Deal focus: Ucar appeals to classy car bookers

This explains the move by certain industry participants into premium chauffeured car services, which address customers' safety concerns directly. The likes of Ucar, another ride-hailing app, employs its own drivers and rents its own cars rather than rely on crowd-sourcing drivers who provide their personal vehicles.

"They actually explicitly promise to the customers that they will guarantee drivers' background and qualifications, as well as vehicle conditions," says Emily Paau, director of investor relations at CAR Inc., the country's largest car hire firm. "They also track drivers' behavior and promise the customer to protect their privacy."

CAR has a longstanding relationship with Ucar; family members of CAR's chairman and CEO Charles Lu hold a majority of shares in the smaller company, and CAR agreed earlier this year to rent its high-end vehicles to Ucar, which now operates in 60 cities, through a co-branding arrangement. Now CAR has joined its investors Warburg Pincus and Legend Holdings to invest $250 million in Ucar's Series A round. The investment provided participants with a 20% stake, of which 10% will go to CAR.

The arrangement provides the participants with a number of benefits; Ucar, which has been seeking to diversify its shareholding structure, will have a broader base of investors, while CAR can continue to pursue the synergy that it enjoys through its partnership with the smaller company. "They rent cars from us long-term, from three years to five years, and also they rent cars from us during the weekdays when our utilization rates are relatively low," says Paau.

For Warburg Pincus, which recently part-exited its stake in Hong Kong-listed CAR, the deal is an opportunity to remain connected to China's auto booking ecosystem. While the PE firm has been relatively hands-off at CAR, there is the potential for strategic support. For example, in the early days Legend offered its sponsorship to help CAR qualify for bank loans.

Other companies pursuing this business model include eHi Car Services, China's second-largest automotive rental service. It invested $25 million in Kuaidi Dache last year (the company has since announced a merger with Didi Dache) and has made its vehicles available through Kuaidi's platform. However, despite these inroads, Ucar believes its focus on the high-end segment gives it an advantage over more diversified competitors.

"Although there is some overlap of their business space, because of the difference in service quality, and also better drivers, we believe that Ucar's customers are more to high-end," says Paau.

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• Topics
• Greater China
• Expansion
• Technology
• Venture
• China
• Transportation
• Warburg Pincus Asia
• TMT
• Growth capital