Affinity to buy SK Rent-a-Car at $572 mn, more deals expected

Affinity Equity Partners is set to buy SK Rent-a-Car Co., South Korea’s No. 2 car leasing company, at some 800 billion won ($572 million), raising expectations that the leading Asian buyout fund manager, under new leadership, may resume acquisitions in the country after a three-year hiatus.

SK Networks Co., a unit of South Korea’s second-largest conglomerate SK Group, selected Affinity as a preferred bidder to sell a 100% stake in the car rental company with an estimated corporate value of around 3 trillion won, including its debts of 2 trillion won, people familiar with the matter said on Tuesday.

The private equity (PE) firm focusing on Asia-Pacific beat out competitors such as Glenwood Private Equity Co. and IMM Private Equity Inc. with a higher bid, according to the sources.

SK Networks plans to sign a memorandum of understanding with the Hong Kong-based investment firm for the sale.

SK Networks acquired a 42% stake in AJ Rent-a-Car for 300 billion won in 2019 and merged the company with its car rental business to create SK Rent-a-Car the following year.

The parent made SK Rent-a-Car a wholly owned unit to sell it following a public tender offer last year at 13,500 won per share and a swap of its treasury shares for a stake in the car rental company in January. For the tender offer, it estimated SK Rent-a-Car’s enterprise value at 600 billion won.

SK Rent-a-Car is SK Networks’ core unit as the subsidiary’s operating profit rose 28.3% to 122 billion won in 2023, about half of the parent’s profit, with sales up 12.5% to 1.4 trillion won.

TO TRANSFORM INTO AI-FOCUSED INVESTMENT FIRM

Despite the healthy earnings, SK Networks decided to sell the unit as part of its efforts to transform into an investment firm focusing on artificial intelligence, industry sources said.

SK Networks invested 25 billion won in domestic AI startup Upstage Co., which develops customer-specific solutions based on large language models (LLMs), in January. The company also took over a data management and solutions provider en-core Co.

SK Networks may seek more acquisitions of  AI-related companies with the SK Rent-a-Car sale proceeds, according to sources.

The deal is also expected to provide much-needed cash to SK Group, which has been attempting to sell non-core assets to improve its liquidity conditions dented by a series of takeovers when interest rates were low, the sources said.

SK Rent-a-Car reportedly failed to create synergy with the targeted companies in the group's investment portfolio such as Turo, the top peer-to-peer car-sharing company, and SK Square Co.'s subsidiary Tmap Mobility Co., South Korea’s leading GPS navigation app operator.

TO RESUME M&AS IN SOUTH KOREA

Affinity is likely to seek more acquisitions in South Korea after the SK Rent-a-Car deal, investment banking industry sources in Seoul said.

The takeover would be the PE firm’s first buyout since Partner Min Byung-chul, or Charles Min, became the head of its Seoul office last year upon the departure of its founding members including former Chairman Park Young-taeg and Managing Partner Lee Chul-joo.

Affinity, which sold South Korea’s Oriental Brewery with global PE giant KKR & Co. to Anheuser-Busch InBev in a legendary $5.8 billion deal in 2014, last acquired the country’s No. 2 food delivery platform Yogiyo with GS Retail Co. in 2021.

Affinity is dealing with some persistent headaches. It has suffered from the weak earnings of Lock&Lock Co., a plastic container maker it acquired in 2017. Meanwhile, it has yet to sell Burger King’s operations in South Korea and Japan.

Write to Jun-Ho Cha at chacha@hankyung.com
 
Jongwoo Cheon edited this article.