to expand to 10.4 trillion won by 2026.