This undated photo shows Lotte Rent-a-Car's Seoul Station branch. Courtesy of Lotte Rental

Affinity Equity Partners, a Hong Kong-based private equity firm, is drawing keen attention in Korea's car rental industry following its acquisitions of the No. 1 and No. 2 players — Lotte Rental and SK Rent-a-Car.

While various speculations about Affinity's future strategy are being raised, some predict that the global private equity firm may leverage its high market share to initiate price increases.

In August, Affinity acquired 100 percent of SK Rent-a-Car shares held by SK Networks for 820 billion won ($570 million).

Then, on Dec. 6, it signed a binding memorandum of understanding with Lotte Group to acquire a 56.2 percent stake in Lotte Rental for 1.6 trillion won.

As a result, Affinity has brought both Lotte Rental with a market share of 20.8 percent and SK Rent-a-Car with a market share of 15.7 percent — the first and second largest players in the industry — under its umbrella, achieving a combined market share of 36.5 percent and emerging as a major player in Korea's car rental market.

Industry insiders anticipate that Affinity will, among others, employ a “bolt-on” strategy by acquiring similar companies within the sector to achieve economies of scale, strengthen market dominance and enhance synergies.

Lotte Rental, which owns Green Car, the second-largest player in the car-sharing industry, is also the second-largest shareholder of the market leader, Socar.

This is leading to speculation that Lotte Rental, under Affinity's majority ownership, might pursue the acquisition of Socar or target K Car, the leading used car trading platform, for expansion.

“Affinity's ownership of both Lotte Rental and SK Rent-a-Car positions it well to leverage a bolt-on strategy, enabling significant synergy creation between the two companies,” SK Securities analyst Yoon Hyuck-jin said.

SK Rent-a-Car's certified used car purchasing center in Hwaseong, Gyeonggi Province / Courtesy of SK Rent-a-Car

The recent report issued by the brokerage house predicted that Lotte Rental's stock price will trend upward in the long term alongside fundamental improvements, raising the target price to 49,000 won per share. Based on the current price of 33,500 won, this represents a potential upside of 46.9 percent.

What draws attention to this report is not just the raised target price but also its estimation of the potential tender offer price three years from now. The report projected the tender offer price at 96,470 won, assuming a buyout scenario in three years.

This projection aligns with anticipation that Affinity may initiate a tender offer for the shares held by Lotte Rental's general shareholders within the next few years, potentially leading to a voluntary delisting of the company.

Following the potential delisting, Lotte Rental and SK Rent-a-Car could merge, consolidating their operations under a single entity. In this scenario, Affinity might leverage its dominant market share in the car rental industry to raise service prices.

The private equity firm's higher-than-expected bid during the acquisition of Lotte Rental further supports these assumptions.

While Lotte Rental's market capitalization stands at approximately 1.2 trillion won, Affinity valued the company at 2.8 trillion won for a 100 percent stake, acquiring 56.2 percent of the shares for 1.6 trillion won.

Min Byung-chul, also known as Charles Min, head of Affinity Equity Partners in Korea, said he views the car rental business sector as one with high growth and expansion potential.

Min said in a recent interview with a local newspaper that they aim to transform Lotte Rental and SK Rent-a-Car into mobility service companies that go beyond traditional car rental operations.