[Edaily Marketin, Reporter Hur Jieun ] The top two players in the domestic car rental market have both been acquired by private equity fund (PEF) managers. With Texas Pacific Group (TPG) making a surprise acquisition of industry leader LOTTE rental, the private equity-led restructuring of the car rental industry appears to be gaining momentum, alongside Affinity Equity Partners, which previously acquired SK Rent-a-Car.

According to investment banking (IB) industry sources on the 15th, Hotel Lotte and Busan Lotte Hotel signed a share purchase agreement (SPA) on the 11th to sell their 61.17% stake in LOTTE rental(089860) to Lexicon Korea Holdco, a special purpose company (SPC) established by TPG. The sale price totals 1.3105 trillion won. With the major shareholder of the nation’s top car rental company—following SK Rent-a-Car, the second-largest player—now shifting to a private equity fund, leadership in the domestic car rental market is rapidly shifting from large conglomerates to global private equity funds.

Stable Cash Flow and Tangible Assets… An Optimized Model for “Acquisition Financing”

The reason private equity funds are successively injecting large amounts of capital into the car rental industry lies in its predictable and stable cash flow. The car rental business—particularly long-term rentals and fleet (corporate rental) services—generates regular monthly lease and rental income based on contracts spanning 3 to 5 years. This structure is largely unaffected by economic fluctuations and offers excellent cash generation capabilities.

These characteristics of the car rental business align well with the nature of private equity funds, which actively utilize acquisition financing during mergers and acquisitions (M&A). This is because the fixed monthly cash inflows not only allow for the stable repayment of acquisition financing interest but also provide a steady source of funds for dividends.

The vehicles owned by car rental companies are also an attractive asset with clear collateral value. The large fleets of rental cars are tangible assets with well-defined market values. Based on this, it is easy to raise substantial funds at low interest rates, such as by issuing asset-backed securities (ABS). The business also features a virtuous cycle in which vehicles whose mandatory lease periods have ended can be sold on the used car market to generate secondary revenue.

Facilitates

Bolt-Ons and Synergies… Ensures Flexibility for Value Creation

The car rental industry is also ideally suited for implementing bolt-on acquisitions (additional acquisitions of companies in the same sector) and business diversification strategies favored by private equity funds. For example, while Affinity suffered a setback in 2015 when it was outbid by the Lotte Group in the acquisition of KTCorporation Rental (now LOTTE rental), it has consistently focused on car rental assets—succeeding in acquiring SK Rent-a-Car in August 2024 and subsequently pursuing the acquisition of LOTTE rental.

Analysts note that strategic synergies also played a role in TPG’s acquisition of LOTTE rental. Given that TPG is the second-largest shareholder of Kakao Mobility, holding approximately 14% of its shares, business synergies between LOTTE rental and Kakao Mobility are also anticipated in the future. There is ample room for value creation across the entire mobility ecosystem, including integration with short-term car rentals and car-sharing services, auto leasing, used car exports and auction house operations, and electric vehicle (EV) charging infrastructure.

An industry insider stated, “The car rental business is an ideal Daesang for structuring acquisition financing thanks to its stable cash flow and clear asset value,” adding, “Car rental companies that have broken free from the shadow of large conglomerates are poised to navigate a period of upheaval based on efficient capital raising from private equity funds and platform integration strategies.”