The Daily Download: Carvana Buys ADESA
Steve Greenfield of Automotive Ventures highlights the technology deals of the day in this segment of the Daily Download.
Automotive Ventures is the resource for automotive technology entrepreneurs and financial and strategic acquirers. The company, founded in 2014, offers fundraising, growth strategy, and transaction guidance.
Today we have a massive deal in the used-vehicle space as Carvana has reached an agreement to acquire KAR Global’s ADESA U.S. physical auction business. The all-cash transaction is valued at $2.2 billion dollars 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 will allow KAR Global to effectively divest their physical auction business in the U.S. and focus on its digital marketplaces. Proceeds of the transaction will be utilized to reduce KAR's corporate debt.
The Wholesale auction segment has been incredibly hot over the past two years, with Accu-Trade recently selling to Cars.com for $65 million dollars + $63 millionin additional performance-based earnouts, BackLot Cars selling to KAR Global for $425 million dollars, CarWave selling to KAR Global for $450 million dollars, and XLerate Group selling to Brightstar Capital Partners and then acquiring America's Auto Auction.
Carvana struck a deal with Manheim back in 2020 to power their CarvanaAccess wholesale platform. I presume that relationship won’t continue under this new deal.
Carvana wholesales about 200 thousand units per year currently, which are mostly trade-ins that don’t fit the profile of the type of transactions they sell retail. Peter Kelly, CEO of KAR Global stated that "This transaction will allow KAR Global to focus their investments and energy on higher growth, higher-margin digital marketplaces and on delivering the most strategic solutions to their customers. By simplifying their business, he says KAR Global is better positioned to lead and win in the fastest-growing segments of the industry."
Under the agreement, KAR Global 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 the majority of independent auctions today. KAR will continue to operate its OPENLANE platform that supports more than 40 private label programs representing approximately 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.
KAR Global will reduce their headcount by approximately 50% while also paying down the majority of their balance sheet debt. Approximately 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 expected to close in the second quarter of 2022.
This is a very interesting strategic move for Carvana, and I’ll be interested to hear over the next week how ADESA’s dealer customers react.