KAR Global Sells ADESA Unit to Carvana as it Pursues Digital Pivot

KAR Global (NYSE: KAR) has reached a definitive agreement pursuant to which Carvana will acquire the company’s ADESA U.S. physical auction business, the companies announced Feb. 24.

The all-cash transaction is valued at $2.2 billion and includes all auction sales, operations and staff at 56 ADESA U.S. vehicle logistics centers and exclusive use of the ADESA.com marketplace in the U.S. The agreement is closely aligned with KAR’s digital strategy, and will allow KAR to focus on its portfolio of industry-leading digital marketplaces. Proceeds of the transaction will be used to reduce KAR’s corporate debt.

“This transaction firmly positions us as the premier digital marketplace provider for wholesale used vehicles,” said Peter Kelly, CEO of KAR Global, in a news release. “While off-premise sales have increased over the past decade and represent over 50% of our vehicle sales today, we believe we are still in the early stages of this industry evolution, and the trends are rapidly gaining momentum. Digital marketplaces provide low cost, highly efficient venues for our sellers and buyers to transact, and our leading digital brands, platforms and technology position us well to grow as digital penetration increases. This transaction will allow us to focus our investments and energy on those higher growth, higher margin digital marketplaces and on delivering the most strategic solutions to our customers. By simplifying our business, we are better positioned to lead and win in the fastest growing segments of this industry.”

Under the agreement, KAR will serve as a technology partner to Carvana, supporting the ADESA.com digital marketplace and the Simulcast and Simulcast+ technology that powers in-lane virtual sales for ADESA and most independent auctions today. KAR will continue to operate its OPENLANE platform that supports more than 40 private label programs representing about 80% of North America’s off-lease inventory.

KAR will also continue operating its rapidly growing digital dealer-to-dealer businesses — BacklotCars and CARWAVE in the U.S. and TradeRev in Canada — all of which experienced double-digit growth in 2021. In addition, the company will retain its ADESA Canada, ADESA U.K. and ADESA Europe businesses as well as its affiliated inspections, transportation and other services brands, including leading floorplan solutions provider AFC.

“This transaction will enable a leaner, more nimble operating model and faster long-term growth rate at KAR,” Kelly said. “We believe the transaction will reduce our 2022 Adjusted EBITDA by about $100 million on an annual basis — net of the contribution from the commercial agreement entered into with Carvana as part of this transaction. However, we will reduce our headcount by about 50% while also paying down most of our balance sheet debt. We expect these savings, when combined with our investments and our focus on higher growth platforms, will deliver higher revenue and Adjusted EBITDA growth rates, as well as higher gross profit and Adjusted EBITDA margins.”

About 4,500 current ADESA and KAR employees will transition to Carvana at the closing of the transaction. This will include all field personnel supporting the ADESA U.S. vehicle logistics centers as well as corporate employees and select senior and executive leaders who are primarily focused on the ADESA U.S. physical auction business.

The transaction is subject to customary closing conditions, and is expected to close in the second quarter of 2022, with the 30-day waiting period under the HSR Act having expired on Feb. 23. The transaction has been approved by the boards of directors of both KAR and Carvana.

Originally posted on Vehicle Remarketing