This is a developing story and will continued to be updated.
KAR Global has signed a definitive agreement to sell all of its ADESA physical auction business in the U.S. to Carvana for $2.2 billion.
The all-cash deal would include all auction sales, operations and staff at 56 ADESA U.S. vehicle logistics centers in the U.S.
Carvana would also have exclusive use of the ADESA.com marketplace in U.S.
Carvana said it has commited financing of up to $3.275 billion from JPMorgan Chase Bank N.A. and Citi.It plans to fund the purchase price and another $1 billion in improvements to the auction locations via commited debt financing.
The companies said approximately 4,500 current ADESA and KAR employees would move over to Carvana once the deal closes. That includes all field personnel supporting ADESA vehicle logistics centers in the U.S., plus corporate employees and select senior and executive leaders who primarily focus on the U.S. ADESA physical auciton business.
The latter includes ADESA’s U.S. president John Hammer, who will move over to Carvana once the deal closes. The ADESA brand will be retained by Carvana.
The deal is expected to close in the second quarter.
“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,” KAR chief executive Peter Kelly said 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.”
As part of the deal, KAR would be a technology partner to Carvana. It would support the ADESA.com digital markeplace as well as the Simulcast and Simulast+ technology behind in-lane virtual sales run by ADESA and independent physical auctions.
KAR will continue to operate its OPENLANE platform, as well as its digital dealer-to-dealer businesses. The latter includes BacklotCars and CARWAVE in the U.S., as well as TradeRev in Canada.
The ADESA Canada, ADESA UK and ADESA Europe businesses, along with KAR’s affiliated inspections, transportation and other services brands like AFC, will remain part of KAR.
“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 EBITDA growth rates, as well as higher gross profit and EBITDA margins.”
In a separate news release, Carvana said that when ADESA’s U.S. auction sites “are fully build out within Carvana’s production network,” 78% of the U.S. population would live within 100 miles of a Carvana inspection and reconditioning center.
Bringing ADESA’s existing and potential reconditioning capabilities into the fold allows for roughly 2 million additional to Carvana’s annual production.
“We are thrilled to welcome ADESA U.S. to the Carvana family. Together with Carvana’s existing operations, ADESA U.S.’s nationwide infrastructure network and robust, highly profitable business will accelerate Carvana’s progress toward becoming the largest and most profitable automotive retailer,” Carvana foudner and CEO Ernie Garcia said in the release.
“Over time, we will leverage our combined infrastructure and complementary expertise to deliver even better selection, better value, and faster delivery times to our retail customers while simultaneously raising the bar and providing more access and better experiences to our wholesale customers,” Garcia said.
Garcia added: “ADESA earned its place as a respected brand in our industry because of its dedicated team and robust operations.
“We have long admired ADESA, having come to appreciate their approach as a customer for many years. We look forward to joining forces and continuing on the path of delivering the best customer offering for both retail and wholesale customers.”
Hammer, the ADESA president, added: “ADESA and Carvana are committed to ensuring a smooth, seamless transition for the ADESA U.S. physical auction customers.
“We look forward to bringing our innovative teams together and combining the power of our physical auction and retail capabilities to better serve buyers, sellers and consumers across the automotive industry,” Hammer said.
Auto Remarketing will have more details and continue to update this story.