Warburg Pincus joins $250m round for China chauffeured car service
Warburg Pincus and Legend Capital are participating alongside Chinese car hire firm China Auto Rental (CAR) in a $250 million investment in Ucar, a China-based chauffeured car service provider.
CAR, which is backed by Warburg Pincus and Legend Holdings and went public in Hong Kong last year, said in a filing that it will subscribe to 2.5 million Series A preferred shares in Ucar for a total consideration of $125 million. It will get a 10% stake in the company. The other investors will contribute the remaining half of the round.
The investment follows an announcement by CAR in January that it had entered into a co-branding arrangement with Ucar. This included an agreement to provide vehicles to Ucar and a commitment that CAR would have first right of refusal to participate in any funding rounds for the smaller company.
The wife of Charles Lu, chairman and CEO of CAR, holds a 28% stake in Ucar through Haode Investment. Eastrock Capital Partners Fund I, which is 38%-owned by Lu's nephew, has a 30% interest in Ucar, while the rest of the company is held by independent third parties. Haode also has a 12.41% stake in CAR.
Ucar now provides chauffeur services in 60 Chinese cities under the Ucar Shenzhou Zhuanche brand. The business model differs from those of other companies in that it does not rely on unlicensed private cars and crowd-sourced drivers. This means Ucar can vet drivers, ensure vehicles are in good condition, and offer a safe and professional service. It posted a net loss of RMB38.2 million ($6.2 million) last year.
China's taxi-booking space is dominated by digital platforms Didi Dache and Kuaidi Dache, both of which received substantial private backing and announced a merger earlier this year. They have expanded into private car booking services, offering rides in Audi and Mercedes-Benz vehicles to high-end customers. Uber also now provides a variety of services in China.
Didi-Kuaidi and Uber operate under a zero-fleet model and in order to provide premium services, they usually form partnerships with asset-heavy car rental services. With Ucar, CAR is essentially moving in the opposite direction but targeting the same premium market.
"Our investment in Ucar will not only create significant business synergies, but will also bring us one step closer to executing our strategy and realizing our vision. We will continue to enhance customer experience through big-data and O2O [online-to-offline] innovations, build up China's leading auto mobility service platform and promote the smart travel ecosystem in China," said Lu in a statement.
China's second-largest car rental provider after CAR, eHi Car Services, has similar aspirations. It invested $25 million in Kuaidi last year, ahead of the merger with Didi, and agreed to make its premium car services available through the Kuadi platform. EHi, which went public in the US last year, counts Crawford Group, parent company of Enterprise Rent-A-Car and National Car Rental, among its backers.
CAR received RMB14.5 million ($2.3 million) from Legend Capital in 2010 and the following year Legend Holdings made a strategic investment of approximately RMB207.8 million. After a US IPO was abandoned in 2012, Warburg Pincus committed $200 million to CAR and Hertz subsequently came in with a $100 million investment.
CAR raised $467 million in its Hong Kong IPO in September 2014. In May, Warburg Pincus completed a partial exit, selling $401 million worth of shares and reducing its stake from 18% to around 11%.
The company has a fleet of 63,522 vehicles and 723 directly operated service locations in all of China's provinces. It posted revenue of RMB3.5 billion for the year ended December 2014, with net profit coming to RMB436 million. In 2013, revenue was RMB2.7 billion, with a net loss of RMB223 million.
Warburg Pincus' other interests in China's O2O auto services space include second-hand car-trading platform Uxin, which is also backed by KKR, and designated driver service eDaijia.
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