Carvana to Acquire Kar Global’s ADESA U.S. Physical auction Business for USD 2.2 Billion

Feb 25, 2022 By MarketDepth

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KAR Auction Services, Inc., KAR Global (NYSE: KAR) has reached a definitive agreement where Carvana will acquire the company’s ADESA U.S. physical auction business.  The all-cash transaction is valued at USD 2.2 Billion and includes all auction sales, operations and staff at 56 ADESA U.S. vehicle logistics centers and exclusive use of the marketplace within the United States.  The agreement is in line with KAR’s digital strategy and will allow KAR to focus on its portfolio of digital marketplaces.  The transaction will be utilized to reduce KAR’s corporate debt.  “KAR has always been a leader in the digital transformation of remarketing, and this transaction firmly positions us as the premier digital marketplace provider for wholesale used vehicles,” said Peter Kelly, CEO of KAR Global. “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 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.”

Lowering EBITDA

“This transaction will enable a leaner, more nimble operating model and faster long-term growth rate at KAR,” said Kelly. “We believe the transaction will reduce our 2022 Adjusted EBITDA by approximately $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 approximately 50% while also paying down the majority 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.”  This transaction is subject to customary closing conditions and is expected to close within the second quarter of 2022.  The transaction has been approved by both company’s board of directors.